Tuesday, June 13, 2017

Deeper down the Brexit hole


With the appointment of Steve Baker, unless this government collapses, there is now no possibility of a sane Brexit. Worse still I believe that any attempts to campaign for an alternative would be a waste of time since this is a clear message that May does not intend to modify her approach even slightly. This current configuration might actually be worse than just last week.

All that remains now is to the chart the many unforced errors that will bring about the biggest economic calamity in living memory.

I had hoped for a more intelligent Brexit but ultimately I accepted the risks when I voted to leave. It has always been there at the back of my mind that Britain probably needs to fail politically in order to rebuild it into something fit for purpose. The silver lining is that this will, unequivocally, destroy the Tories.

We are now looking at a period of major austerity the likes of which we have not seen since the war. The people in charge of Brexit now have zero idea how trade works - no idea what can be accomplished and they approach this with the worst possible attitude to the EU. Not only do I not think this government capable of succeeding, Baker is one who would quite gladly see it fail - since he believes the WTO option is viable. Combined with David Davies who already has a cavalier attitude - we have the most toxic combination possible.

On the back of this we can also expect for out trade policy to be outsourced to The Legatum Institute. Baker has been lining that up for a while - taking his advice from the utterly clueless Shanker Singham. Our trade policy with the rest of the world will fail at the first exposure to reality. Nobody serious thinks it is credible. Singham is widely thought of as a charlatan and a fraud.

There is now no doubt in my mind that we are totally fucked. The message May has sent to British business today, agriculture especially, is "pack up your shit and leave".

If there is any hope at all it is that the EU will attempt to save us from ourselves. That though is contingent on a government capable of compromise. This one isn't. The one remaining hope is that this government collapses. If then Brexit is halted, Brexiteers only have themselves to blame for their irrationality, juvenility and galactic stupidity.

Specifically, the reason Baker is such a disaster is that he believes Brexit can be concocted by way of a series of Mutual Recognition Agreements (MRAs). MRAs have only ever been used as a precursor to full regulatory harmonisation. It is one thing to establish an MRA but you are then faced with the problem of maintaining and agreed level of convergence which means any new laws have to be put to a joint committee to ensure they fall under the MRA.

What we tend to find is that MRAs are issued in those circumstances where third country regulatory regimes are too alien in culture but of the same standard. In practice this turns out to be unsatisfactory with many annexes and embargoes being added to the agreement where it is found that divergence presents either an unfair commercial advantage or presents a direct threat in terms of product safety. This can be anything from formaldehyde traces on dildos to chlorine wash on chicken carcasses.

Where it is found that there is significant divergence, anything in that product group loses its preferential risk assessment score and is subject to extra testing and customs checks.

In the past the EU has used MRAs to establish lines of supply into the EU, making third country exporters dependent on EU trade and then they shift the goalposts knowing that there will be foreign support for full regulatory harmonisation. While this was previously viewed as an aggressive strategy, the WTO agreement on Technical Barriers to Trade (TBT) compels all parties in an FTA to comply with the agreed global standards which all interested parties have a voice in.

In that respect an FTA with the EU would likely result in us adopting the usual standards, with no capacity for divergence. Standards wise that is no change but by leaving the single market we would likely not get a mutual recognition agreement on conformity assessment meaning we would still have to submit goods for testing and inspection. We could reach an agreement on conformity assessment but that certainly would require a joint committee and the adoption of EU rules on conformity evaluation. Right back where we started.

Now keep in mind that this is just the bare bones on trade in goods. There are three hundred other areas of concern all the way up to aviation safety and phytosanitary measures. We are stripping away forty years of systems development for the free movement of goods only to have to rebuild them one component at a time. In all likelihood the EU is not going to diverge from its own standard requirements or deviate from WTO law so there is no scope to negotiate a special set up that gives us any commercial advantage whatsoever.

By the time we have finished with this we will have pretty much negotiated exactly what Switzerland has only to find we have the exact same barriers to trade they have where we end up trading ECJ jurisdiction for market access. Exactly where we didn't want to be. Switzerland's meat export regime falls almost entirely under ECJ jurisdiction with zero say in the rules. That then ends up with mission creep where you end up with pretty much the same regulatory harmonisation as an EU member but no EEA firewall and no system of co-determination.

So what seems superficially appealing in having a more basic agreement with the EU, ignores the fact that trade deals develop over time and come under constant review. We will prune the single market only to end up rebuilding it through the respective strands of our new relationship but ending up on a tether. So much for ending Brussels influence. We suffer a decade of trade limbo for absolutely nothing.

Meanwhile all this assumes our government is competent and mature enough to be able to negotiate any of this. We have nether the expertise or the intelligence in government and in reinventing the wheel we will probably unwittingly concede to things we presently opt out of. As I keep saying, this nebulous notion of absolute sovereignty does not exist.

The reason Baker is committed to this is because he believes that out of the single market we have the ability to trade away our regulatory standards - lowering ours in exchange for preferential access elsewhere. That would have been a fine strategy twenty years ago before the advent of the TBT agreement and before the hyperglobalisation of regulation - a time when bilateralism was the obvious mode of trade, but it's all different now.

There can be no regulatory race to the bottom because there are global benchmarks. More to the point, British consumers and business does not want to contend with lowering standards and multiple regimes according to their customer bases. Absolutely nobody thinks it's a good idea. By doing so all we would end up doing is losing a lot of our preferential access to the single market.

Ultimately the Brexiteers are dinosaurs. They haven't understood the concept of global trade, they haven't updated their ideas since 1992 and these people are in no position to be preaching the merits of MRAs since they have only just in the last year got their tiny brains round the concept of non-tariff barriers. There are intelligent modes of trading with regulations but only at the top tables and only if you have a collaborative approach. Unilateralism in the modern world is a ticket to isolation as Trump has just discovered. The USA can probably handle it. The UK, as a a small island dependent on food imports cannot.

With this approach, even with the best will in the world, the best we can hope for is a lost decade of trade while we rebuild an inferior relationship and then we are worse off and have gained nothing. That's the best case scenario. The worst case scenario is that Baker and his corrupt Toryboy pals will cause friction by way of their lousy attitude to such an extent that we only get a basic deal if we get one at all. Since these trigger happy Toryboys are just itching to walk away for the most spurious of reasons, there is every reason to believe that we are unequivocally fucked.

3 comments:

Z said...

It was pretty stupid to vote to leave, then, wasn't it? I've always been euro-sceptic but, when it came down to it, I knew that voting to leave was just too chancy. You were jumping over a wall, not knowing if there was soft ground, hard ground or an abyss. You deserve to be unequivocally fucked whereas I, more sensible (and more appreciative of our allies and friends) do not.

Lord Blagger said...

We need a clean Brexit, not a messy one.

Why pay the UK 100 bn when it needs to be spent here on the NHS for example.

What is it with Remainers that they want to fund Eurocrat pensions not Nurses?

Why is that they hide the bill, which we would have to pay if we remained, during the vote?

Anonymous said...

The true benefits of membership was not properly quantified by Remain.

They rain a scare campaign, rather than a visionary one, while the Brexiteers painted a false vision - the UK can be out of the EU (and out from under the influence of the ECJ), but inside the Single Market. Firm borders but free market. And they lied about the true net effect of EU funding, because they used a gross number, not the net effect. And now that the truth is known, it is clear that remaining would have been a better option, unless you believe that the UK can be part of the EEA while not accepting any unwanted immigrants.

Those who think the EU has as much to lose as the UK is deluded. The EU is 50% of UK trade. UK trade is far less as a % of EU trade. And they dictated standards to most countries the UK thinks it will be free to pursue in bilateral trade agreements, so the UK is no better off in that regard.

If we ran another referendum today, I think Remain would win. People are far more aware of the issues and practical impact compared to a year ago. The UK is currently in a honeymoon period - no barriers and a weak currency. Enjoy it while it lasts, because it won't.