Saturday, 28 January 2017

Rip it up and start again

"Anything you can do I can do better, anything you can do, I can do too." That seems to be the current mantra of UK and US politicians. Whatever happened to humility? Of course, they can do that better, too. We need to live with this shower of know-it-alls for a few more years so let's at least try to understand what they are doing. What are they doing? Well, Donald Trump and Theresa May have decided to shred all their existing trade deals because they think they can do a much better job than those responsible for the last thirty years of global trade negotiations. You might even want to say that they intend to rip it up and start again.


Can Theresa May negotiate a better trade deal with the US than the EU's aborted attempts. Can she? Donald Trump is ripping up all US trade deals and cancelling those that are still being negotiated and ratified. The UK is doing the same with all the trade deals it had through EU membership. Both are signalling that no deal is better than the current deals on offer. After all, you would only rip up a deal if you knew that you'd be better off if that turned out to be your end position. In doing so, they are signalling that they are placing a higher value on no deal at all. It stands to reason that if two parties place a high value on "no deal" they are quite likely to choose that as the best outcome. It follows, then, that a US/UK deal is bound to fail. Now, that is quite a bold statement so let's dive in and look at it in a bit more detail.   What follows is a rusty physicist's take on trade deals, partly as a bit of fun and partly to make a point.  If you find logic puzzles tedious then I'd recommend just skipping straight to the end.  If, on the other hand, you enjoy arguments based on logic then let's celebrate Saturday together with some inequalities.

 

***Start of logical witterings***


Imagine a trade proposal P. It doesn't really matter what P represents exactly but let's just imagine for a second that it is the label stuck on a huge set of documents setting out a trading relationship between two parties. Imagine also that the two parties are called A and B. Country A has a formula to compute the value of any trade deal. It might just be a set of metrics used to weight each advantage and disadvantage of the proposal to get an overall score. To speed things up we'll use some maths notation. From now on we'll use the notation A(P) to denote the value that country A places on any trade deal P. We'll do exactly the same with B(P). No deal at all is also a kind of trade deal so both countries should be able to use their formulae to compute the value of no deal. For speed we'll denote this with A(ND) and B(ND). (ND = no deal). If a trade deal is to exist between two countries A and B then there must exist a proposal P such that

A(P) > A(ND)
AND
B(P) > B(ND)

That just says that country A and country B must both consider the trade deal to be better than no deal at all. Unless a proposal P can be found that satisfies this condition the trade deal will fail. If a proposed trade deal is only to the advantage of one party then the other will reject that proposal because they will take the view that the status quo is better. The trick is to find at least one proposal that is acceptable to both parties and passes the test. If it isn't possible to find a proposal that passes the test then there can be no deal. There are thousands of possible proposals covering all sorts of combinations of quotas, standards and legal frameworks so this might seem a bit like finding a needle in a haystack. I would guess that after a while each party starts to a get a feel for how the other estimates the value of a proposal and the value they place on no deal. That stops time being wasted on proposals that will just be rejected. Only by getting to know each other over time can they iterate towards a proposal beneficial to both parties. There might even be multiple proposals that could pass the test. That being the case, each country will haggle for the one that brings it the most advantage.

I'm getting a bit bored with these faceless countries A and B. Let's start thinking about the UK, the US and the EU. I really want to work out if there is a trade deal that the UK and US can both sign. The aim, therefore, is to consider if there exists a trade proposal P that satisfies

UK(P) > UK(ND)
AND
US(P) > US(ND)

I'm also getting a bit bored with this generic trade deal P. Let's think about the specific proposal that was the end-point of the TTIP negotiations between the EU and the US. From now on we're going to call that PTTIP. We don't know what was in that proposal but that doesn't matter because we only actually need to know that the EU walked away from it. From that we can deduce the inequality

 EU(PTTIP) < EU(ND).

Can we reason from this point and conclude that the UK would also reject PTTIP? Yes, we can. The first thing to remember is that the EU walked away because of the burden of investor-state disputes and the secretive courts proposed to adjudicate these squabbles. The UK is walking away from the EU because it now considers supranational courts far more to its detriment than it did just 12 months ago. I'd even say that being free of supranational courts is a Top 3 priority for the UK. I think it would be fair to say that

UK(PTTIP) < EU(PTTIP)

because the UK clearly hates supranational courts even more than the EU. We can also reason that

UK(ND) > EU(ND).

In fact, it is that very inequality that led the UK to tear up all its deals with the EU and all tertiary countries. I think the following inequality sums up the situation:

UK(PTTIP) < EU(PTTIP) < EU(ND) < UK(ND)

The UK should clearly walk away from UK/US trade talks if it was offered the last deal rejected by the EU or anything approximating it. Would that deal remain beneficial to the US? TTIP negotiations were quite advanced so we can assume that the US was getting somewhere relatively close to its threshold. Donald Trump, of course, has just raised the threshold. It's not at all clear that PTTIP would even be something the US would now consider. It's likely it could only offer something more advantageous to the US, something that will be less advantageous to the UK.  This US/UK deal is doomed.

 

***End of logical witterings***


What have we learned? We learned that a US/UK deal ought to be highly unlikely because both nations place a high value on no deal. A deeper examination revealed that if the US/UK negotations end up somewhere near the final TTIP proposal then the UK should definitely accept no deal as its preferred outcome. That TTIP proposal is unlikely anyway because it is likely to be worse than no deal for Donald Trump. That's right, he will only be able to offer a deal more in his favour. We need to think about the kind of deal that could ever be acceptable to a man who said that the proposed Trans-Pacific Partnership would "rape" America. Such a deal ought to be rejected even more quickly by the UK if rational processes were applied to the problem.

The UK has taken off its thinking head.
We all know that a US/UK deal is highly probable. What does that mean? It means that the UK will sign up to a deal that the EU would have abandoned as an unfavourable prospect. It means that the UK is behaving irrationally, that it can't translate its misguided intentions into actions. It means that the UK will accept secretive tribunals to adjudicate on investor-state disputes; it means the UK will eat chemically washed chicken; it means the UK will tolerate toxic shampoo and poisonous paint; it means the UK will give up the buying power of the NHS to US health conglomerates; it means US fracking companies will be granted the right to frack everywhere they wish. It means whatever Donald Trump wants it to mean because the UK has taken off its thinking head. 

This can all be avoided by voting Yes at indyref2,

Terry

PS I don't actually think that trade deals are negotiated through a numeric evaluation of their quality. Having said that, my deeply unattractive STEM mindset thinks that they could and should be subject to quantitative analysis. What you see here is how a rusty physicist would attack the problem. Having said that, it must be possible to say that deal X is better than deal Y. Without that relative assessment it would be impossible to proceed at all. In making such a decision a human mind is weighing up the pros and cons and attaching mental weights to each pro and each con. There is definitely a quantitative process at work here, one that is driven by a set of political goals and views. The only thing missing in the real world is the ability to actually write down those goals in a closed arithmetic form. In the absence of a closed form, some kind of Bayesian approach might work instead. Those functions UK(P) and US(P) are probably a bit noisy in practice and decisions are probably drawn from a statistical distribution rather than the binary choice I assumed. I just wanted to think about how these worked in "laboratory conditions" because real world complexity only clouds the basic point I wanted to make.  The basic point, of course, is that a US/UK deal makes no sense at all, given the criteria the Prime Minister used to favour leaving the Single Market.

PPS I'm going to look at some of the issues that might dominate a US/UK deal. What will the UK need to concede? What might it gain? How will it affect the balance of trade between the US and the UK? Hold on to your hats.




Thursday, 26 January 2017

Dear Labour Party...

Back in the middle of January I wrote to the Labour Party to ask them to clarify their policy on the UK's withdrawal from the EU.  I don't know about anyone else but I have absolutely no idea what the Labour Party actually do these days.  I have no idea what they stand for or what kind of political philosophy drives their inaction.   They are quite clueless and offer no parliamentary opposition whatsoever on almost any topic you care to imagine. On Brexit, however, they are a true shambles: cowardly, indecisive and disorganised.  Did I already mention that they are clueless?  Yes, I think I did.  Anyway, I emailed them for clarification on a point of policy. Actually, I asked for clarification of a single sentence in a single speech by Jeremy Corbyn. Amazingly, that one sentence revealed almost every nuance of his ineptitude.  They never wrote back. Of course they never wrote back.

He keeps his policies under his hat where no one can ever see them.
I hereby present my email of 15 January, 2017.  I had to fill out a little webform to send the email.  Instead of typing it out in a proper text editor and pasting the text into the form,  I stupidly persevered with the crappy webform.  That's a roundabout way of saying, "please excuse the typos".  Please also excuse the howling category error in the first paragraph where I confuse Switzerland with the EEA. I know people in glass houses shouldn't throw policy clarifications at deluded political parties but that's exactly what I did.  I added hypertext for all the links I added to the email to make it easier to read in this blog.  Obviously, I couldn't do that in the crappy webform on the Labour Party website. Enjoy.

Dear Labour Party,

I am a registered UK voter last registered at the above address but currently living in the EEA.  I am obviously worried about the effect that Brexit will have on my rights to live and work in the EEA, particularly with all the current speculation of a "hard" Brexit that sees the UK leave  the EEA and Customs Union.

To be perfectly honest, I find that the Labour Party has a slightly incoherent and confused Brexit strategy.  I genuinely don't want this to be the case.  Can you please convince me otherwise?  For the purposes of openness I should mention that I run a blog laying out the enormous complexity of Brexit here.

Here is an example of my confusion. On 10th January, Jeremy Corbyn made a speech outlining Labour policy on Brexit.  I am particularly confused by a single excerpt of the speech.  Here it is:

"We will push to retain full access to the single market and take back powers to develop a true industrial strategy"

This exact quote was retweeted without comment by the Fabians. It is certainly a bold statement but for me it only leads to more questions and more confusion.

Which powers exactly will be required to formulate an industrial strategy?  I'd really like to know specifics of EU Regulations or Directives that work against the UK formulating an industrial strategy. 

How is it that Germany has an extremely successful industrial strategy yet, if anything, is a more eager participant in the EU? In terms of EU powers, what is Germany doing that isn't possible for the UK?

Can you define "full access to the single market"?  This sounds like being a member of the single market because only members participate fully in it.  In my mind, anything less than membership is only partial access. I'd really like a clarification on the meaning on "full access", is possible.

Membership of the EEA requires agreeing to the obligations imposed by the market. The market is defined by the 4 freedoms and is governed by various rules and regulations.  As a consequence, "full access" and "repatriation of powers" sound incompatible.  Could you outline how this might work?  For example, is there precedent for this in the EEA?  Are there EEA rules that could allow the UK to neglect a sub-set of regulations and directives? Has any EEA leader indicated that this might be a possibility?  Again, which specific powers would the Labour Party seek to repatriate?

I realise that I've asked a lot of questions. I'd really appreciate clarify on this to put my mind at rest. Brexit is a complicated topic and media reporting on has been rather clumsy so far.  Anything you can do to cut through this confusion will be greatly appreciated.
          Yours sincerely,
My real name.

Well, that was that.  They're not going to answer now.  You know, I actually voted for that shower of losers back in 1992.  I have very few regrets but that is definitely one of them.

Over and out,

Terry

Monday, 23 January 2017

Maths is Fun

One of the arguments behind the Leave campaign was that EU migration is out of control.  They argued that the UK needs to take back control and that needs to start at the border.  Only by leaving the EU would the UK be able to achieve its long-held but entirely arbitrary target of a few tens of thousand per year. The UK Government, of course, has been banging on and on about reducing inwards migration for some years now.  Just the other day David Davis started banging on and on about it all over again.  The Conservative Party has failed and failed and failed yet again to make good on this promise.  Will leaving the EU let them finally achieve their xenophobic dream of an Anglo-Saxon land?  Let's find out together.

Archived from Daily Mail at: https://archive.fo/sqfXU
It doesn't take a genius to work out that they will fail one more time.  In fact, it turns out that it takes no more than secondary school algebra, some reasoning and a pocket calculator to work out the effect that leaving the EU will have on migration.  What's that you say? You don't like maths?  Oh dear, we'll never be real friends if that's the case. Alright, go and get your Star Wars costume and we'll pretend we're Vulkans.


Let's start with the maths, shall we?  Let's say that the net increase in non-EU migrants per year is N and the net increase in the number of EU migrants is E.  Just to be clear, N and E represent the number of arrivals minus the number of departures over a calendar year. The total annual increase (M) in the number of migrants in the UK is then

M =  E + N

Let's just pause for a second and remember that the UK Government's intention is that M is a positive value of a few tens of thousand.  Nobody is talking about making M negative, which would mean a reduction in the total  number of  migrants. The economic and demographic forces that lead to inwards migration are so powerful that M has only ever been positive.

Let's pause for just another second because you might have noticed that I didn't include the comings and goings of UK nationals.   Most accounts of migration add in a third term for UK nationals leaving and returning but I've deliberately left that out because nobody who actually cares about migration is remotely bothered about increases or decreases in the abundance of their "own kind".  If migration numbers were a measure of the fullness of Britain it would include births and deaths as a further measure of comings and goings of UK nationals.  Births and deaths are never accounted so I'm left with the impression that migration is not a measure of the fullness of the UK but actually a measure of the number of johnny foreigners at the bus stop.  With that in mind, let's express M in terms of what really matters to anyone who might obsess over  it.

Now, let's imagine that leaving the EU won't reduce N.  We'll come back to this later because leaving the EU might even lead to an increase in N.  For the moment, however, let's be optimistic and assume that N is entirely independent of Article 50.  That just leaves E, the net migration from the EU.  What will happen to that number?  I'd expect that number to fall because the UK Government will likely introduce a system that adds bureaucratic and technical hurdles to employees and employers.  For the purposes of generality let's say that net EU migration after Brexit is γ x E, where γ is somewhere between 0 and 1. The ratio R of pre-Brexit and post-Brexit net migration is simple to write down.

  R = ((γ x E) + N)/(E + N);  0 <= γ< =1

Before I go any further I need to justify why I clamped γ so that it is at least zero and less than one.  First off, we don't expect the rate of inward migration from the EU to rise after Brexit.  For many reasons the UK is likely to become a less attractive destination for most Europeans because of the collapse in Sterling; the general culture of rising xenophobia; and the requirement for registration and visas.  Having said that, people will still want to come because despite everything the UK is actually a good place to live and work. It is also the preferred destination for many people with English as a 2nd language and for those who want to cultivate English as a 2nd language. Will we see a mass exodus of migrant workers?  I don't think so, to be honest, because moving country is a huge hassle and not something done lightly.  The likelihood is that migrants already with a medium-term residency in the UK will opt to stay.  The chances of a net reduction seem slim indeed, notwithstanding the outbreak of civil war or a nasty bout of pestilence.  That clamps the lower bound of γ at 0.
 
It's time to start estimating that ratio.  We have reliable 2016 figures for N and E already (196,000 and 189,000 respectively) but γ requires a bit of a crystal ball. It seems wildly optimistic that we would instantaneously half the migration figures from the EU.  Let's plug that in to our calculator and see what falls out.
 
  R = (0.5*189000 + 196000)/(189000 +196000) =0.7545

Oh dear, we are still at 75% of current migration levels even when we half EU migration.  In real numbers that equates to 252,000 extra human beings per year, a long way from tens of thousands.  That is not going to please Migration Watch or UKIP or Tony Parsons. Let's see what happens if we miraculously completely stop all EU migration
 
  R = N/(E + N) =0.5091

Oh dear, the best outcome for the UK Government still leaves us at 51% of current migration levels, equal to a net migration count of 170,545.  That is not going to please EDL or Britain First or Len McCluskey or Andy Burnham.  Tony Parsons is still going to be as angry as a bag of wasps.

Tony Parsons playing the role of Billy Mitchell in Eastenders.  A long way from his punk days at NME.
I bet you've all spotted the problem by now.  Of course, the problem is that N is actually greater than E;  attacking E doesn't really change anything by much.  If you're a STEM geek like me you'll be jumping up and down yelling "Amdahl's Law, Amdahl's Law".  Don't worry if you've never heard of Amdahl's Law because it merely confirms that you are a happy human with functioning social skills.

There's another problem that we need to discuss and that is a reliable estimate for γ after the UK leaves the EU.  Contrary to popular belief, the UK has strict border controls.  I don't know about you but I need to stand in a queue to have my passport checked every time I return to the UK.  There's even a separate queue for non-EU nationals who require pre-arranged visas.  Acquiring residence and employment rights for non-EU nationals is even more demanding: it requires all sorts of form-filling and can be a very time-consuming process with no guarantee of success.  So complex is the process, there are even legal firms that specialise in helping non-EU nationals navigate their way through the system.  It is fully in the power of the UK Government to reduce non-EU migration to any value they wish.  The idea that the UK has lost control of its borders is completely preposterous. For reasons that aren't clear, however,  manifesto pledges to reduce the number have not been honoured.  Despite having full control over the border for non-EU nationals and strict legal limits on the rights of non-EU nationals to reside, invest and work in the UK, their number just keeps increasing.  Making EU nationals jump through the same post-Brexit hoops as non-EUs do today is no guarantee of any reduction in number.  My guess would be that γ will be much closer to 1 than 0.  Please make sure Tony Parsons is in a safe space with plenty of padding when you tell him this.

In everything above I assumed that N was a fixed number.  That might not turn out to be the case because businesses suffering from reduced E might seek to increase N in order to sate their demand for staff.  Trade agreements with, say, India, might trade market access for a relaxed visa programme.  Yes, we might even see N increase as a consequence of leaving the EU.  The simple truth is that the level of migration is fueled by matching UK employment vacancies with a surplus of available humans from countries with weaker currencies.  Businesses that need humans to work in their enterprises have historically found a way to get what they want.  Leaving the EU isn't going to change that.  It will all be for nothing.

Over and out,

Terry

PS I realise that I used loaded language in this post in a way that presented reduced migration as a "good" outcome.  I don't share that view in any way at all but I wanted to go through the sums from the perspective of a civil servant charged with the task of reducing migrant numbers. I'm very mindful that I'm a migrant worker (definitely not an expat) and have benefited greatly from EU migration over the years.  Why stop a good thing?

PPS Switzerland is 25% non-Swiss.  It has one of the highest GDP rates in the world. These two facts are not uncorrelated.

PPPS There is an argument that unemployed UK citizens will step in to take up all the vacancies in the event that migrants leave en masse, thereby maintaining current levels of economic activity.  We need to ask yourselves why migrants were needed in the first place? The standard UKIP answer is that migration depress wages.  If this is true then it means that UK workers have placed their labour at a higher rate than the present offer.  It follows that they'll only go to work for more money, which will push up the cost.  The question, then, is whether their retail product will remain cheaper than European imports made by all that displaced labour.  That would only be the case with significant import duties, something that the UK Government is very much against.  Of course, a weak value of Sterling does a pretty good job too.  I'm going to post on this in more detail.  Exciting times ahead.

PPPPS I left out the comings and goings of UK nationals.   It is safe to assume that fewer UK nationals will leave the UK after Brexit and that more will return.  If you include UK nationals in your migration figures then you have a problem because leaving the EU will push up that component of the total figure.  Somebody start a crowd-funder to get Tony Parsons a defibrillator. 

PPPPPS I said that I didn't imagine a huge surge in EU nationals leaving.  I think that will be about right.  Having said that, some will leave as a direct result of Brexit.  Who is most likely to leave?  That will be anyone who is highly employable and can readily find work in the EU, perhaps even a job that comes with a generous relocation package.   These are the people the UK most want to keep because their economic activity generates an awful lot of tax.  They are also the hardest to replace from the UK population because they are most likely to have specialist skills. If you've ever worked at a failing company you will immediately recognise this situation.  

Thursday, 19 January 2017

Deal Or No Deal

Hands up if you've ever lost your cool while bidding for obscure items on ebay?  I've always fancied one of those front-loading record players from the 80s that featured automatic track selection, a separate needle for each side, and programmable playlists. Who wouldn't want one of those in 2017?  Well, I want one but I'm not prepared to engage in a bidding war if it means I end up spending £1000 of my easily-earned cash.  But if I was to bid on one of those I'd probably first think about how much pleasure I'd get out of playing all my Human League and Altered Images albums on it.  I might then ponder for a bit on how much pleasure I'd get from playing George Formby songs on a spanking new banjo ukulele.  Which would bring more joy to my mundane middle-aged existence?  I know this isn't interesting to anyone but the winner by a small margin is the banjo ukulele.  What have we learned?  I'm prepared to bid on a futuristic turntable from the past but only up to the value of a mid-range banjolele. You see, I'm more than prepared to walk away from an internet negotiation on a turntable as soon as it becomes a bad deal because no deal is better than a bad deal.

"No deal for Britain is better than a bad deal." - Theresa May,  18 January, 2017


No deal is better than a bad deal.  It is so self-evidently true we often forget that it is true. When the Prime Minister negotiates with the EU I fully expect her to have a written definition of a bad deal.  She'll have a very different definition of a bad deal than I would have but that's no different from other ebay bidders having a different view of the value of a vintage record player. The key point is that she should be able to recognise when the negotiated settlement appears worse, according to her set of metrics, than no deal at all.  Of course, her metrics don't seem to extend much beyond deporting anyone without a UK passport but that isn't the issue at stake here. I only want to point out that she will have a heuristic that can give her quantitative estimates of deal quality, albeit from the perspective of an archly conservative Conservative.

Which is it to be ?  The Sharp RP-117 turntable or the Banjo Ukulele?

Let's imagine that the UK measures the deal offered by the EU and decides it is a bad deal. Theresa May then walks away with no deal at all.  This sounds bad but she has actually chosen the optimum outcome from all available choices.  The EU will obviously look at their metrics and compute the quality of no deal from their perspective.  If Theresa May is lucky they might decide that their measurement for no deal is terrible, that there are other possible deal choices that might be worse than the rejected deal but definitely better than no deal.  Those fresh choices, of course, are concessions. Theresa May can then recompute the quality of those newly available choices and reject them if they are still worse than no deal.  And so it goes on and on, back and forth, from side to side.

These trade deals need time and patience.
The UK is screwed for two reasons.  The first reason is that Theresa May's metric is so heavily skewed towards immigration and freeing the UK from the clutches of the ECJ that almost nothing else matters.  She has made this clear time after time. Her judgement of any EU deal will be so clouded by the prospect of foreigners at the bus stop that she will walk away from anything that doesn't significantly reduce the probability of meeting a Finn in Finsbury Park.  This is a genuine worry.  If you're worried about the continuation of the EU pension transfer system or the ERASMUS scheme or just a general notion of economic prosperity than your worries are well-founded because these are not the prime factors in May's metric.  Almost every potential choice that could be proposed by the EU (those that are better than no deal from the EU's perspective) will be rejected by the Prime Minister because her metric will measure them all to be worse than no deal.  We are peering over the cliff and deciding that climbing down it without a harness is the best option because harnesses have complicated instructions and they cost money and sometimes they dig into your back and the man at the harness shop is mean and smelly and someone said he was even foreign.  If anyone actually did that and then plunged to their death it would be fair to say that they had their priorities all wrong.

What was that second reason for the UK being screwed?  Well, walking away from a bad deal is crucial because it is the only possibility that a better deal could ever be offered.  The UK Government badly wants to sign trade deals and has taken great pleasure in Donald Trump's announcement that a US/UK FTA is a top priority.  This is not good because the UK Government could never, ever walk away from those trade talks.  They can't even stage a temporary walk-out because time is not on their side. The simple fact is that the UK Government have promised to quickly sign trade deals because the decrease in European trade that will occur after Brexit needs to be immediately replaced with something else more exotic.  It might even be fair to say that the UK will be desperate to sign trade deals. Trade deals advantageous to both parties sadly take many years to negotiate, while the Daily Express can't wait until 2025. Besides, can anyone imagine Liam Fox returning empty-handed from Washington and trying to explain why he failed to enact his ultra-libertarian, Trans-Atlantic fantasy? This is simply not going to happen. As a consequence, they have no negotiating position to speak of because any deal put on the table by the US is better than no deal at all from the UK's perspective.  If I've worked that out then so has Donald Trump.  He might be a weird guy with weird hair and a weird personality and a weird vocabulary but I'm quite sure he knows how to negotiate the price of an egg. The UK, in return, will pay any price for that egg even after they learn it came from a diseased chicken with a nasty habit of laying toxic eggs that taste of durian fruit.

This can all be avoided by voting Yes in indref2.
  
Terry

PS I'm going to trial ending my posts with "This can all be avoided by voting Yes in indref2" instead of "Over and out".  Don't like it?  Get used to it.

PPS I'm going to look at that US trade deal next.  

Sunday, 15 January 2017

Hard Brexit

Is "Hard Brexit" inevitable?  The Prime Minister will reveal at least some of her plans on Tuesday but if you've read anything the UK Government has said in the last 6.5 months you will already know the answer.  Yes, hard Brexit is inevitable.  Let's take a wander down Hardbrexit Lane to take a look at our short-term future.  It doesn't look good so maybe come back later if you're about to eat.

What will happen?


The UK will leave the EU, the EEA and the European Customs Union.

Membership of the EU means signing up to a set of obligations. The most politically contentious of these so far have been 
  1. contributions to the EU budget
  2. accepting judgements from the European Court of Justice or any supranational court
  3. freedom of movement of people in the EU and EEA
  4. accepting the external trading relationships and WTO status of the EU
Broadly speaking conditions 1-3 correspond to the obligations of EEA membership, while 4 governs membership of the Customs Union.  Theresa May and her Government have boxed themselves into a corner where capitulation or compromise on any of these issues is impossible. As a consequence, hard Brexit outside the EEA and the Customs Union is inevitable.

Hard Brexit means that the City of London loses its passporting rights.  In fact, it seems that city traders have already given up on the idea of continuing passport rights and are now lobbying for the more fragile state of "equivalence".   I don't have all that much sympathy for London traders but the UK needs the tax revenue that comes from being a major financial centre. That's why all that reform suggested back in 2008 came to nothing -  returning the trading floors to "normality" was a much easier job than re-balancing the UK economy in favour of manufacturing innovation.  The problem spreads Northwards all the way to Edinburgh, the second largest UK financial hub.  There will be job losses and relocations and a critical lack of investment capital that comes from being a global financial centre. Make no mistake, in the absence of manufacturing excellence this is a huge loss.  

Hard Brexit means that EU workers pack up their things and go elsewhere or decide not to come in the first place.  This means our universities lose their researchers and academics and students; that technology firms struggle to recruit niche expertise; that the NHS loses vital staff.  If that doesn't affect you then just think who cleans the fancy hotels that most of us get to occasionally enjoy.  The UK has proved itself unable to function without a reliance on imported labour.  Nothing is being done to change this simple fact.

Hard Brexit means an end to the complex supply chains that keep factories like Nissan Sunderland ticking away.   The combination of border delays, tariff costs and paperwork will eventually push Nissan to find new premises for their future product lines.  The cost of retooling an entire factory acts as an inertia against upping sticks immediately but we'll see future investment directed towards the EU instead of Sunderland. That might be the next product generation or the one after that but sooner or later it will happen because introducing friction to the supply pipeline increases cost and risk. This phenomenon, of course, isn't limited to Japanese car manufacturers.

Hard Brexit means a run on the pound.  Goods in the shops will become more expensive, pushing up inflation. More worryingly, the cost of tooling factories and businesses with the latest  technologies will also increase.  Year on year, the UK will fall slowly but surely behind our major competitors. The low cost of UK workers will act to further discourage business investment. Drip, drip, drip goes our competitive edge only to be replaced by human drudgery.

Hard Brexit means enormous changes to the legal framework that governs our lives and protects us from the worst practices of industry and state.  It means the hasty implementation of thousands of EU regulations in domestic law and the creation of dozens of technical institutions without forward planning or costing.  That means the UK's court system will be clogged up year after year clarifying the details and setting precedents for ambiguous legal texts assembled in a rush by government lawyers. It means that pilots might not be properly trained, that drugs can't be granted licenses and nobody will be properly held to account for industrial accidents.

Hard Brexit means we can eventually leave the European Convention of Human Rights. I urge everyone to read the Convention and note down anything they think is contentious or controversial.  If your notepad remains empty then consider what is so controversial to the Conservative Government, why do they want the UK to become more like Belarus than Belgium?  Is it the right to life, the right to privacy or the right to free expression?

This will all happen very slowly.  Think of it as year after year of lost opportunity and then remember how compound interest works. 

When will it happen?


It will start to happen on April 1, 2019 but we will see signs of it as early as spring 2018 just as soon as the last chances of a soft Brexit are revealed as a mirage. In fact, we're already seeing the first signs.  The UK was found to be in contravention of EU rules with the DRIPA scheme but nothing whatsoever is being done because we're on our way out.  The protections of the EU are already starting to dissolve.


There will be no transitional deal to soften the blow.  The UK Government have boxed themselves into a corner whereby any transitional deal that could be practically arranged in the limited A50 time-frame will have to be rejected to save political face. The only option that could really ever be offered would be EEA membership but that would require enduring conditions 1-3 above. This is not going to be politically acceptable.  Besides, transitional deals are in the gift of the EU, while the bluster and bragging of certain UK Ministers has done nothing to court alliances.

The lack of transitional deal will mean that the UK reverts to WTO trading rules with the EU and all EU partners.  Immediately after leaving the EU the UK's only WTO option is to adopt the obligations it currently has as an EU member. This is fraught with difficulty because the calculation of our share of EU quotas is ambiguously defined and open to legal challenge. As a consequence, the UK will trade under dispute with a number of countries who wish to take advantage of the uncertainty and division brought about by Brexit.  The WTO allows for countries trading under dispute to treat each other in a discriminatory way by applying punitive tariffs.  This is not good news for anyone because the UK might find itself caught up in tariff wars that will usher in a new age of autarky.

Imagine you're a business owner or a farmer trying to plan for 2019.  How would you do that if everything is about to suddenly change in an unspecified and undefined way?  All UK business planning is in limbo because the UK's economic future is facing the highest level of uncertainty since 1939.

Who will make it happen?



The Conservative Government will make this happen with Theresa May at the helm and ably helped by David Davis, Liam Fox and Boris Johnson.  A party that campaigned for election on a policy of remaining in the EU and the EEA and the Customs Union will drag the UK out of them all. 

The Labour Party will make this happen by publicly stating they will not stand in the way of Brexit.  Jeremy Corbyn and his inner circle can finally realise the first stage of their Bennite dream of exiting the EU.  Stage two, winning an election, isn't going to happen any time soon so, EU or no EU,  those radical left policies will never come to pass. In their quest for UKIP ditherers they have conveniently ignored the fact that 2/3 of Labour voters declared Remain in the EU referendum.   Let's not forget that they also campaigned on a manifesto of continuing membership of the EU, the EEA and the Customs Union.  What happened to democracy?

It doesn't matter if the Supreme Court forces Westminster to vote for Article 50 because the Labour Party have already said they will wave it through.  That's right, a mixture of disorganisation, cowardice and stupidity has extinguished any hope that this can be avoided.  With only 56 seats the SNP can do almost nothing to dent the assured Parliamentary majority that will happily wave Brexit through.  They can and will campaign to repair the constitutional weakness that lies at the heart of devolution but it will take much, much longer to fix that than it takes to exit the EU. 

The Civil Service will make this happen, too.  They might broadly be opposed to Brexit on the grounds of practicality and reason but Whitehall isn't known for its ethics.  The Iraq War, after all  passed with just a handful of resignations.  How many can we expect for a mere constitutional change? The departure of Ivan Rogers was probably the peak. 

What can be done?


If you're Scottish you need to cling on to the idea of Scottish Independence. There will almost certainly be a referendum no sooner than 2018 and no later than 2020, depending on the rate of progress towards the inevitable hard Brexit.   If you're not a supporter of Scottish Independence please think just for a second if you want to live in a country with the death penalty or summary justice.  Do you want to live in a country that talks of a return to the glorious days of empire?  Do you want to live in a country without the protections of health and safety at work or minimum standards for paid leave?  Do you want to be dismissed from your job without recourse to appeal or rule of law?  Do you want to live with the consequences of hasty trade deals with the US that leave the NHS exposed to American health conglomerates?  Do you want to live in a country that locks up its citizens indefinitely without trial? Do you want to live in a country that kicks and screams like a spoiled child and blames immigrants for its social woes instead of getting on with solving its problems?

If you live in England or Wales and you oppose Brexit then I recommend learning a major European language as fast as you can and moving to a continental location before Article 50 is invoked.  Brexit is now as inevitable as death or taxes. Get out while the door is still open.

Thursday, 12 January 2017

Keep Feeling Fascination

Who would have thought that the Great Repeal Bill could be so endlessly fascinating?  My last post was about the Great Repeal Bill and the high likelihood that we will end up with clumsy and hastily written law clogging up the court system for years to come.  After posting I started thinking about what it would be like to be a lawyer working on the Great Repeal Bill.  Yes, folks, this is the kind of fantastical and imaginative inner life that has been forced on me by nature and nurture. Anyway, what would it be like beavering away on the biggest legislative revolution since Magna Carta?  Would it be like working on a software project with a) crazy but immutable deadlines; b) shifting and ever-growing requirements; c) ran by timid managers scared of making a concrete decision that might end up being proved wrong over time?  If you've ever worked in software you'll know that describes all software projects.  Does it also describe all legal projects?  I can't say for sure but the Great Repeal Bill will likely be exactly like that.  This post is going to explain the whys and wherefores.  Before we go any further, I need to admit that the Great Repeal Bill isn't fascinating at all but pretending it is presents the perfect opportunity for a pop video with semi-appropriate song title and surprisingly apt lyrics. Take it away, Mr Philip Oakey.


The aim of the Great Repeal Bill is to bring all EU Regulations into British domestic law.  In the first instance nothing will actually be repealed but over time the UK Government will be able to cut, replace and modify as it sees fit.  Now, there's not much point in just creating a direct copy of EU Regulations because it would leave the UK not only beholden to European institutions such as the European Railways Agency but also to the European Court of Justice.  To "take back control" the UK Government also needs to mirror the institutions and courts of the EU by creating and staffing their own.  This entire system needs to be up and running by April 1, 2019.  Straight away we can tick off the crazy but immutable deadline.

The Entoure Checklist of Nightmare Project Classification.  1/3 = not plain sailing.
What about those shifting and ever-growing requirements?  The Great Repeal Bill will need to account for all of the UK's external legal relationships on the day that it exits the EU. If you're a lawyer tasked with drafting the Bill then you need to write it in a way that accounts for all combinations of possible legal accountability.  So far we've assumed that the UK will withdraw from all EU institutions and courts and set up their own copies. However, we don't actually know that this is the case.  Remember all that talk about a transitional deal?  That, for example, might involve the UK being temporarily accountable to the EFTA court for at least a sub-set of legal domains.  As it stands we don't even know if the UK will withdraw from all EU institutions.  A decision might be made to remain in the European Railway Agency in order to smooth the operation of the Channel Tunnel.  Alternatively, a separate UK/EU institution might be created to oversee the transport of hazardous chemicals. The combinations of jurisdiction and accountability are starting to add up pretty fast into a horrible matrix of confusion.  Drafts of the Great Repeal Bill will need to account for all possible outcomes of the EU divorce talks.  It will also need to respond instantly to whatever leaks out of the twists and turns of the Article 50 talks.  I'd say that we can now tick off shifting and ever-growing requirements.

The Entoure Checklist of Nightmare Project Classification. 2/3 = Nail-biting stress.
This legal project is turning into a bit of a nightmare, isn't it?  It already sounds as bad as the worst software projects I've encountered over the last 20 years.  Can we top it off with indecisive management?  Hey, of course we can.  The UK Government has had six months to clarify its legal objectives on leaving the EU.  To date nothing has come out except a muddle of meaningless slogans and mounting evidence that they don't understand even the simplest consequences of the available choices. If that isn't indecisive and timid, I don't know what is. Let's tick off that final box and declare this project an official nightmare.

The Entoure Checklist of Nightmare Project Classification. 3/3 =  Resign your post immediately.
I've never been more glad that I'm a programming drone in the software industry. I put myself in the shoes of a government lawyer for just 10 minutes and I'm starting to feel my stress levels rise. Honestly, the projects I've worked on are child's play in comparison.  Think of the poor lawyers, those poor, lost lawyers.

Over and out,

Terry

PS Did Philip Oakey have the Great Repeal Bill in mind when he was singing?  Take a gander at the lyrics. How very apt!

If it seems a little time is needed.
Decisions to be made.
The good advice of friends unheeded.
The best of plans mislaid.
Just looking for a new direction
In an old familiar way.
The forming of a new connection,
To study or to play.
And so the conversation turned
Until the sun went down.
And many fantasies were learned
On that day.

PPS I once worked on a video game that had Keep Feeling Fascination on the soundtrack.  For most of the development it was the only entry in the game's music library, meaning that I heard this song many times a day for a period of more than 6 months.  Still not sick of it.

Monday, 9 January 2017

Legal Man

Do you lie awake and worry about the impending legal vacuum when the UK finally closes the door on the EU?  I doubt the UK medical profession is seeing an uptick in sleep disorder caused by legislative worries but this really is something that ought to be keeping the entire nation awake in a nail-biting state of tension and stress. This post is going to be a quick update on the Great Repeal Bill and the likelihood that the UK Government will manage this with aplomb.

 

The Great Repeal Bill will attempt to replace all EU Regulations with a UK copy.  In doing so, it will require the creation of UK institutions and courts that mirror all of the EU's institutions and courts.  This will involve the granting of legal powers to institutions, the appointment of judges, the recruitment of technical experts in diverse fields such as the safe transport of hazardous waste or the training and monitoring of train drivers.  It is going to be a complex job.  On April 1, 2019, after Brexit is complete, this will all have to work seamlessly.  If it doesn't, the UK is going to be paralysed by a legal vacuum.  Into that legal vacuum will step pension fraudsters, data hackers and reckless transport companies.  Huge parts of the engine that fuels UK life might even be closed down entirely until the legal situation is clarified.  That might mean that pharmaceutical companies can no longer gain licenses for life-saving drugs, that pensions sit in limbo, or that trains stop to swap drivers half-way through the Channel Tunnel.  It's going to be a good time to be a lawyer, though, because if the UK Government does a poor job this is all going to end in court.

What chance is there that the UK Government will do a good job here?  Personally, I'm not overly optimistic.   Let's look at the enormous mess that was made of the implementation of the EU Working Time Directive to see if even a single legal issue could be managed without a period of legal uncertainty and a string of court cases.  Among many protections given to workers to ensure a work/life balance, the  EU Working Time Directive laid out a minimum standard on paid leave.  It was the job of the UK Government to absorb this into domestic law.  As with many EU Directives, quite a bit of flexibility is allowed in the implementation.  For example, paid leave might only include basic pay.  Alternatively, it might include expected commissions and bonuses calculated from a specified formula to compute an average.  It might even include expected overtime pay.  The EU pretty much leaves this up to the individual country because it never aims for more than limited harmonisation.  What did the UK Government do, exactly?  Nothing.  It didn't even consider that paid leave might be a complex issue and simply left a blank space.  What could have been a smooth implementation ended up being resolved with messy court cases over a number of years.  Bloody heck, what a mess.

The EU Working Time Directive should have been a relatively simple implementation.  The UK Government completely failed in its duty and in doing so left businesses and employees facing years of uncertainty.  Leaving the EU is many orders of magnitude more complex than legislating for overtime or bonuses in holiday pay.  More importantly, the treatment and transport of hazardous waste is many orders of magnitude more important than legislating for overtime or bonuses in holiday pay.  A sherry before bed always worked for my Gran.

Over and out,

Terry








Happy New Year

I've had a welcome break from Brexit blogging of just over two weeks now.  It was welcome for me but probably also welcome for the tireless masochists who frequent this corner of the internet for endless bad news delivered through the medium of pop video punning and poorly conceived plays. I've barely read a headline or a blog post or even a tweet about Brexit since just before Christmas. Although this means I'm behind in the news somewhat, a break from the impending Brexit mud-bath has done me a world of good.  My Euro batteries are definitely recharged and I'm raring to go for a fun-filled year of political incompetence, rank stupidity and bland sloganeering


What's been happening while I've been away? Surprisingly, quite a lot has happened in the last two weeks. I'm not going to recap the news because anyone reading this will be further ahead than I am but it appears that the lack of plan or goal is reaching fever pitch.  We've seen endless news reports in the aftermath of the resignation of Ivan Rogers and his leaked notice letter.  It's abundantly clear now that the UK Government has no plan but also no goal.   In about 11 weeks time the Prime Minister will deliver a letter to the European Council of Ministers stating that the UK will leave the EU.  She is under no obligation to set out her objectives at that time so don't expect to see any because they still won't exist. The UK is hell-bent on leaving the EU, no matter the sorry state of preparation or how irrational it may be. The simple truth is that the UK Government only has to get it together to write one simple letter containing about 20 polite but formal words, a reference to Article 50, and a signature. This will happen. The only things that could ever stop this happening would be events even more terrifying than Brexit such as a zombie plague or alien attack. Even David Allen Green seems to have finally understood that the UK Government does not particularly care about process or rationality or preparedness or objective advice. Brexit means Brexit and we're definitely going to get Brexit in whatever form is imposed upon the UK in the next 2.25 years.  Nothing will stop Theresa May delivering that letter:  Parliament won't stop it, the Civil Service can't stop it, the Scottish Government will try but will fail to stop it, the Irish Peace Process will barely even trouble it, the City of London will act too late to delay it, and Gibraltar doesn't even register as an opposing factor.

Nah, just cross that busy road and have a fun adventure.
 What else has been happening?  There seems to be further momentum for reports about a transitional deal.  This is even something I clumsily mentioned some months back when pointing out that 2 years is a short time to undo 40 years of legislative union.  The problem with a transitional deal is that it not in the power of the UK Government to make it happen.  I'm not Noam Chomsky but I would guess a statistical analysis of mentions of a transitional deal would be heavily skewed towards the UK press. Why? Well, the UK badly needs a transitional deal, while the EU can decide at its own leisure not only whether or not to give us one but also the form that will take.  The EU, of course, will delay and delay and delay until there comes a point where UK business decisions need to be made in order to safeguard their European trade.  After everyone affected has relocated to Paris and Berlin and Dublin, a transitional deal will magically appear.  It's not clear to me that the UK will accept a transitional deal, anyway, because it will involve a 2020 General Election with the UK still beholden to the European Court of Justice and the four freedoms of the European Union. Perhaps the public mood will have altered by then in the face of impending legislative calamity.  We can only hope but I'm not overly optimistic about the UK electorate.


I'm sorry to be starting 2017 with such a depressing and pessimistic post.  Put simply, a madness has taken root at the heart of the UK Government.  Instead of leadership based on reason and calculation, we have self-congratulatory inexperts driven by dogma spewing meaningless slogans to the tabloid press at every opportunity.  It really seems like a fever has gripped every politician caught up in the Brexit maelstrom because the Labour Party are simply no better.  To be honest, they might even be worse.  What about the Scottish dimension?  Can that bring some good news?  Well, on the one hand, the First Minister seems to have a goal and a plan and she is able to communicate that fairly clearly.  On the other hand, nobody with influence on Brexit is actually listening to what she says, especially not the Prime Minister.  Indyref2 is now a certainty.  Is that good news?  I don't know for sure but it's certainly something to cling on to because it is the only way out of the doom and gloom that surrounds every utterance of the word "Brexit". 

Over and out,

Terry