Europe

Why I’m a reluctant left-wing Brexiteer

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To be lumped-in with the Faragian “Little Englander” stereotype of those who are extremely sceptical about the European Union (and who, admittedly, probably comprise the vast majority of such sceptics) is an extremely uncomfortable position for a socialist to find himself in. The belief that all humans are inherently equal and that accidents of birth should not predestine someone make us fundamentally hostile to nationalist notions of exceptionalism (whether explicit or implicit). We comfort ourselves with the fact that ours was once the prevailing opinion within the political left, championed by heroes like Tony Benn, Michael Foot, and my own particular favourite, Peter Shore (pictured above).

In the coming weeks, I intend to provide a left-wing critique of the European Union. Subsequent blogs will consider the role of the European Court of Justice, in particular, in entrenching a neoliberal ideology into the legal orders of EU Members States; the one-way street of privatisation and marketisation that is driven by the EU; and the EU’s ideological choice to impose harsh austerity measures in response to the Eurozone crisis. All of these, I believe, demonstrate that the EU forces Member States to adhere to conservative ideology.

I have never been a rampant Europhile (as a student, I regarded the Young European Federalists with considerable disdain), and have always looked upon the European Union with a critical eye, believing that significant reform was necessary, but possible. Two parallel processes have led me to conclude that such reform is not possible. The first, is that in becoming more expert in European Union law, as a student and then a lecturer and writer, I have come to conclude that only the wholesale revision of the core principles of the Union could transform the EU from a neoliberal, free-market union to a social union. Second, recent events in Europe have convinced me that no will exists within EU institutions to make such a change and, indeed, the institutional support for neoliberal free-market capitalism has become more trenchant, and more harsh. Both of these I intend to deal with more comprehensively in the coming weeks.

In essence, there are two orders of complaint about the path that the European Union has taken.

The first order complaint is fairly ideologically neutral: that the European Union deprives the citizens of Member States of any direct say over matters that would usually be the subject of political discourse and division. Invariably, the main proponents of this argument appear to be drawn from the right. Complaints about the surrender of sovereignty can frequently be heard from the Conservative benches of the House of Commons, but seldom heard from the Labour benches.

The second order complaint is distinctly partisan, and from a left-wing perspective more worrisome: that having been deprived of any direct say over matters that would usually be the subject of political discourse and division, we have had imposed upon us a free-market ideology from which we are not at liberty to depart.

Though the preference for free-market ideology has been evident, in particular in judgements of the ECJ, since the early days of the EEC, the abandonment of the façade of ideological neutrality came during the 1980s. During this period we saw the entrenchment of a consensus that arose in the 1980s, when almost every Minister in the Council was drawn from the centre right. This consensus led to both the Single European Act and the Treaty of Maastricht. Unlike in domestic politics, that ideological choice cannot be undone by a majority, even a relatively sizable one. A similar uniformity of ideology as was evident in the 1980s would be necessary before a reversal of this ideological choice became possible, let alone likely. Such uniformity becomes less and less likely as more and more states are represented at the Council.

It is surprising, therefore, that so many on the Conservative benches are so antagonistic towards the European Union, relative to those on the Labour benches. If Conservatives don’t like that their political autonomy over the ideological direction of the country has been stripped away, they can at least console themselves with the fact that the levers of power of which they have been deprived are nonetheless being pulled in a manner that is, for the most part, to their pleasing. For example, John Major’s government actually quite liked the EU’s deficit-limitation rules because they represented the entrenchment of “good conservative values”. Arguably, John Major is the most successful Conservative Prime Minister in British history because he succeeded in entrenching conservative ideology in the British Constitution in a manner that no other politician in the history of the Kingdom had ever achieved.

By contrast, the more elitist elements of the left are quite at peace with not pulling the levers of power themselves provided that they are being pulled in a manner of their pleasing (the internationalisation of human rights is a good example thereof). But in EU Member States control over the levers of power has been surrendered and that power is being exercised in a decidedly right-wing manner. It is astonishing, therefore, that the Labour Party should be the strident defenders of the European Union, while it is the Conservatives who are amongst its harshest critics. The Labour Party has convinced itself that the European Union can be a vehicle for left-wing ideology when sixty years of evidence has shown that the opposite is, in fact, the case.

So my objection to the EU is not rooted in some intrinsic objection to the internationalisation of exercise of political power. My objection is that the internationalisation of that political power has been to entrench a conservative ideology to which I am fundamentally opposed, and to prohibit the governments of Member States from acting in any manner that departs from that ideology.

Sorry Stewart Hosie, it’s EU rules that make “tax dodging” so easy in the first place!

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European Court of JusticeAs sure as night turns to day, politicians love a bandwagon. Stewart Hosie is the latest to take a ride on the Google tax bandwagon, writing to European Commissioner Margrethe Vestager, asking that she conduct inquiries as to the propriety of the Corporation Tax settlement between HMRC and Google. To complain to the EU’s Competition Commissioner about companies shopping around for favourable tax treatment is quite incredible, given that it’s the EU treaties that makes Google’s alleged “tax dodging” possible in the first place! Not only that, the European Court of Justice (ECJ) has a long history of striking down national laws designed to combat tax avoidance.

Article 49 of the Treaty on the Functioning of the European Union (TFEU) prohibits restrictions upon freedom of establishment of nationals of Member States in the territory of another Member State including establishment of companies. Article 58 TFEU further prohibits any restrictions on the free movement of capital. National laws, including tax laws, which infringe upon those rights are, in almost all circumstances, not permitted. This has resulted in a number of laws designed to clampdown on tax avoidance being struck down by the ECJ.

The case of Sandoz concerned a requirement to pay Austrian stamp duty on loans. Austrian law contained a provision designed to prevent the arrangement of loans outside of Austria to avoid paying the tax. In his opinion on the case, Advocate General Leger took the view that

[t]he principle of the free movement of capital was introduced inter alia in order to enable Community nationals to enjoy the most favourable conditions for investing their capital available to them in any of the States which make up the Community.

The Court agreed with the Advocate General’s position, holding that the measure

deprives residents of a Member State of the possibility of benefiting from the absence of taxation which may be associated with loans obtained outside the national territory. Accordingly, such a measure is likely to deter such residents from obtaining loans from persons established in other Member States.

It follows that such legislation constitutes an obstacle to the movement of capital within the meaning of Article [63 TFEU].

If the very purpose of free movement is to ensure the allocation of resources to their most efficient location, it logically follows that measures which inhibit “shopping around” for the most favourable environment for those resources must surely be unlawful.

Of even greater relevance is the decision of the ECJ in Cadbury Schweppes. At issue in the case was the UK’s controlled foreign corporation (CFC) rules, designed to prevent companies from shifting profits outside of the UK to avoid tax, were compatible with the treaties. The Court in Cadbury Schweppes reiterated its earlier pronouncement in Barbier that

a Community national cannot be deprived of the right to rely on the provisions of the Treaty on the ground that he is profiting from tax advantages which are legally provided by the rules in force in a Member State other than his State of residence.

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the mere fact that a resident company establishes a secondary establishment, such as a subsidiary, in another Member State cannot set up a general presumption of tax evasion and justify a measure which compromises the exercise of a fundamental freedom guaranteed by the Treaty.

In other words, under EU Law the fact that a company shifts its operations to another EU state (such as Ireland or the Netherlands) to take advantage of more favourable tax treatment cannot be prohibited. Anti-avoidance rules may not be applied, even where there is an explicit intention to avoid tax, where the taxpayer nonetheless carries on genuine economic activities.

And herein lies the problem. For all we complain about “opacity” and “lack of transparency”, the reality is that the arrangements of Google, like so many other enterprises who have been the subject of much public and political ire, are not, in fact, artificial at all. At of end 2014 Apple and Google had 4,000 employees a piece in Ireland, and Facebook approximately 500.

The EU Treaties allow companies to locate anywhere in any Member State in order to take advantage of more favourable treatment. If you want to complain about laws that facilitate tax dodging, start with the EU Treaties.

Hold the phone! Why the EU roaming regulation might be bad for consumers

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MEPs and Eurocrats are engaging in some circular back-patting this week, after finally achieving their long-held objective of outlawing mobile roaming charges between EU Member States. From June 2017,

“roaming providers shall not levy any surcharge in addition to the domestic retail price on roaming customers in any Member State for any regulated roaming calls made or received, for any regulated roaming SMS messages sent and for any regulated data roaming services used, including MMS messages, nor any general charge to enable the terminal equipment or service to be used abroad”.

The regulation provides that charges can continue where the provider would otherwise make a loss as a consequence of this requirement, however that provider may only charge so much as to offset that loss. Providers can also subject roaming customers to “fair usage” policies, in order to prevent permanent roaming.

Most holidaymakers will have suffered the unpleasantness of “bill shock” at some point or other, so this, on the face of it, appears to be good news for consumers. However, the EU’s relentless pursuit of a single market in telecommunications may ultimately prove to be bad for consumers in the longer term.

Immediate effects

The immediate effect of this regulation will be good for consumers. This regulation has been a long-time coming, and the costs of implementing it in the short term have probably already been anticipated by operators. The lucrative receipts from roaming charges received by operators will be no-more, with consumers benefitting while network operators suffer. However, while I’ve never run a multi-national telecommunications company, I’m reasonably sure that if forced to choose between protecting profit margins or lowering prices, I’d probably opt for the profits. This is where the regulation could well prove to be bad news for consumers. It is likely that, while the short term implementation of these rules has been priced in, in the longer term operators will seek to return to normal profit levels – which in a saturated marketplace almost inevitably means higher prices.

Most mobile users don’t roam often. And while the more limited use of our devices, and higher charges, are something of an irritant when we go on holidays – most of us, these days, opt to go without roaming services and simply hop from wireless hotspot-to-hotspot. A very small minority of users, however, will travel often around the EU, and for a small number of those users (businessmen, journalists, or Eurocrats, for example) constant connectivity is a necessity and one which they (or their employers) have hitherto paid through the nose for.

From June 2017 we’ll now all receive a service for free which most of us have learned to cope without. For the British holidaymaker in France it means keeping up with Wimbledon on Twitter. Great news! But more of a nice added bonus than a necessity. However, for the high-financier jetting around European financial centres doing deals this is a huge boon – and doubtless the primary beneficiary of this move.

So if big business consumers are celebrating, and mobile operators are – long term – likely unaffected, how should the consumer feel about this regulation? Given that from June 2017 those of us who learn to limit our mobile usage while on holidays will effectively be cross-subsidising those who previously had no choice but to pay for it; we probably shouldn’t be celebrating too much.

Long term effects

This regulation represents another step towards the EU’s stated objective of a single EU market in telecommunications. Most rational, normal, people see the attainment of a single market as a good thing when it facilitates the attainment of other objectives – such as improved competition, lower prices, and higher standards. For the EU, however, the attainment of a single market is an a priori good. This is quite evident in the field of EU competition law. It has been apparent since the decision in Consten and Grundig that the objective of attaining a single market in the EU overrides competition law objectives. This contrasts starkly with the US courts’ consumer welfare approach, heavily influenced by the Chicago School – where vertical restraints (such as geographic restraints) are only unlawful where they harm consumer welfare.

However, large single markets are not always good for consumers. This is particularly the case in sectors where barriers to entry are high. In the mobile telecommunications sector, barriers to market entry are extremely high. The nature of the product means that access is restricted by licensing schemes. The capital outlays necessary (for infrastructure) are massive, while in 2013 operators paid £2.4 billion pounds for five licenses to operate 4G services in the UK. Though these figures are eyewatering, the barriers to entering individual telecommunications markets in the EU are as nothing when contemplating what these costs might be in a single EU mobile telecommunications market.

The fragmentation of the EU’s telecommunications market is arguably good for consumers. While four big players players exist – Vodafone (UK), Telefonica (Spain), Orange (France), and Telekom (Germany), with at least one of each of these four operating in most EU countries (save Scandinavia) – many markets have smaller operators who compete effectively with these large players.

Compare, for example, France and Germany. France has a marketplace with only one of the dominant four players (Orange) as well as two domestic-origin competitors (Bouygues and Iliad) and one Dutch competitor (Altice). In contrast, all three network operators in Germany (Telekom, O2, and Vodafone) are all drawn from the big players. A SIM-only plan from Bouygues in France with unlimited calls and texts, and 3GB data is priced at €19.99 per-month. With Telekom in Germany, a plan with unlimited calls and texts and 2GB data has a normal price of €39.95. These price patterns are replicated in other jurisdictions with similar levels of dominance by big players.

There is a marked difference in price between the marketplace in which there is competition from smaller operators than in the marketplace dominated by big players. Unfortunately for the consumer, the latter is the more likely outcome if the EU’s objective of a single EU-wide market in mobile telecommunications. The nature of the technology means that there is likely only spectrum capacity for around five network operators – with only large pan-European operators the only players with the capital and infrastructure necessary to operate. We need only look to the US for an illustration of a large single market in mobile telecommunications – where prices are considerably higher than in Europe, coverage is patchy, and technology, until fairly recently, lagged behind.

So in July 2017 British holidaymakers will follow Wimbledon on Twitter as they lie on the beach in Benidorm or sip on rosé wine in Brittany, and may even drink a toast to the European Union for making that day a little bit more enjoyable. However, in years to come, we may look back to when we had to beg, borrow, and steal wifi while abroad as the good old days.

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