Monday, March 13, 2017

Brexit and all that...

After agitating for nearly 30 years, and writing endless screeds on this 'ere blog, it would be remiss of your humble Devil not to mark the passing of the bill to Trigger Article 50 through the House of Lords.

So, hooray!

However, I have always (at least in my more sober moments) maintained that Brexit entails considerable risk—and it is important that we keep these risks in mind when negotiating our exit from the EU. To be able to do so, one needs to actually understand what is involved: not only so that we can measure the risks, but also so that we can understand—faced with limited resources—which ones we really need to focus on.

For these kinds of discussions, EU Referendum and Pete North have always been an excellent resources for the ignorant (although, possibly, not the short of fuse!). However, it is for this in-depth, technical knowledge that I asked Pete to contribute to the Kitchen a couple of weeks ago—you can read his perorations here, here, and here (and I would urge you to do so).

Trade in general

Since your humble Devil is unable to match Pete's in-depth knowledge, I would like to summarise how I understand the different strands of the situation and how, therefore, we might proceed with minimal resource and minimal risk. Let me summarise, from my understanding, how this works:

  1. the first thing to understand is that the world of trade actually encompasses a huge web of standards: many of these standards have been initiated unilaterally, but then developed alongside other countries through various trade agreements, treaties, and supra-national efforts. Just think—there are standards for labelling car tyres, let alone medicines, food, etc.;
  2. in order to facilitate trade between companies—whether within the same country or between nations—there needs to be a basic, and agreed, standard of quality (for just about everything). There are essentially two ways to approach this: "harmonisation" (favoured by the EU and in which the standards are defined by the EU, and then imposed on Member States through legislation) or "mutual recognition" (usually bashed out via bilateral treaties, and whereby one country recognises the other country's standard as being broadly equivalent to its own);
  3. these standards are generally a means to protect the general public from dodgy... well, dodgy anything. As such, they tend to be rigorously enforced by the more developed nations in particular.


Many of the trading standards are defined by the World Trade Organisation (WTO), at which most countries have some kind of representation; and it must be understood the the WTO is essentially as technocratic as the EU. Some quick headlines however:

  1. agreements made at the WTO are, in the main, voluntary—not enforced by supra-national law. The downside being, of course, that if you do not agree to abide by the standards defined then no one has to trade your goods;
  2. the other thing to understand is that the UK is a member of the WTO. However, whilst we are part of the European Union, we are obliged to vote for the common EU position—whether we want to or not. In effect, the EU takes our vote by proxy;
  3. and it is because of this that many declare that, the WTO—but not EU—member, Norway has rather more control over their own trade policy than the UK does. And this despite Norway's rather less powerful status in the world as a whole.

Please note (and you will see that this is a constant refrain as we delve into our relationship with the EU) how our vote is co-opted by stealth.

Many Leavers will tell you that the EU does not have a seat at the WTO—that we are only represented by the EU; Remainers, on the other hand, will argue that we do have a seat, and that Leavers are talking bollocks.

It is worth, for a moment, sitting back and admiring the way in which the EU and our own governments have made both statements true—whilst concealing the true state of affairs.

Why do we care?—it's imports that are important...

Well, yes, of course—as good little economists, we understand that.

I cannot make bread (and have not the slightest interest in learning to grow corn, grind the bastard, make bread, etc.), and so I import it. I do this by exporting my labour in exchange for money, and then using that money to buy bread.


However, when you import bread into your home, you want to make sure that it's not cut with rat poison, for instance (this problem is, after all, why illegal drugs do so much damage—they are unregulated and thus cut with all sorts of adulterants that are, in large part, what do the real damage to the body).

And so we have standards—standards that say, amongst other things, that we trust that your bread is not cut with rat poison. And part of the reason that we trust that it is not cut with rat poison is because your government has already certified that you meet the standard for non-poisoned bread.

Great—80% of the UK's trade and commerce is internal to this nation. Fantastico!

Imports sorted!

But we've had a shit harvest, and we'd like to import some bread from Holland.

"I know—we'll tell Holland what our non-poisoned bread standards are, insist that they should meet them, they disagree and say that our standards aren't good enough, we negotiate around that, have a few junkets, and then...

"Oh, fuck—everyone has starved to death for lack of bread. And now we politicians have no one's tax to live off. Shit."

Sorting it all out beforehand...

Luckily, we create treaties and agreements between nations in order to stop this kind of problem (and remember that, currently, some 30% of our food comes from the EU).

And we have been doing this in concert with the European Union for nearly 50 years now. This is the essence of the Single Market and, indeed, the Customs Union.

Because the EU sets the standards and forces the EU Member States to enforce these standards into law (and enforce those laws. Ideally—we all remember the horse-meat problem, right?), we are able to trade goods pretty freely across the EU.

So why leave?

Well, the problem is that all of these things are very slow-moving: and with the EU setting standards, there is an inevitable stifling of new technologies and processes. I think that the potential for change—across the entire political sphere—is a massive opportunity (which I shall more about later).

In one of his recent blogs at the Kitchen, Pete North stated that...
... we need to make the distinction between government and governance...
... and I would consider the maintenance and agreement of these standards to be part of that. At present, this is the most dangerous part. (I shall deal with the "government" in subsequent posts.)

Again, to quote Pete...
The fact is we are not simply ending membership of a golf club where we settle the bill and part company. We are disengaging from a network of agreements, long standing policies and institutions. This cannot be done at the stroke of a pen. There is no ripping up treaties and starting over. For starters that would destroy our credit rating and our international standing, and it would end all of the market access we presently enjoy. Moreover, it would ruin our chances of securing a replacement agreement in the future.
This is going to be difficult. But the best way to face the problems that we are going to have is to understand them, break them down, and to design solutions to them.

None of this will be easy—our supply chains work on "just in time fulfilment", and we need to have software and processes ready. Given the vast volume of transactions that we are talking about—from the point of view of politics, practicality, software, customs checks, etc.—this is going to be a huge endeavour.

Will it be worth it? I believe it will, but time will tell.

Am I glad that we are taking this step? Yes—absolutely.

Why? I shall return to let you know...


tomrat said...

Pete as always is right on the money on all things most of the time, but I believe and hope he is wrong about our governments handling of Brexit.

I think that most of what we are seeing in higher places is either the product of a ruse or a hyperventilating MSM starving for copy but not content, which suits the negotiators fine as they go into negotiations with the idea firmly planted in the minds of the EU negotiators that we will bring the whole lot down rather than be on the receiving end of unreasonable reprisals.

Populist uprisings and pragmatism in the EU Council will counteract the hysteria as it has done in the past.

Devil's Kitchen said...

I agree—I think that the government is aiming to commit to the worst, in order to convince the EU that they have no hand to play.

I also remain positive about the process: Pete is not—but that's valuable feedback too.