Thursday, 31 August 2017

Brexit Holidays

It's time for a break.  That means a break from the relentlessly sunny Swiss summer, a break from another particularly busy period at work, and a break from Brexit blogging from a Scottish perspective.  I'm off to Scotland to check if it's still raining and maybe take a look at that bridge everybody is talking about. There will be whisky, there will be laughter, there will be communal playing of the ukulele, there will be roamin' in the gloamin', there will be whisky,  there will be bicycle rides by the salty sea, there will be times when I just sit in a comfy chair and enjoy the doing of nothing whatsoever.  Did I mention there will be whisky? There will also be no Brexit blogging for the next 10 days or so.  I really, really need a break. Let's face it, we all need a break from the endless bad news blogging that I serve up here on a semi-regular basis.


See you all the week after next!

Over and out,

Terry




Friday, 18 August 2017

Really Stupid Pt 2

One of the problems with being an amateur Brexit blogger is that I just can't keep up with events.  Brexit logic may have a 9 month cycle but on top of that it is plagued by a high frequency signal  that is basically just noise to the ear of a rational human being.  Monday might bring a leak that the UK is going to ban chemically washed chicken, then Tuesday might inform us that we're going to buy a job-lot of disinfected poultry with the loose change from our £40 billion exit bill.  It all just moves so fast. Sometimes this blog is like watching the football highlights from two weeks ago - all the drama of the moment is forgotten and all you've got left to enjoy is a grim sense of life ebbing away and footage of some overpaid idiots running around a grass rectangle.  This is one of those sometimes because today's post is a delayed review of the UK government's proposal for the Northern Ireland/Ireland border.  Enjoy.

What does the UK propose?   Let's start with the good news.  The UK intends to maintain the Common Travel Area.  This is a historic agreement between Ireland and the UK that basically bestows the kind of rights that the EU would eventually bestow upon its citizens.  In fact, those rights go far beyond the EU because it includes voting rights and fewer conditions on benefit claims or residence.
  • the right to enter and reside in each others’ state without being subject to a requirement to obtain permission;
  • the right to work without being subject to a requirement to obtain permission;
  • the right to study;
  • access to social welfare entitlements and benefits;
  • access to health services; and
  • the right to vote in local and parliamentary elections.

Is there any more good news?  Well, it does provide quite an interesting history lesson.  Did you know that in 1972 only 17 of the 200 border crossings were approved for vehicular traffic?  The border was such a dangerous place (bombings, shootings, violence) that it had to be policed by armed guards and watchtowers.  The Good Friday agreement of 1998 removed all signs of the border and paved the way to relative peace.  Although the EU wasn't directly instrumental in striking that agreement, the border arrangements brought about by EU membership helped to make it possible. I've even crossed the border myself a few times and the only visible sign of change is that the road signs change from kilometres to miles per hour.   

I don't want this blog to just be the bearer of bad news so I'm going to stay with the positives a bit longer: there are no plans for passport checks at the border.  The rights of travel for Irish citizens will, of course, be covered by the continuation of the CTA.  It looks as though the UK government is not going to require visas for EEA visitors because they seem happy for EEA citizens to cross into the UK through Ireland. Interestingly, they don't really say much about the rights of non-EEA visitors to cross the border.  It seems highly unlikely that Ireland and the UK will align their visa requirements for non-EEA so this is a bit of a loose end that does need tying up.  It strikes me that anyone with rights to travel to Ireland but not the UK can now just enter the UK through Ireland.  Eventually, someone without a UK travel visa is going to commit a crime in Basingstoke and Tony Parsons is going to blow a gasket.  This is actually quite serious because taking control of the borders ought to mean exactly that but now the government is basically letting the Irish government control entry to the UK.  This might be a very real problem but it's not even in the top ten on the chart of shame.

Let's move on to the bad news.  When the UK exits the EU it will no longer be in the EU Customs Union.  As a consequence, we might expect that the Irish mainland border will start to look like the rest of the EU's border. What does that look like?  Well,  I've blogged about this a few times because I regularly cross the EU's border with Switzerland.  It basically look like any other border on the EU's periphery:  there are manned checkpoints on major crossing points;  temporary checkpoints and random checks on minor crossing points, and very occasional checks on trains.   If you're crossing the border in a massive truck laden with delicious cheese you'd better have your dockets ready because you're going to need them.  A family car on a minor crossing point might get stopped but, then again, it might not.  You're highly unlikely to be stopped on a bicycle or on foot but the risk is always there. Switzerland is in the Schengen area so all that checking is performed to maintain the integrity of the tariff regime. We might expect that kind of border to appear at the NI/Ireland interface but the government aren't proposing any of that because they have permanently taken leave of their senses.

They're an experimental lot at Brexit HQ because they are very keen on the words "unprecedented".   I can hereby declare that their proposal is certainly unprecedented.  It is also unhinged, unworkable and unstable.  David Davis proposes that the EU basically ignores the border altogether.  Yup, let's all pretend it doesn't exist even though it does. He basically says that small traders should be allowed to move goods freely across the border without any regard for differences in tariff regimes.  He then says that large traders should register as trusted businesses and we'll just trust everyone to pay their tariff charges at their leisure.  Once all that is in place the border will continue with zero border infrastructure, zero guards, zero watchtowers, zero cameras and zero checkpoints.  This is a mad fantasy and the rest of this post will be devoted to tearing down the hapless plan until it keels over from the weight of shame.

The problem can be summed up in one word:  arbitrage.  Any time there is a price discrepancy in any commodity across the border it encourages cross-border trade in that commodity.  That price discrepancy might be due to currency fluctuations or it might be due to tariff policy.  If there is an open tunnel across the border it will allow cheap goods to flood either country against national policy.  That counts for small traders just as it does for large ones.  Did you know that the Swiss actually made attempts to control the cross-border traffic in German pizza delivery companies? They need to do that because Swiss pizza is much more expensive due to the high value of the Swiss Franc. All it took was a few complaints about foreign pizza imports and its effect on the economy of border towns and something was done about it through the enforcement of tariff payments.  That's right, even small businesses can build up political pressure at the border.  Big business is another story altogether.  The UK has repeatedly threatened to turn itself into a low regulation, low tariff, low tax economy.   That seamless border will be an open target for smugglers to exploit the border by sneaking cheap steel and oil and anything you want to mention into the EU.  The key point is that once it crosses to Ireland there are no further checks anywhere in the EU.  It works the other way, too.  Jeremy Corbyn might want to increase steel tariffs to help Welsh steel workers.  There's no point doing that if cheaper Chinese steel can flood in from the EU.  To be honest, most things involving Corbyn have no point.

David Davis is basically asking the EU to significantly weaken its border and undermine its long-term economic strategy for absolutely nothing in return.  He is asking the EU for a massive favour just because the UK finds itself in a hole.  He is asking the EU to trust the UK, even though the UK is facing a £2 billion fine for repeatedly failing to uphold EU regulations at its own ports.   The best outcome for the EU can only ever be that it is not as good as it is today.   It is not an attractive proposition.

Can it get worse?  Yes, it can.  What about the prospect of hormone-injected beef from the US winding its way to Munich all the way from Munster?  Well, Davis has thought of that.  He says that the UK will mirror all of the EU's agri-food regulations.  Well, he can wave goodbye to a US trade deal if he does that.  Does the border have a magical agri-food filter?  No, it doesn't. Chemicals and nuclear material and paint and toys and inefficient vacuum cleaners will also want to cross the border.  The UK will need to mirror all legislation on pretty much every possible commodity category.   Davis doesn't explicitly mention any of that but that's what he'll have to do. He can wave goodbye to any trade deal with anyone with that kind of legislative weight on his back.  Did someone mention live animals?  Chickens and horses and animal disease can all cross the border.  Disease control and the EU Directives and Regulations that uphold standards of disease prevention aren't even mentioned. Can it get any worse?  Well, who is going to monitor all this?  The ECJ will quite clearly not be involved.  I think he is just asking Barnier to take the UK on trust.  Why would the EU agree to any of this?

It turns out that taking back control means giving up control.  Brexit means that the UK lets Ireland decide who gets to travel through its ports.  Brexit means that the UK gives up any attempts to pursue its own macro-economic policies. Brexit means that it is locked into EU regulatory standards in perpetuity without any say in those standards.  Brexit means that it is unable to sign its own trade deals because of the inherent loss of political freedom and power.  

The government's position paper tries to solve an intractable problem.  It is well written and contains all the references and caveats of a real position paper but it is actually 3 pages of logical fallacy and logistical nonsense fluffed out with 27 pages of waffle.  The EU is simply not going to agree to significant disadvantage in return for literally no gain.  Even the UK could not maintain the seamless border because borders are specifically designed to maintain regulatory and economic difference.  The only way that a truly seamless border is possible is by enforcing political convergence.  If only there was some kind of way to organise that across the whole of the European Continent. If only.

Over and out,

Terry

PS It looks like Davis is trying to resurrect the "row of the summer" over the sequencing of the talks.  He makes the point  pleads several times that progress will be faster with parallel talks.  Is he an idiot or is he playing to the press gallery?  Answers on a postcard. 








Wednesday, 16 August 2017

Really Stupid

It's getting much, much harder to write about the idiotic behaviour of the UK government at the moment. Honestly, they are just going round and round in circles, repeating the same mistakes over and over.   Watching it and thinking about and writing about it is a painful and frustrating activity.  You know, it's actually hard to engage with this level of stupidity. It would be easier if the daftness was less repetitive but it isn't like that. Instead of fresh and interesting "proposals" that require forensic analysis and documentary rigour, what we get instead is the entry level inanity of last autumn repackaged for a summer audience. As a consequence, I've become aware that this blog is now repeating itself. A quick analysis of my posts leads me to the conclusion that Brexit logic follows a 9 month cycle. That means we should all be on the look-out for the ungainly return of  "cake and eat it" Brexit.   Oh, and there it is, right on time.  Yup, there it is in the form of the opening chapter of an epic fantasy novel about the EU Customs Union.  Read it at your peril.

 
 
What exactly are Brexit HQ up to with their latest harebrained wheeze?  Well, the government have decided to rush release their madcap imaginings for the UK's future customs relationship with the EU.  I fully recommend taking a short break from this blog to read Ian Dunt's pithy response because it tells you pretty much everything you need to know about the delusional fantasy bubble that protects David Davis from the harsh realities of the real world. Follow the link, read it at your leisure, and we'll meet up again in paragraph 3.

Welcome back.  That was quite a post, wasn't it?  What more can I add?  Well, I thought it would be fun just to take a single sentence from the government's position paper and see where the madness leads us.  I know I've done this before a few times but here I am doing it once again.  I did say this blog is repeating itself, didn't I?  I'm fairly certain that any sentence will lead to a self-inflicted skull trepanation but, for no particular reason, I like the sound of this one:
As a first step, we will seek continuity in our existing trade and investment relationships, including those covered by EU Free Trade Agreements or other EU preferential arrangements.
The UK is going to leave the EEA and the EU Customs Union on 31 March, 2019.  There's not much we can do about that because all of the treaty agreements governing the EU will immediately exclude the UK when it exits the EU.  Leaving the EU Customs Union means that the EU now treats the UK as a third nation and will start imposing tariffs on all goods entering the EU from the UK.  This will have a catastrophic effect on British business because UK exports will just get snarled up in huge queues at Calais and Hamburg.  Even if the UK can come to an agreement with the EU about goods originating in the UK there is still the thorny problem of goods entering the  EU through the UK.  Leaving the EU Customs Union, after all, means that the UK is no longer bound by the system of external tariffs that the EU has painstakingly assembled over the last 50 years through Free Trade Agreements (FTAs) and negotiated tariff schedules at the World Trade Organisation (WTO).  The EU will need to defend all of those tariff agreements and the only way it can do that is to check everything entering the EU from the UK independent of its source of origin.

What we all need is continuity until a new system can be implemented in a timely manner.  David Davis intends to salvage some sense of continuity with the EU by temporarily retaining all of the EU's tariff rates.  Those tariff rates include the 45 or so FTAs that the EU has negotiated in addition to the EU's tariff schedules at the WTO.  Tariff duplication is pretty much the only way that the UK could ever hope to convince the EU that there is no need for border checks on goods shipping to the EU from the UK.  If, for example, the EU imposes a 0% FTA tariff on Mexican ukuleles but a 12% WTO tariff on Nicaraguan ukuleles then the UK needs to make sure that those tariffs persist at the UK border.  Mexico will have every right to be furious if they learn that Nicaragua (and everyone else) is able to sneak its ukuleles tariff-free into the EU simply by redirecting them  through UK ports.  They will start wondering about the value of the FTA because they could just as easily copy Nicaragua's loophole and redirect everything through Kent.  EU luthiers will also be furious because their business will suddenly face all sorts of unplanned competition from global ukesters. All that fury will force the EU to start checking goods entering from the UK so that they can make sure the correct tariffs are applied.  If that happens UK businesses will immediately find their goods snarled up in lengthy border queues. The only way to avoid that is for the UK to maintain the EU's system of external tariffs at the UK border.

The problem that faces the UK is that it will no longer participate in any of the FTAs that the EU has with Mexico and South Korea and Canada.  In the absence of any FTAs, it is unilaterally proposing to maintain low or zero tariffs on goods from all those countries.  More than that, it is unilaterally maintaining its side of the standards bargain.  Of course, any of those countries might choose to enter a FTA with the UK but that is years and years away.  In the meantime, they get guaranteed tariff-free access to the UK and a continuation of all rights to market access without having to give anything in return.  If they want to stop the import of UK paint due to a row about standards they will have every right to do that.  If they want to resort to WTO tariff schedules for UK goods then they have every right to do that, too.  They can literally do anything they want because the UK has given up all of its negotiating power. This is taking back control.

Can it get any worse?  Well, yes, it can.  The UK cannot legally apply preferential rates to some nations but not others without first agreeing a FTA that conforms to WTO rules.  It is simply not in the interests of any nation to sign a FTA with the UK during the transition period for all the reasons described above.  Even if it turned out that Mexico was desperate for a FTA, the UK is really in no position to sign any trade deals with anyone until it stabilises its WTO schedules and completes a FTA with the EU.  We all know that FTAs take years and years to come to fruition.  In the meantime, the UK will have reverted to trading with the EU's trading partners under WTO rules but will have taken the unprecedented step  of unilaterally applying the tariffs and quotas and standards of the EU's FTAs for a period of time. Does that sound discriminatory?  Yes, it does.  Nicaragua will be perfectly within its rights to lodge an appeal that the UK is discriminating against its ukulele industry by applying preferential rates to Mexican and Canadian ukuleles.  The only outcome is that the UK will be forced to apply its WTO tariffs to all WTO members until it can agree about 45-50 FTAs with the EU's existing trading partners.  The logical outcome here is that the UK can't uphold the EU's external tariffs without being a member of the EU Customs Union. Something, somewhere has to give because the UK cannot revert to WTO rules and uphold the EU's system of external tariffs.  

The UK is going to drop out of about 45 FTAs that it currently enjoys as a member of the EU.  David Davis thought that was worth just one sentence.  He didn't provide any details about how he might convince 45 global partners to maintain the status quo when it clearly isn't in their interest to do that.  He didn't speculate on how long it might take or how he would reach formal agreement with everyone involved before the UK exits the EU.  He didn't consider why anyone would enter a temporary agreement with the UK as it struggles to leave the EU only to have to rip that up for a more permanent one at an unspecified date in the future.  He didn't ponder on the legality of the UK's position or how it might open the UK up to further WTO dispute at a time when it needs stability more than anything else.  He literally didn't think about any of this at all.  I'm pretty confident I could have written a thousand words on the logical and practical failings of almost any sentence in his proposal.  Meanwhile, the UK still hasn't published a position paper on the more pressing issue of the exit bill.  All musings on future trade with the EU will be filed in the bin until we agree on the bill, Northern Ireland and citizens' rights. Why didn't he engage his peanut brain on the stuff that really needs attention?

Over and out,

PS "What we all need is continuity until a new system can be implemented in a timely manner."  I love sarcasm.

PPS I've been a bit quiet lately but a) it's summer and b) I thought I'd take advantage of the quiet before the Brexit storm.