What type of Brexit suits Wales?

Soft Brexit vs Hard Brexit - the same process but different end results.
(Pic : buzzfeed.com)

I said I wouldn't return to Brexit until something concrete happens. Now that we have a timetable for the activation of Article 50 , a recent ministerial meeting involving the devolved administrations and hints at what sort of Brexit the UK Government will pursue, it's worth coming back to it again.

One of my favourite novels is Joseph Heller's Catch-22. Those of you who've read it will be familiar with the character Major Major Major Major. For those of you who aren't, he gives orders never to see anyone when he's in his office and only allows people in when he's gone. He makes an escape by jumping out of a flap and hiding in a ditch so he doesn't have to give orders to anyone, until one day the protagonist - Yossarian - flying tackles him.

The political approach to Brexit at UK level has improved somewhat but still resembles Major Major Major Major: deluded, authority based on a mix of pretense and panic, decided by people who've been promoted above their level of competence. 

What I intend to do with this post is set out some of the advantages and disadvantages of each of the five potential "Brexits" in a few key areas: trade, immigration & free movement, sovereignty, public finances, financial support/structural funding and "what Scotland might do"/constitutional stability.

Though we still have no idea what path the UK Government will choose for us, the hints are it's going to be a "Hard Brexit"; Plaid Cymru prefer a "Soft Brexit" and are implying EEA membership, while the Welsh Government want "tariff-free access to the single market", which implies support for anything except defaulting to WTO rules.

Each option still upholds the referendum result, but each has wildly different implications and there are plenty of Catch-22s. The problem has been that none of our betters have flatly come out and said which option(s) they support.

Although I'm probably missing a few things here, it should also give you an idea of just how complicated this is going to be and why you shouldn't take anyone's word for it when they say something with certainty....including myself.


Common Advantages & Disadvantages

The following will likely apply regardless of which Brexit option is taken. The obvious one - which is neither an advantage or disadvantage really - is that we'll no longer elect MEPs, so there'll be no more European elections in the UK.

Advantages

• Many policy areas will be repatriated, including: agriculture, fisheries, justice, environmental protection, common defence & security and VAT. Whether some of these powers will be devolved to Wales is up for question (though you would expect full devolution of agriculture, environmental and fisheries policies at the very least).
• UK and Welsh produce should still be eligible for geographically protected status as long as there's agreement with the EU.
• The UK would no longer be under the jurisdiction of the European Court of Justice (ECJ).

Disadvantages

• The UK would no longer have access to Common Agricultural and Fisheries Policy subsidies and payments. These would have to be replaced by the Welsh Government as both areas are devolved.
• The UK would no longer be a signatory to EU's 41 trade agreements with third party countries.
• West Wales & Valleys would lose access to all EU structural funding (i.e Objective One); this would either have to be replaced by the UK Government or come out of the Welsh budget.
• In the two scenarios that involve a continued UK contribution to the EU budget (EEA & EFTA), it's highly likely the UK will lose its rebate.

1. European Economic Area (EEA) Membership

The Norwegian Option
(Pic : aquaculturedirectory.co.uk)

Advantages

• Full access to the EU single market for goods on the same terms we currently have, meaning no tariffs would be applied to goods exported from Wales or the rest of the UK.
• Freedom of movement for UK citizens into the EU would continue.
• There is precedent for restrictions on migration/free movement being applied within the EEA (Liechtenstein) but it's unclear whether this would apply to larger member states.
• Current safety standards and quality controls for products sold and moved within the free trade area will continue (CE mark).
• UK citizens will still have access to free or reduced cost medical treatment via the European Health Insurance Card.
• Current UK contributions to the EU budget could fall by up to 20% (based on Norway's EU contributions). This could potentially save the UK £2.6billion a year (which presumably would have a knock on impact on the Welsh budget).
• The UK could sign EFTA trade agreements with 38 countries.
• As an EEA member, the UK would still have access to some EU programmes like Horizon 2020, Europol, Erasmus+, EU statistics and COSME.
• The financial contribution required to be an EEA/EFTA member is minuscule compared to the EU – probably in the tens of millions of pounds for the UK.
• Wales might be eligible for EEA economic development grants. It won't entirely make up for the loss of Objective One but it's something to consider in negotiations.
• For unionists, it's the option most likely to keep the UK together, with the Scottish electorate seemingly less likely to support independence if a "soft Brexit" (options 1 & 2 here) is pursued.

Disadvantages

• There's currently no EEA agreement on complete access for financial services, meaning some parts of the EU's single market would be off limits to UK companies. A future agreement could be reached though.
• The UK would have to apply EU law governing the four fundamental freedoms, which includes free movement of: goods, capital/money, services and people.
• As a result of the above, current immigration rules granting EU citizens unlimited access to the UK would still apply (unless, as said, the Liechtenstein exemption acts as a loophole).
• EU state aid rules will still apply, limiting government intervention in business.
• The UK would lose all voting rights on EU legislation despite still having to apply it.
• The UK would still have to pay into the EU, so although it could save £2.6billion, there would still be a contribution of at least £10-11billion (based on 2015's post-rebate budget contribution).
• The EFTA Court would have jurisdiction over matters relating to the EEA agreement.

2. European Free Trade Association (EFTA) Membership outside the EEA

Switzerland is currently outside the EEA/free trade area, but inside the EFTA.
(Pic : planetware.com)

Advantages

• The UK would have partial access to the EU single market, meaning most goods could be freely exported and imported to and from the EU without tariffs.
• There would be greater scope for negotiation with the EU on areas like free movement and free movement of services.
• Freedom of movement for UK citizens into the EU should continue.
• UK citizens will still have access to free or reduced cost medical treatment via the European Health Insurance Card.
• Current safety standards and quality controls for products sold and moved within the free trade area will continue (CE mark).
• Current UK contributions to the EU budget could fall by about 50% (based on Switzerland's EU contributions). This could potentially save up to £6.5billion a year (which presumably would have a knock on impact on the Welsh budget).
• The UK could sign EFTA trade agreements (which cover 38 countries).
• Subject to bilateral agreements, the UK will have partial access to some EU programmes like Horizon 2020, Europol, Erasmus+, EU statistics and COSME.
• The financial contribution required to be an EFTA member is minuscule compared to the EU – probably in the tens of millions of pounds for the UK.
• For unionists, this might be enough to satisfy Scotland and reduce the chances of a vote for independence in a second referendum.

Disadvantages

• Bilateral treaties would need to be agreed ensure the UK retains full access to the single market in areas such as financial services. This could take some time and won't be easy.
• Based on the Swiss example, a large part of EU law would still apply, including those laws relating to freedom of movement, which would retain unlimited access to the UK for EU citizens (unless, as said, the Liechtenstein exemption acts as a loophole).
• EU state aid rules will still apply, limiting government intervention in business.
• Although the UK would be able to participate in schemes like Horizon 2020, it almost certainly won't have any access to EU funding whilst outside the EEA.
• The UK would lose all voting rights on EU legislation despite still having to apply it.
• The UK would still have to contribute financially to the EU, so although it could save ~£6.5billion, it would still have to pay at least £6-7billion (based on 2015's post-rebate budget contribution).
• The EFTA Court would have jurisdiction over matters relating to the EFTA.

3. A UK-EU Customs Union

Turkey is currently in a customs union with the EU.
(Pic : destination360.com)

Advantages

• The UK and EU would be able to freely trade industrial goods with each other.
• The UK would not have to apply any laws relating to the four fundamental freedoms of the EU, which means immigration between UK and EU can be controlled.
• Current safety standards and quality controls for products sold and moved within the free trade area will continue (CE mark).
• Customs rules would be harmonised between the EU and UK, and as an we already have some experience of them this shouldn't add any extra bureaucracy.
• The UK would no longer have to make any financial contributions to the EU's budget, saving ~£13billion a year (based on the UK's 2015 post-rebate contribution).
• The UK would be free to negotiate its own free trade agreements with any nation state or trading bloc.
• There would be some public sector jobs created in customs and excise due to new custom check requirements. These heightened customs checks should make illegal immigration into the UK more difficult.
• UK courts would have the sole jurisdiction on nearly all legal matters.

Disadvantages

• Based on the Turkish example, restrictions remain on the free movement of agricultural produce/food, and there's no free access for financial services.
• UK-based financial service providers would lose their "banking passport" which could prompt them to downsize operations in the UK.
• UK citizens will no longer be eligible for free or reduced cost medical treatment via the European Health Insurance Card.
• It's highly likely some form of EU state aid rules will still apply, limiting government intervention in business.
• The UK would be unable to set its own tariffs (a tax applied at the point of export or import) as customs unions require harmonised/common external tariffs.
• Visa-free travel for UK citizens to the EU would need to be negotiated (as is happening with Turkey) and wouldn't be an automatic right.
• UK citizens living permanently in the EU will almost certainly require work permits to find a job.
• The UK would lose access to EU programmes like Horizon 2020, Erasmus+, COSME, EU statistics etc.
• Additional customs checks could cause delays at ports and airports.
• Some sort of customs checks would need to be introduced between Northern Ireland and the Republic, but I assume this can be negotiated within the Common Travel Area to minimise disruption.
• The UK would have to accept laws and judgements of the European Court of Justice relating to the customs union.
• For unionists, there would be a greater chance of Scotland voting for independence in a second referendum.

4. A Bilateral UK-EU Free Trade Agreement

A free trade agreement sounds easy, but certainly wouldn't be.
(Pic : caef.org.uk)

Advantages

• Absolutely everything would be on the table in a free trade agreement, including things like immigration.
• A free trade agreement that includes tariff-free trade of industrial goods, machinery and agricultural goods on similar terms to that we enjoy now could boost the Welsh economy, without the associated EU bureaucracy.
• The UK would be free to negotiate its own free trade agreements with any nation state or trading bloc – this could particularly benefit trade with Commonwealth nations and could, in the longer run, be worth as much to the UK economy as EU trade.
• The UK would not have to apply any laws relating to the four fundamental freedoms of the EU, which means immigration between UK and EU can be controlled.
• The UK would no longer have to make any financial contributions to the EU's budget, saving ~£13billion a year (based on the UK's 2015 post-rebate contribution).
• There would be some public sector jobs created in customs and excise due to new custom check requirements. These heightened customs checks should make illegal immigration into the UK more difficult.
• A free trade agreement shouldn't affect the UK-Irish border as much.
• UK courts would have the sole jurisdiction on nearly all legal matters.

Disadvantages

• Timescales: It could take a decade for a free trade agreement to be reached based on examples such as Canada (CETA)....and that deal has run into a spot of bother.
• Until a treaty is agreed, WTO rules would apply (I come to that next).
• Even with a free trade agreement, it's highly unlikely the EU will allow free access to the EU's financial service market for UK-based institutions, which could lead to downsizing.
• Unless free movement is on the table in negotiations (highly unlikely), UK citizens will be unable to freely move to the EU and will probably require work/residency permits and possibly tourist visas to visit the EU.
• UK citizens will no longer be eligible for free or reduced cost medical treatment via the European Health Insurance Card.
• Any agreement will probably have some measure of competition regulation similar to EU state aid rules, limiting government intervention in business.
• A free trade agreement would have to be ratified by all 27 EU member states (and some stateless nations, as we've seen recently in Wallonia) – even the "small and insignificant ones". Boris Johnson is Foreign Secretary.
• The UK currently lacks experienced trade negotiators as for the last 40 years it's been done by the EU on the UK's behalf; it's almost certain the EU will have the upper hand in any negotiations and could run rings around the UK.
• For unionists, there would be a greater chance of Scotland voting for independence in a second referendum if the terms of any free trade agreement are deemed unacceptable, or if Scotland is excluded from negotiations.
• Additional customs checks could cause delays at ports and airports, depending on what sort of free trade agreement is eventually ratified.

5. World Trade Organisation (WTO) Rules

(Pic : BBC)

Advantages

• Tariffs which discourage exports and imports could result in some extra manufacturing capacity being sought in the UK and boost sales of UK goods to UK consumers.
• The UK would not have to apply any laws relating to the four fundamental freedoms of the EU, which means immigration between UK and EU can be controlled.
• EU state aid rules will no longer apply, giving the Welsh Government greater ability to intervene in business. It could, for example, set up a Welsh flagcarrier airline or nationalise key industries like steel and the railways.
• The UK will have the power to apply its own safety and quality control standards.
• The UK would be able to negotiate free trade agreements with any single nation or trading bloc it wishes to do so.
• The UK would no longer have to make any financial contributions to the EU's budget, saving ~£13billion a year (based on the UK's 2015 post-rebate contribution).
• Extra customs regulations would create new (public sector) jobs in customs and excise and heightened customs checks should make illegal immigration into the UK more difficult.
• UK courts would have the sole jurisdiction on nearly all legal matters.

Disadvantages

• Tariffs would be applied to all goods going to and from the EU and EFTA. The WTO estimates the UK would have to apply £9billion worth of tariffs to imports and £5.5billion to exports – raising the cost of living for everyone.
• There's a risk the introduction of tariffs could encourage smuggling.
• Although EU state aid rules will no longer apply, the WTO has its own agreements prohibiting state subsidies relating to imports and exports (SCM Agreement).
• UK citizens would almost certainly lose the right to free movement to the EU and would probably have to apply for visas and work permits, possibly tourist visas.
• UK citizens will no longer be eligible for free or reduced cost medical treatment via the European Health Insurance Card.
• Tariffs and new quality controls/standards would increase paperwork for nearly all importing and exporting businesses, while the UK would need to recruit thousands of extra customs and excise bureaucrats and inspectors – the costs of which are unclear.
• UK-based financial service providers would lose their "banking passport" which could prompt them to downsize operations in the UK.
• Customs checks for pretty much everything that crosses the UK border would almost certainly cause serious delays at ports and airports.
• There's a very real possibility there would have to be a "hard border" – with manned crossing points – between Northern Ireland and the Republic of Ireland, even with the Common Travel Area.
• It's far more likely than any other scenario that if this option is pursued, Scotland would vote for independence in a second referendum and there would probably be serious rumblings in Wales too.
• Trade disputes would be settled via the WTO's Dispute Settlement Body – not the UK courts.