Friday, 6 January 2017

We're up Brexit creek without a paddle

It's a good thing that I am still relatively fluent in diplo-speak, so I can translate for you the incendiary parting missive to his colleagues from the UK's former ambassador to the European Union, Sir Ivan Rogers.

There are three key passages: 'Serious multilateral negotiating experience is in short supply in Whitehall ... Contrary to the beliefs of some, free trade does not just happen ... I hope you will continue to challenge ill-founded arguments and muddled thinking.'

All of which translates nice and simply into a single, pithy statement: 'We're up the creek without a paddle.'

It is now six months since the Brexit referendum, and nearly a year since the date of the vote was announced. For the government still to have no exit strategy is nothing less than culpable negligence. Imagine what would have happened if it had failed to plan for the aftermath of a military invasion in the same way as it failed to plan for a pro-Leave referendum result -- David Cameron would have found himself hauled up to face Sir John Chilcot faster than you could say 'Brexit means Brexit'.

So we are where we are. In March, Mrs May will write to Brussels and tell them formally that the UK intends to leave the EU. She will then -- presumably -- suggest that some kind of negotiating process should get under way. She will propose -- we must assume -- a framework for a future relationship between them and us.

It will, of course, be written in diplo-speak, but in translation it will read: 'What Her Majesty's Government envisages is that the UK shall have its cake and eat it.' To which the response will be, again in translation: 'You must be 'avin' a larf.'

Just before Christmas, the FT's foreign affairs commentator Gideon Rachman suggested that the esoteric debate between the relative merits of a 'hard Brexit' and a 'soft Brexit' may well turn out to be a waste of everyone's breath: what is just as likely, he wrote, is a 'train crash Brexit'. I fear that Ivan Rogers's departure from Brussels makes that even more likely than it was three weeks ago. 

So let's look at what a train crash Brexit might mean. After all, in this context, train crash does not necessarily mean train crash. What it does mean is that if, two years after Mrs May's Dear Jean-Claude letter there is no deal, the UK's trading relationship with the rest of the world, including the EU, will be under World Trade Organisation rules.

For example, cars manufactured in the UK and exported to the EU would be subject to a 10% import tariff. Not great news for Honda, Nissan or Toyota. Exports of services to the EU (which make up more than a third of the UK's total exports to the EU, worth more than £80 billion a year) would be subject to the WTO's General Agreement on Trade in Services (GATS). According to a briefing paper from the independent fact-checking organisation Full Fact, based on a paper prepared by the House of Commons library: 'If the UK does trade under the GATS agreement, then our market access will be far more limited than it is currently.'

As for the UK's farmers, according to a report this week by the Commons Environmental Audit Committee, about 95% of UK sheep exports go to the EU, and if Britain and the EU were to impose mutual customs duties, the UK could be exposed to tariffs of more than 30%.

So that's what a Brexit train crash might look like. No wonder Boris Johnson and David Davis are starting to talk nervously of compromises and transitional arrangements. And even Andrea Leadsom (remember her?) told farmers on Wednesday that she wanted to 'pay tribute to the many workers from Europe who contribute so much to our farming industry and rural communities.'  Gosh. Foreign migrants contributing to rural communities. Who woulda thunk it?

Business leaders across the EU are entitled to look despairingly at the mess we've made for ourselves. They want to be able to trade with us, but they know only too well what kind of pressures their own governments are facing. Be nice to the Brits? How will that go down among increasingly nationalistic voters in France, Germany and the Netherlands?

You might have thought that now, of all times, the prime minister needs all the friends she can get. So you may also think that it wasn't the brightest of ideas to allow her attack dogs to declare war on her top Whitehall mandarins, the very same people on whom she will be totally dependent to get her out of the mess into which voters have cast her.

It may also not have been such a great idea to turn her back on decades of EU foreign policy to schmooze up to Donald Trump over the UN security council's condemnation of Israel's illegal settlements. If he's the one leader she has chosen as her new best friend, her reputation as a woman of cool calculation and carefully-calibrated judgements will be seriously at risk.

Theresa May, Friend to the Demon Tweeter. I mean, really?

For the past six months, we've been living through a phony Brexit. Just as during the first months of the Second World War, it's tempting to wonder what all the fuss was about. The economy's been doing much better than the experts had forecast (huh, what do they know?), so maybe it won't be so bad after all.

To which the only realistic response, I'm afraid, is: Dream on. A year from now, unless something very unexpected has happened, foreign businesses operating in the UK are going to have to start making some tough decisions. Hope for the best, prepare for the worst, is fine as a holding policy -- but at some point, preparing for the worst will mean acting accordingly.

'Sorry, folks, we've waited as long as we can, but we've got a business to run.' Good news for Frankfurt, Paris and Dublin -- bad news for the UK.

I do have one piece of good news, however: my memoir, called Is Anything Happening?, is due to be published by Biteback later this month. You can pre-order a copy, either in hardback or as an e-book, by clicking here


John said...

First of all, as you now know, the "experts" have confessed that they were wrong about Brexit. Their predicted recession between the referendum and actual Brexit has not happened. Remainers may try to hide behind Article 50 but the Bank of England knew that Art 50 had not been invoked when it forecast near recession 0.1% growth for Q3 due to "uncertainty". The other excuse, that Bank of England intervention (£75bn QE + 0.25% cut in interest rates) saved the day is fatuous - why doesn't the Bank always save the UK from recession if it takes so little? The "experts" were not just wrong: the UK is probably the strongest global economy as it enters 2017.

Having got the previous round of scaremongering out of the way lets turn to Most Favoured Nation Tariffs under WTO rules. The WTO explicitly allows nations to subsidise tariffs if there is a Balance of Payments crisis:

"Agreement that contracting parties imposing restrictions for balance-of-payments purposes should do so in the least trade-disruptive manner and should favour price-based measures, like import surcharges and import deposits, rather than quantitative restrictions. Agreement also on procedures for consultations by the GATT Balance-of-Payments Committee as well as for notification of BOP measures." WTO.

The majority of UK exports to the EU attract very low tariffs (c.2%) because the EU has arranged its tariffs to penalise poor, food producing countries. The UK can legitimately subsidise farmers (c. 30% tariff) and car producers (10% tariff) given that the UK has a Balance of Payments deficit of over £100 billion per annum with the Eurozone.
It can use import tariffs to pay export tariffs. Such subsidies would probably not be needed, separate agreements will be forthcoming for Cars, Foodstuffs etc (like the EU-Canada Wine and Spirits Trade Agreement). Remember, the EU exports far more of these two items to the UK than vice versa. However, if the EU resists separate agreements the UK can fall back on refunding tariffs to UK exporters.

Surely your role as a journalist should be to make contact with WTO experts and ask them to explain the special measures available for countries with huge Balance of Payments deficits and temporary subsidies possible during transitional periods when Trade Agreements are being negotiated. If you were to publicise such possibilities you would be doing your fellow citizens a service.

In fact, with a £68 billion trade deficit between the UK and EU the UK needs a 10 year rebalancing period before concluding any general FTA with the EU. Be positive!

See The Single Market - Good or Bad for UK?.

Anonymous said...

“The message of this lecture is,
that black holes ain’t as black as they are painted.
They are not the eternal prisons they were once thought.
Things can get out of a black hole,
both to the outside,
and possibly, to another universe.
So, if you feel you are in a black hole,
don’t give up.
There’s a way out.”
~ Stephen Hawking