Sunday, July 23, 2017

Trade: no easy answers


Warning: this post contains detail for grown-ups. Again I find I am having to repeat the same basic points. As you should know by now, Britain cannot stay in the customs union. The customs union is one of the founding frameworks of the EU. It is the amalgamation of all customs rules, practices and tariffs - where all tariff revenues go to the EU under a single customs code. The EU has a Common External Tariff regime which varies according to product types.

Though we cannot stay in the customs union we can have an agreement on customs harmonisation. Tory Brexiteers have it that we cannot make our own trade deals if we have such an agreement. This is only partially true. It prevents us from diverging from the common external tariff rate. That though does not preclude new deals on removing non-tariff barriers, which are more significant.

The reason we would seek a customs agreement is to avoid Rules of Origin (ROO). If we have a zero tariff agreement with the EU but then started to give preferential access to third countries, goods could be re-exported to the EU at a rate less than the EU's own common external tariff. The EU does not allow this so it has a system of rules where exporters have to prove true origin and where there is a disparity a top up tariff must be paid in order to stop us undercutting member states.

This is condemned widely as bureaucratic and protectionist - which it is, and would lead to tariffs being applied to UK car exports - which could kill tens of thousands of jobs. The workaround for this is to unilaterally mirror the EU's rules of origin and to keep our regime of tariffs the same as the EU's. There is then no lawful basis for the EU to apply ROO.

That means any tariff agreements we look at will effectively have to be cleared with Brussels - which will in all likelihood say no. So here we have to do a value assessment as to whether a truly independent customs regime can provide sufficient economic progress so as to offset the loss of the UK automotive sector. Given that tariffs are complex and difficult to remove politically, there is no guarantee of that - therefore an accord must be struck with the EU. That means the Toryboys don't get to tinker with tariffs. Tory "free trade" ideas have no basis in fact.

This does not stop Toryboys bleating about tariffs on coffee but that little nugget of received wisdom is sufficient proof for them to gamble the entire UK automotive and pharmaceuticals sector. They are never going to grow up - nor are they going to crack open any books on the subject any time soon. This is what it means to be a Tory. Why would you crack open a book when you already know everything?

The hard reality of Brexit is that there are no sweeping unilateral measures the UK can take. UK consumption of goods alone is not sufficient to make an impact on global trade thus any issues we seek to resolve will have to be done on a multilateral basis with patience and skill. The process of reaching these such agreements is time consuming, politically contentious and very often sabotaged by the French looking after their former colonial interests. This is why we have to seek a number of allies across a number of sectors outside of the EU. That means we are going to have to find ways of securing goodwill which will be difficult when we don't have the ability to unilaterally open our markets.

This is why international development must be at the core of our trade policy because it is pretty much the only means at our disposal to enhance market access. We have to invest to ensure that LDCs can overcome the regulatory barriers. This is why our aid budget is so critical. It is an arm of our foreign policy.

As mentioned before, we could diverge from the EU regulatory regime but this would have consequences for EU trade as our risk assessment rating increases. This could lead to more costly border inspections - and it's not something we want to do anyway. Now you can bleat til the cows come home that the EU is protectionist - but it is a fact of life and something with which we must contend simply because we are not the trade superpower in this equation.

It would seem that Brexiteers are imbued with the idea that leaving the EU gives us an entirely free hand in trade. That was never likely. The only means of leaving the EU that will give us complete control of regulation and tariffs is to leave unilaterally - which comes at the expense of most of our trade. It is not a good idea.

This does not mean that we don't have considerable freedoms The UK could still negotiate its own trade agreements with other countries on services, investments, e-commerce, food, and agriculture – i.e. on all the areas that the UK disagrees with the rest of the EU - but again, any policy will have to be made with due consideration for its potential impact on existing trade and our general relations with the EU.

What we need to see is effects based trade policy, seeking to resolve political objectives, not least stemming the flow of counterfeit goods and migration. For that to happen we need multilateral solutions and some innovative thinking. One of the chief benefits of leaving the EU is regaining our right of initiative at the top tables - and that is something we can use to our advantage - not having to clear every decision with Brussels.

The short of it is, we have a very limited toolset at our disposal and no free hand in an ever globalised world of trade. It is going to take time to rebuild our trade instincts and we must pick our battles wisely. Brexit most certainly does open up doors - but we should not walk through those doors just because they are open - and we must not deceive ourselves into thinking there are shortcuts. We cannot expect miracles and we can expect no real progress for a decade or more. That is why safeguarding our trade with the EU is a paramount consideration for Article 50 talks. Too much is at stake to gamble it all on Tory free trade fantasies.

Friday, July 14, 2017

Britain needs to play it smarter


There is some chatter on the web as to whether Brexit can be parked. Personally I don't see that happening. Call it a hunch but I think the process has taken on a life of its own independent of the politicians and they lack the coherence to influence it in either direction. I can, however, see Brexit transmogrifying into something that is neither Brexit nor EU membership.

The repeal bill process is not an afternoon at the photocopier. It's a major feat of legal engineering and it is going to take years. We can pass certain bills that technically mean we have left but the Brexit limbo could be of such a composition where making the final switchover in various sectors, ending EU supremacy, would be viewed as so destructive that it would go into some sort of review, much like TTIP has. There it exists as a concept but it's not actually going anywhere until it's taken off the shelf and dusted down.

We have heard much about the possibility of an accidental Brexit where we crash out without a deal, but there is also a possibility of "accidental remain" where our lack of direction and inability to agree on anything leaves it hanging in the wind.

The only way I see to avoid this fate is for the government to face the reality that the EEA is the fastest and most practical means of leaving the EU. It doesn't matter if the EEA is suboptimal. It has the singular merit of being out of the EU.

We can quibble til the end of time over the various compromises the UK would have to make but in since the advent of the WTO agreement on Technical Barriers to Trade there is little likelihood of reaching that elusive regulatory sovereignty. That issue we can address later. To my mind it is secondary to ending EU political union.

If we do not want to drift into a Brexit limbo then we need to see some decisive action from the government. All we are seeing right now is dithering, pretending it's all there for the taking when what we're actually doing is reinventing the wheel - and a poor copy at that.

The basic mistake is the belief that the Brexit process itself is the opportunity to do everything all at once. This is a classic misnomer. If anything the Article 50 process is a lengthy admin chore we must go through before we can start looking at systemic reforms. The only safe and sensible way to leave is by reverse engineering our membership and that means the first step has to be quite close to EU membership. It wouldn't even matter if post-Brexit absolutely nothing had changed. What matters is that, having completed Article 50, we would have the power to start changing things on our own schedule.

This is the bit where us leavers need to get real. All of us have a strong dislike of the EU, but we cannot say that everything about economic integration is bad. What matters is that we preserve what is worth keeping and build on it. It would be a grave mistake to sacrifice any European trade in the belief that trading with the rest of the world will compensate. It really won't.

That though, is going to require some adaptation to our ideas. Like it or not, the EU has us over a barrel. As the regional regulatory superpower it does call the shots, and since the EU has a number of other countries hooked into regulatory harmonisation by way of FTAs we are going to find their wiggle room for an independent UK regime will be next to nil.

Ultimately we are going to have to change our attitude to the EU in order to make a success of it. The hostile and confrontational tone is not doing us any good and it's dangerous because we will need the EU's extensive assistance in borrowing their third party cooperation agreements and trade deals. Secondly, since we won't be going all out for regulatory sovereignty, our trade policy will have to be a collaborative and complementary policy to that of the EU.

As we have seen the EU likes to get bogged down in deep and comprehensive bundled deals which take a number of years and very often get tied up in technical detail at the last minute over soft cheeses or formaldehyde content in furniture. Despite this method causing a number of hang-ups for CETA and the demise of TTIP, they don't seem to have learned. There are other ways.

What we can do is look at effects based trade policy. As a foreign policy objective we want to reduce the push factors that drive migration. In order to do that we need to get the poorest countries trading. We are told by Suella Fernandes that Brexit means we can reduce tariffs for Lesser Developed Countries. This fails on three counts in that for a long time the UK will maintain the existing tariff schedules, LDC's already have tariff free access under the Anything But Arms agreement - and finally, it's non-tariff barriers which stand in the way.

Ultimately LDCs struggle to meet stringent standards. Jacob Rees-Mogg and the likes would have it that we can trade away our safety standards but that invites a deluge of counterfeit and dangerous goods. Consumers won't wear it. Our mission is to use our aid budget for technical assistance to ensure that they can meet regulatory requirements for export. Not only does that improve their ability to trade with the UK it gives them access to the European market as well.

Effectively we would be improving access to the single market for everyone. The benefit to us is the eventual slowdown in migration but also more trade means more opportunities for UK fintech and business services. Something our economy is geared toward in ways that France and Germany are not.

By acting in this way we have no real need to get bogged down in comprehensive bilateral talks as the EU does. What matters is we are enabling trade and paving the way for the EU to forge deals, to which we can be a party. Sector by sector we can improve the viability of African trade at a speed the EU is incapable of.

As much as this approach is in the cooperative spirit, little by little it removes the EU's excuses for excluding poorer countries and in so doing we make allies and friends with countries with whom we cooperate. From there we can forge sectoral alliances to further pressure the EU into liberalisation and perhaps changing its stagnant trade practices.

All of this is quite futile though if we maintain an adversarial attitude to the EU. If we leave the single market we actually surrender an ace in the hole for our trade strategy while also losing the opportunity to expand and enhance it - and wrest it out of EU control. Moving entirely out of the EU sphere leaves us hobbled in Europe and pecking at scraps elsewhere.

I wish I could report otherwise but it’s time eurosceptics faced facts. The world got complicated while we were in our EU slumber. The beast we helped create is a power in its own right with its own gravitational pull. What is done cannot be undone. What we can do is leverage our position as an agile free trading country to strengthen the global rules based system and drag the EU out of its protectionist instincts. If we can do that we solve a number of problems not only for the UK but Europe as a whole. 

Saturday, July 01, 2017

End austerity and hypocrisy now!

Your humble Devil notes that there has been another Corbyn inspired agitprop march today. Unfortunately, I had something else inconsequential to do, so was unable to make it.

However, in solidarity, I have designed a placard which I will have properly made up for the next march—I do hope that it will help...


Anyone else want one? I reckon that we could make quite an impact...