Make the EU work for us, not the other way round

Eurosceptics have the wrong idea, argues Alan Riley, as the country prepares to vote in this week's Euro elections
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The Independent Online

With the Westminster expenses row dominating the headlines, it is easy to forget that another election to another parliament is taking place next week. Yet that parliament, the EU's Strasbourg, has a huge effect on British prosperity. For a start, the EU Parliament has a big say in the rules governing the single market, where 50 per cent of British trade goes.

If the EU Parliament gets it wrong, we can really suffer. Take the draft hedge funds directive. The commission proposed legislation a couple of weeks ago to control hedge funds. About 80 per cent of the European hedge fund business is in Britain. So if the EU gets it wrong, what is basically a British industry will be done for, along with the jobs and tax revenues it brings in. Some regulation is required, but what the EU is proposing is a red tape fest, despite the fact that it as not the hedge funds that sank the financial sector but the banks. Reading the draft hedge fund directive, it is difficult to get away from the conclusion that some parts of the EU want to have a pop at the Anglo-Saxons while they are down.

One approach to such EU over-regulation is to go into a Eurosceptic rant. But there are good reasons why we don't want to leave the EU. Because of the vital nature of much legislation to British interests, Britain needs to get a grip on the EU, recognise what works and what does not, and then build alliances and run a campaign to remodel the EU so that it works better and more in our interests.

But first we have to recognise why the EU is of value to us. It is relatively easy to demonstrate that the EU adds to British power and prosperity. EU membership has increased our trade power in the world, increased massively the size of our domestic market and provided us with a global platform to maintain our influence.

First, the trade power. Between 1945 and January 1973, when we joined the then EEC, Britain had declining trade power. If the US restricted access to its market for British goods or services we could not do much about it. Since we joined, because external trade negotiations are run by the European Commission on behalf of all member states, it is much harder for the US to discriminate in trade against Britain (or any other member state). When the US Congress tried to impose discriminatory taxes against European goods or foreign steel imports, the threat of huge retaliatory tariffs and discrimination against US goods in the much larger EU single market saw the Americans abandon trade discrimination. Being part of the EU's collective trade power demonstrates that the EU can provide the UK with a net increase in national power.

This trade power is more important now. In 1973 we had only one major trading partner, the US. Now we have three, the US, China and India. In ensuring market access for British goods and services, and in trade negotiations, Britain would never be able to get as good access on its own as it would as part of the EU. Nor would it be able tokeep trade discrimination at bay.

Second, a huge home market. The economic crisis has reinforced the point that being part of the EU gives Britain a large safe home market of 500 million consumers in which British companies can trade. The single market rules on free movement and competition mean that trade access can be relied upon across this huge market, even if protectionism becomes rampant in the rest of the world. EU law can be used to ensure market access and non-discrimination for British goods and services to a far greater degree than in the rest of the world. While there are problems with EU law (see below), unlike in the rest of the world, British lawyers can threaten to sue governments, foreign businesses in our own and other courts, obtain damages for lack of trade access and get the European Commission to take legal action against a defaulting state.

Third, a global platform for Britain. The EU can enhance our power. As one of the three great EU powers, with France and Germany, Britain as a major EU player is more important to the US and the Commonwealth and to rising world powers such as India and China. We are often the first port of call for major non-EU powers when they want to deal with the EU. In effect, the EU provides Britain with the means of extending its global reach.

While the EU can enhance British power and prosperity, it is hardly unblemished in many of its practices and procedures. Let's start with waste. The underlying situation is much worse than any Eurosceptic claim made on the hustings. While it is true that the EU budget at £122bn is considerably smaller than the UK budget of £627bn, this takes no account of its vulnerability to waste and fraud. Most Eurosceptic commentary focuses on individual instances of waste or fraud. What Eurosceptics overlook is the systemic vulnerability of the budget. On the revenue side, there is little incentive to protect the collection of customs duties, an EU source of revenue, because while member states are responsible for collecting the revenue, they don't receive any of it. On the expenditure side, there is little incentive for the states, through whose hands pass most of the common agriculture and regional development funds, to protect that cash. Its not their cash and they are not accountable for it in the way that they are accountable for cash from their state budgets. This lack of incentive and accountability leaves the EU budget much more vulnerable to heavy losses from fraud and waste.

Eurosceptics also undersell the problem of unfair application of EU law. Why should UK industry be damaged by unfair competition from illegal state aid or be rendered more uncompetitive because we have taken on obligations that other states have shrugged off?

The Eurosceptics also don't get one other big problem in the EU: there is no concept of "state rights". The EU in theory operates on the principle that it has only the powers granted to it by specific treaty provisions. The argument is therefore there is no need for any special protection of the rights of the member states as the powers of the EU are narrow and limited. In reality, those specific provisions are interpreted extremely widely by the Commission, the European Court of Justice and even the member states. (Often it's easier to push legislation through the opaque EU legislative system than back home.)

The result is that EU legislation can intrude into many areas where it should not. It is far from clear, for example, why we have the increasing body of consumer protection legislation. Yes, consumer protection legislation is in principle a good thing. But it is open to question why the EU should be dealing with such matters save where there is a genuine cross-border issue. Equally, given the common threat of terrorism, it's understandable that we might want a European arrest warrant for terrorism but what about the other 30 offences that are listed for which you might be uplifted overnight to another member state? Or why should the EU free movement of services rules disturb the finances of the National Health Service with health tourists seeking to go to other member states for health care?

Britain's approach to dealing with Europe has been a loser's strategy. Rather than acting like a great power, seeking to win allies and build support for its view of how the EU should operate, it has instead whined, complained and stomped off. This is not the behaviour of a great power, nor a way to achieve change. Now there is a much larger number of states with which Britain can potentially ally. Britain could build alliances across the EU to put together a reform programme that works to our interests.

A British EU reform programme would:

Champion state rights: Britain can encourage a development of a culture of state rights across the EU. The fact that the EU can legislate on certain issues does not mean it should. Certain areas should be deemed outside the competence of the EU to legislate on, such as health, education and social security.

Insist on the EU rule of law: In those areas where the EU does have clear powers, such as the single market, environment and competition, the UK should campaign for full application of the law. One key element of the reform programme should be the establishment of a network of single market courts that can ensure the full and uniform application of EU law across all member states. They would be a way of choking the Brussels legislative machine.

Introduce anti-fraud legislation: The US has an effective civil anti-fraud statute, the Civil False Claims Act, which imposes triple damages on anyone who defrauds the US government and pays substantial prizes for information leading to recovery of ill-gotten gains. Since enactment in 1986, the CFCA has recovered more than $13bn in fines and deterred tens of billions of dollars of fraud.

Argue for jobs, growth and a single market: The EU has spent a large part of the past decade navel-gazing over five constitutional treaties, Maastricht, Amsterdam, Nice, the constitutional treaty and Lisbon. Meanwhile, the competitiveness of Europe globally has declined. Instead of arguing about the number of commissioners, Britain should argue for a focus on strengthening the single market to drive growth and employment in a Europe battered by recession. With British leadership, good ideas and strong debate we can with allies remodel and transform the EU into something that really works for us – and works much better for the rest of Europe as well.

Alan Riley is a professor at City Law School, City University, London