Glass half-full

The key risk to the economy headlined in the Remain campaign was that our economy relies on freely trading in the Single Market and as membership of the single market requires freedom of movement of people, nothing can be done about concerns over migration without ruining the economy.

Now that ‘the people have spoken’ it seems that to reduce immigration they have said they are happy to take the hit to trade and consequently the risk of being Permanently Poorer. But must it turn out that way?

The Single Market seeks to guarantee within its area the free movement of goods, capital, services and people — the “four freedoms”. The Single Market is primarily a construction of and comprised of the European Union, but includes some other countries in Europe too. It says seeks to guarantee because it is still a work in progress and as the Commission itself notes

Many obstacles remain, however, in areas where integration is taking longer:
· fragmented national tax systems impede market integration and undermine efficiency
· separate national markets still exist for financial services, energy and transport

It’s interesting to note in passing that having different national tax systems is seen by the Commission as a barrier and obstacle! But the important thing is that even within the single market, there isn’t yet free movement of everything.

Four countries are in the European Free Trade Association (EFTA), Iceland, Liechenstein, Norway and Switzerland. To participate in the EU’s single market the first three of these are party to the Agreement on a European Economic Area (EEA) with the EU. But they are only in the single market to the extent that they have agreed to be, and critically (for them) agriculture and fisheries aren’t included. As far as free movement of people is concerned, the present agreement provides for this on essentially the same basis as that between EU member states under the EU Treaties. So workers can in theory freely circulate among the European Union member states and Iceland, Liechenstein and Norway. Separate bilateral agreements between the EU and Switzerland brings Switzerland into the single market and widens the area of free movement to include Switzerland. This picture should help make the position clear.

However, a key difference between the EU Treaties governing relationships between member states and the EEA agreement is that the latter allows for the unilateral application of emergency brakes at any time. This is fundamentally different from the EU arrangements, which only provide for an emergency brake on free movement of people in relation to arrivals from new member states during transitional periods after their initial joining. Thus the ‘emergency brake’ obtained by the UK as part of the pre-referendum renegotiation is not a brake on free movement at all, but a brake only on some benefit payments. And obviously this was only obtained through the agreement of all other Member States, and subject to subsequent approval by the European Parliament. It was quite beyond the UK’s powers to introduce a brake unilaterally even on benefit payments, nor to obtain at all a brake on free movement of people.

It has been quite correctly pointed out that this part of the EEA agreement does not give its members carte blanche to do as they like. Others can challenge the unilateral application of the emergency brake and even ‘retaliate’ if they so wish.

But the ability to do something and then meet challenges if they are made is fundamentally different from being unable to do anything unless and until everyone else agrees. Bear in mind too that in the agreement on a proposed new settlement for the UK following the renegotiation, the Commission explicitly stated that it accepted the UK was at present in an ‘emergency’ situation. Logically then, had the UK been in an EEA arrangement it could have introduced restrictions on free movement (so long as they were appropriate and proportionate) as soon as the ‘emergency’ had arisen and it would not have been challenged as the Commission would have accepted an emergency existed. That’s the first point.

The second is the less well-known matter that Liechenstein was granted a ‘temporary’ exception from the free movement rules altogether when it signed up in 1995. This allowed Liechenstein to impose strict limits on the numbers allowed to come to the country to live and to work, with a review after five years. That was over twenty years ago, and the temporary exception, while reviewed every five years, has been renewed every five years and remains in place to at least 2019. As the report in 2015 of the latest review says

In the five year period leading up to this latest review, the population had increased by ….. 3%. Nonetheless everyone agreed that the restrictions could be kept in place despite the fact that the demand for residence in Liechenstein is agreed to be due to favourable tax rules. It would have been an alternative perhaps to suggest that this is a problem of Liechenstein’s own making and that because different tax systems are a barrier to the Single Market (see above) if something has to give it should be Liechenstein’s tax system, not the fundamental freedom of movement.

What are the lessons from this?

  1. While the EEA agreement is an existing template, the Swiss are in the single market on the basis of direct bilateral agreements.
  2. Being in the single market doesn’t mean you can’t withhold key parts of your economy from it (e.g. farming and fishing)

3. The EEA agreement allows greater control over movement of people than the EU treaties.

4. Even within the EEA agreement, special arrangements can be negotiated.

This is not to suggest that the path to Brexit is not a very tricky thing, but to point out that the things that might be wanted by the UK in this specific area are not unprecedented, are in place at the moment, and for these reasons cannot be ruled out by the rest of the EU as impossible demands.

So planning on the basis that putting any proposals to restrict immigration on the negotiating table means taking a corresponding hit to trade is overly pessimistic. Indeed, even the existing EEA agreement would allow it to be said that we had ‘taken control of immigration’ simply by virtue of its emergency break provisions.

As in every negotiation, optimism and imagination are needed…