Wednesday 26 June 2019

Brexit fudge reminds us that modern life relies on invisible infrastructures

The chances of a no-deal Brexit have lessened thanks to last Friday's EU-UK deal, but this threat has not gone away, writes Dan O'Brien

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Dan O'Brien

Dan O'Brien

Road, railways, reservoirs and pylons are in plain sight. The hard infrastructure of the modern world is visible to all. The soft infrastructure is invisible to most. Laws, regulations and treaties underpin how countries and the world work.

They are technical, legalistic (by definition), detailed and lengthy. They are the "software" that makes societies run smoothly. Without them, anarchy would replace order. But, like the software that makes your mobile phone work, only small numbers of people (usually quite nerdy types) understand how each strand of invisible infrastructure is designed and operated. Nobody understands them all.

How countries interact with each other in an increasingly internationalised world is governed by invisible infrastructure (most people, for instance, had never heard of "custom unions" until recently, even though Europe's version affects everyone who inhabits the continent in profound ways). It is not something that anyone can quickly comprehend, owing to its inherent complexity.

The sheer complexity of how countries trade with each other only came home to me when I worked for the European Commission and was involved in the negotiation of a trade deal. It was mind-numbing stuff. It is incredibly complex because converging on agreed frameworks for thousands of goods (and sometimes services), as happens when countries do trade deals, is very difficult.

Brexit is about divergence, or, as Brexiteers might put it, the freedom to diverge. But it is becoming increasingly clear to everyone, including to people who do not normally take an interest in cross-border invisible infrastructures, that for a large and highly complex economy to begin a process of divergence after so many connections have been made by hundreds of thousands of economic agents (individuals, businesses and others) is more than difficult. It may yet prove too difficult to engineer.

The events of last week were extraordinary even when measured against a lot of extraordinary happenings since the British voted for Brexit 18 months ago. The collapse of Brexit talks last Monday was followed by recrimination aplenty and a further polarisation of green/orange opinion on this island.

Thankfully, the week ended with an agreement which will allow European leaders to say on Thursday that "sufficient progress" has been made on the three core issues of phase one of the Brexit talks. That will allow the parties to move to the second stage of the talks in the new year.

Some progress was certainly made, but it took a giant fudge to achieve that. Central to the fudge was a sentence that is familiar in this country. One of the opening lines of the 15-page EU-UK deal was "nothing is agreed until everything is agreed".

"Nothing is agreed" means exactly that. All commitments in the following 15 pages are subject to this caveat.

But the chances that nothing will be agreed, resulting in a no-deal Brexit, have likely been lessened by all that has happened in recent weeks, thanks to the manner in which the complexity of the enterprise has been underscored so publicly. That, in turn, exposes past claims by pro-Brexit advocates in Britain that leaving the EU would be easy, costless and bring big benefits.

Two of the three issues in the first phase of the Brexit talks for which there are not binary outcomes - citizens' rights and the cost of Britain's commitments to the bloc - have moved a lot closer to being resolved. Together, these developments have also reduced the risk of a no-deal Brexit, which would be enormously costly and damaging.

The third issue is the border on this island. Unlike the other issues, the trade aspect of it is binary. This fact can be ignored or concealed temporarily, but a decision will eventually have to be taken. No hard decision has yet been taken on the matter.

To govern is to choose, goes the old saying. The same is true for international trade arrangements. It is still not clear that this is fully understood.

Last week, for instance, when the issue of how regulations might differ in the two jurisdictions on this island was raised, it was pointed out that Northern Ireland has different arrangements to the rest of UK on matters as diverse as abortion and taxes.

This is true but it does not mean that the regulatory issue can be fudged permanently. To illustrate this, consider Texas. It has stricter abortion laws than many other states in the US and residents pay no income tax to the state government in Austin.

But Texas is in the American customs unions. As such, the state cannot do its own trade deals with Mexico or any other country. It is also part of America's single market. That means that the state legislature cannot enact laws which cause any hindrance of commerce with other states.

The logic of the need to create this form of invisible infrastructure was long ago understood in the US. Article 1 of that country's constitution, a document that is almost a quarter of millennium old, gives the federal level of government the power to "regulate commerce with foreign Nations and among the states".

Some of the US supreme court's landmark decisions over the centuries have involved reining in states that have attempted to take measures contravening the principle of fully free interstate commerce

This comes of hard logic. For a customs union and single market to work, some competences must be centralised, most notably the setting of import taxes and the setting of product standards.

The European Union has been a customs union since the 1950s. That meant that the European Commission was given "exclusive competence" in eternal trade matters and all member countries have had to levy the same centrally agreed tariffs on imports coming in from outside the bloc.

In the 1990s, EU market integration was deepened further with the creation of the single market. At its core was regulatory convergence so that cross-border commerce could not be hindered by products made in one country being excluded from another on the basis that they did not meet local standards.

Over the decades, the EU's de facto supreme court in Luxembourg has, like its counterpart in Washington DC, made many of its landmark decisions in cases involving the upholding of free trade across borders.

Last Friday's EU-UK deal contains three contradictory statements which go against the hard logic of interstate commerce in Europe.

It reiterates that the United Kingdom will leave the two invisible infrastructures underpinning Europe's fully free trade - the customs union and the single market. Yet it also states that there will be no border on this island or in the Irish Sea.

These statements are logically inconsistent. Something will have to give when everything is agreed. Until then, nothing is agreed and nothing can be taken for granted.

Sunday Independent

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