Monday, 31 October 2016

Accustomed to mistakes

Have you ever made a humongous mistake? I'd always considered myself completely impervious to mortal frailty in any form until just the other day when I spent a considerable amount of time at work trying to debug a software crash.  It initially bore all the hallmarks of a stack corruption but the real problem turned out to be a simple logical error with some uninitialised variables.  How could I get it so wrong?  Lasting shame burned at my very being, threatening my own sense of identity and worth.  I have a deeply unattractive STEM mindset so any kind of mistake that relegates me to the mass of error-prone humanity is going to hit hard.  Why don't you go right ahead and kick a man while he's down?  Yes, I also made an error in a recent blog post.  To preserve any dignity at all I needed to correct this asap but was then hit with a light dose of man flu, probably related to the harsh reality check on my coding diagnostic skills.   Being human is a bloody curse at times, I tell you.

What was wrong with that last blog post?  Well, I really wasn't clear enough about the difference between the customs union and the single market and might have left the impression that these terms are inter-changeable.  This simply can't be tolerated because even in this low state of indignity I am still better than Liam Fox.  You've guessed it right, this post is going to be about the customs union and why it is suddenly all over the news.

A customs union allows goods to flow tariff-free within its geographic limits.  The important point is that goods from outside the union can pay a tariff to enter the union and then move anywhere within the union without any further tariff or non-tariff barriers. For that to work all nations in the union need to agree a system of Common External Tariffs (CET).  If they don't do that there will be pressure to import goods to low tariff areas in the union and then redistribute them to high tariff areas. Obviously, that would undermine the power of governments to set tariffs so they would respond with systems of certification at their national border to make sure that the correct tariffs are paid on goods sourced from outside the union.

A customs union can be thought of as a deeper level of economic integration than a free trade area because free trade agreements alone don't impose the extra condition of CET.   Canada and the US, for example,  independently negotiate their own trade deals and WTO tariffs even though they are both members of NAFTA.  As a consequence, they need to have further agreements to manage the distribution of goods sourced from outside North America.  The European customs union, on the other hand, applies a system of common tariffs and has no need of further "country of origin" certification checks at national borders.  This freedom leads straight to the complex supply chain that feeds the Nissan car plant:  components can whizz around the European customs union without any delays or costs at national borders because there are never delays or costs at national borders.

The modern world is very complex.
It's time to come clean about that mistake I made in my recent post.  I wrote that the Nissan Sunderland car plant depended on the UK remaining a member of the European single market.  EEA membership would no doubt help their business but membership of the customs union is far more fundamental because it is the only solution that will guarantee a zero-friction customs border.  Norway, as an example, is in the EEA but not in the customs union.  That means it can set its own tariffs for goods entering from outside the EEA but needs to enforce a system of certification to prevent unscrupulous capitalists taking advantage of tariff differences across the Norwegian border.  There are good reasons to remain outside the customs union.  A country like Norway might want to protect its fishing and agricultural industries from global competition with high WTO tariffs.  Alternatively, it might want to pursue a trade deal with Ghana on quite different terms from the Germans and French.   There are also good reasons to join the customs union.  Maybe you are a nation that needs to protect a fragile, foreign-owned manufacturing industry that depends completely on zero-friction borders. Does that sound like the UK?

Car boots, bric-a-brac and jumble sales.  A new department for Liam Fox.
For some time now the government has been signalling loud and clear that Brexit means leaving the European customs union.  In fact, the mere presence of disgraced former and now not former Minister Liam Fox is enough to know that the intention is to leave the European customs union.  The simple truth is that he can only sign international trade deals and reduce WTO tariffs if the UK leaves the customs union.  This message will have worried Nissan because it would have undermined the entire supply chain that feeds their assembly lines.  It worried them so much that they even had talks with the government.  Some kind of understanding was clearly reached because Nissan have now guaranteed that their next product line will be manufactured in Sunderland. The terms of the agreement are being kept secret for the time being.  Personally, I find it hard to believe that the UK government is in a position to commit to the European customs union because they seem to still be in a state of some disarray.  Liam Fox is also still banging on about the UK being a beacon for free and open trade. I don't think the UK will have made this guarantee to Nissan.

What else could the government have promised Nissan instead of ongoing membership of the customs union?  They might have promised a tariff-free deal with the EEA.  I don't think that is enough on its own because it still adds friction to the supply chain in the form of country of origin certification.  Besides, it is not in the government's power to guarantee a tariff-free deal with the EU because it requires 28 countries to agree.  Any agreement along those lines would likely stretch in to the next Parliament.   Anything else?  There's not really much else they can do except for giving them hard cash in the form of technology research grants or infrastructure improvements or employee training schemes.  The government absolutely cannot guarantee to underwrite the losses that accumulate from customs tariffs and delays because that is against WTO rules.  Such a system of payments would be considered as a clear case of discriminatory subsidy by the WTO.  It would also make Liam Fox very sad because it would mark the end of his ultra-libertarian fantasy.  And that makes me sad because his own sense of identity will be threatened just as mine was by all the mistakes I've been making.

It looks like the UK is going to leave the customs union and the single market and, of course, the EU.  A foreign-owned factory has kicked up a stink and the government have offered them a deal in secret.  We're going to see a lot more of this in the next few months and years.  There are other car factories that need their own deal, there are businesses that need EU workers, and there are banks that need passporting rights.   Are they all to get their own secret deal?  Is this taking back control?  Is this free and open trade?  Is this even open government?

Anyway, I hope I cleared up the confusion of my last post.  My personal sense of worth is on the up already but that deeply unattractive STEM mindset is not showing any signs of abating.  Swings and roundabouts.  A bit like EU membership, really.

Over and out,


PS I won't really feel sad if it all goes wrong for Liam Fox.



  1. God, that was complex.

    When I heard that Nissan had been satisfied my immediate reaction was, bang goes the £350 million a week that the NHS had supposedly been going to get, this time for good! Then the government made a statement saying that it hadn't cost them a penny.

    So, I'm totally mystified.

    It seems to me that, in a situation where the UK has yet to trigger Article 50, where no one can do deals of any sort, or even enter into negotiations of any kind, what the hell else could be guaranteeing continuity for Nissan enough for them to agree to invest for the future?

    All we have seen so far, on both sides, are vague statements of willie waving. Britain telling us all that we will be better off; that everything will be fine; that countries all around the world are waiting to sign up to supply us with all we need and buy our weapons in return. No "clout" will be lost. We'll still be the second most important nation in the world.

    And the EU saying, the single market is the single market. You sign up for part of it, you sign up for all of it. Take it; leave it. 'Sup to you.

    Doubtless, of course, in the end, there will be some compromises made, but none of that can even start, not even behind closed doors, until A50 is signed. It would be illegal.

    After all, the English courts are still deciding whether the parliament should have the final say. It could be that Article 50 will NEVER be activated. Then they would all look a bit stupid (as England erupted into chaos and race riots, but that's another story).

    I can understand that certain arrangements need to be kept secret for commercial reasons, but as it seems impossible to have done any kind of deal that doesn't involve bunging Nissan a few VERY large brown envelopes (illegal though that may have been), what else could be going on?

    So, as you say, what about other car manufacturers? What about other manufacturers? What about universities that need the foreign staff and the EU research grants that allow the UK to lead in some medical research? What about the City? What about Northern Ireland? What about Gibraltar? What about Scotland?

    Is David Davis up to this? Indeed, are any of them up to it?

    OK, calm down. I know you've been sick. I'm sorry.

    We missed you.


      It's behind a paywall, but the Times appears to assume the deal is costing money, and the minister has said it will be extended to other car manufacturers. What about manufacturers who make other stuff?

      I think I know where that £350 million a week is going. And it's not to the underfunded collapsing NHS. Nope. It is straight into the hands of the Japanese/American manufacturers.

    2. It does look as though money will be pumped in through training schemes etc. Not behind a paywall:

      "The letter contained promises of a continuation of funds for training, skills and scientific research, and regional relocation grants"

      Exactly as you said, everybody will want a similar deal. Where does this end? Well, it definitely doesn't end in free and open trade. The government's assertion that it won't cost a penny is Ministerial sophistry, in my view, because an indirect payment is still a payment.

      I suspect that Nissan are still doing their calculations. Moving a whole car plant is expensive and risky so they will need to wait and see what is agreed and what that costs before taking real action. That could take years. Moving a factory takes years so better to wait a few more months. Moving a paperless office is much easier and far less risk. I would guess everyone is waiting to see what the government intend. In the meantime, I would expect to see investment figures stagnate or dip.

      I actually think the government's A50 position is becoming clearer. We will leave the customs union, the EEA and, of course, the EU. We will then pay hard cash by various (and nefarious) mechanisms to the EU and to business sectors to retain the big-ticket items like banking and manufacturing. They can also slash corporation tax as a kind of short-term bribe. The only question now is how much we are willing to pay and how much it will cost. Of course, if your business doesn't have the prestige of Nissan then you will be left to sort it out for yourself.

      This is grim.

  2. So, in short we will end up paying not to be in the union. We'll still have to obey any rules that pertain to anything that we trade in although we will have no say in them. What else will we pay for... Financial passports? Smaller companies? Tourism?

    And we will get no social funding; no agriculture funding; no infrastructure funding; no university grant funding and no Erasmus?

    And NI will probably fall apart; Gibraltar will go broke ...

    Good one Tories. Way to run a country...into the ground.

    1. I think that is what will happen based on wild extrapolations of not very much actual data. Immigration will make us leave the EEA, while Liam Fox's trade deal addiction will make us leave the customs union. Pressure to retain the advantages of these will force the government to prioritise at least the hot potatoes. I can't see any way to retain them without ponying up some hard cash. Reaching a letter of comfort with everyone affected just isn't practical and probably isn't affordable. I'm certainly no expert and I do hope I am wrong.

      I'm not sure the government can pay for financial passporting even if they wanted to. The EU only need to agree that passporting requires the adoption of the Euro and its game over for London. In fact, it was only EU membership that stopped that decision being made in the first place. I guess the government can entice other kinds of banking business to replace whatever they lose. Maybe they could entice back the hedge funds that they lost to Switzerland back in 2008/09. They just need to slash tax and tear up a lot of financial regulation to get them back. They must be looking at this.

    2. There's a serious problem for rural areas in the UK. The EU was much better at redistributing wealth than the UK. You only need to go to the Western Isles and see all the EU signs at the roadside to work out who pays for infrastructure up there. I really don't know what will happen there. Obviously, we don't need the EU in order to fund road-building and infrastructure projects in rural areas but I can't see a UK government doing the same job. Would this be a hot potato requiring government action? I'm not so sure.

      NI and Gibraltar look horribly difficult. I don't even know where to begin. What a mess.

  3. Absolutely.

    It's the same with the Social Fund. I've worked for two projects which were "match funded" be the EU social fund. In both cases they were originally funded from the local council under a social inclusion funding package that covered 4 specific areas in Dundee. The EU funding allowed for the expansion of these 4 areas to cover almost all of Dundee, which by European standards is considered to be poor/deprived. The difference this made was phenomenal.

    You're bang on. The EU will fund stuff that the UK wouldn't consider.

    The way things are going it looks like there will be no savings from leaving the union (£350 million a week), becasue it will be spent on ensuring access for Nissan and its likes. But, had it £350 million a week to spend, it wouldn't be spending it on infrastructure for the Highlands. It's much more likely to fund the improvements to London's sewers, or upgrading Kensington Palace for Princess Beatrix, or better champagne for the House of Lords.

  4. I think both NI adn Gibraltar are pretty intractable problems.

    For the sake of both the Republic and NI, I hope that the EU will come to the conclusion that some special circumstances exist.

    I think that the best thing would be for the province to rejoin the Republic. If they are so dependent upon one another it makes no sense for them to be separate entities.

    In the case of Gibraltar it simply couldn't exist in its present form without an open border. Something will have to change. I wonder how determined the Gibraltarians are NOT to be be part of Spain. Maybe they could work on some sort of Hong Kong arrangement?

    1. I have to admit I don't understand what is really going on in NI. I'm not sure how this will be resolved.

      Gibraltar might be a bit screwed - too peaceful and too small to be a priority and most definitely at the mercy of EU vetos.

    2. I think in fairness no one really knows what is going on in NI. Not even the Irish. But the Republic has an interest in this too. Cross border trade both ways is HUGE. (I suppose in fairness rather like the England/Scotland cross border trade.)

      What is too complex for me is the Good Friday agreement and how it is affected by the changes.

      Of course Gibraltar is small, but the effect, without some special measures, will be gigantic. They will have to do something, or life there will become at least diffcult.


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