Tuesday, 19 September 2017

Fox: He's Got Magic

How's Liam Fox  getting along?  Why, he must be close to signing off on a bumper crop of FTAs by now.  After all, that is what David Davis promised back in 2016.  The job of making that happen fell to the hapless Liam Fox when he was appointed Secretary of State for International Trade.  Davis specifically promised a negotiated trading area 10 times the value of the European Union that would involve Indonesia, South Korea, Australia, New Zealand, the US, Canada, Hong Kong, China and India. They promised all of that by March, 2019.  Like charismatic salesman at a street market they also promised a deep and special FTA with the EU that would replicate all of the current advantages of EU membership but without any of those pesky obligations.  Depending on which spokesperson was available at the time, our putative relationship with the EU was described as akin to Canada (with its CETA FTA) or similar to Norway (membership of EEA) or it would be like Switzerland (byzantine system of 120+ bi-lateral agreements) or it would be a bespoke deal that must never be specified lest its magical allure wears off. That is quite an impressive list, isn't it?  How is Liam Fox getting on?  How is he getting on?


Astonishingly, we're approaching the half-way point between the referendum result and the UK's imminent and guaranteed departure from the EU.  Assuming a linear trajectory, we should be roughly half-way through the list of trade negotiations by now, meaning that a trading area just 5 times the value of the European Union should be completed or nearly there.   Let's start counting on our fingers how we're doing.  The EU?  We haven't started any trade discussions with the EU.  India?  We haven't started any trade discussions with India. The US?  Despite some well publicised meetings aimed at generating news headlines we haven't started any trade discussions with the US.  South Korea?  We haven't started any trade discussions with South Korea.  Canada?  The Prime Minister is there right now and she is discussing issues related to trade but we are most definitely nowhere near negotiating a FTA with Canada. Japan? We haven't started any trade discussions with Japan.   Don't worry, I'm not going to torture you with more of this "we haven't started any trade discussions with country X" because I think we all knows where this is going to end up.  The UK has literally failed to start a single negotiation in all the time that has passed since the referendum result.  What went wrong?  Do shout out the answer if you feel like. Yes, Liam Fox is a good answer but it's not the whole story.

There are just so many issues here that they would be hard to fit into a single blog post.  I need to filter somehow or other so I thought I'd order them by their entertainment value. That's right, this post is now guaranteed to become more entertaining as it proceeds.  Before you all ask for your money back let's start off with the enormous pile of contractual obligations that will be declared void on EU departure day.  When the UK leaves the EU every single contract and treaty involving the EU and third countries will no longer apply to the UK. The Financial Times identified a truly incredible 759 treaties that will need to be ratified just for the UK to tread water.  These include fisheries agreements with Iceland, transport agreements with Santiago, nuclear agreements with Australia, regulatory cooperation agreements with New Zealand, customs agreements with Japan.  It is a truly astonishing list and I haven't even mentioned the trade deals yet.  The list contains a staggering 295 trade treaties, 202 regulatory cooperation treaties on everything from company takeovers to data sharing, and 65 transport agreements.  Before embarking on a free trade negotiation with the UK any one of these treaties can be used as a bargaining chip.  Even for third nations more than willing to talk trade with the UK it remains the case that all of this has to be sorted out first because trade cannot take place if aeroplanes can't take off and land.  On exit day, the UK will be faced with the kind of international relationships enjoyed by North Korea and South Sudan.

This brings us to the problem of government capacity.   The UK Civil Service is overburdened with a regulatory maelstrom.  It has to arrange the completion of 759 international treaties by 31 March, 2019;  identify any others that the FT might have missed; negotiate a complex exit deal from the EU; implement the entirety of EU law into UK law but without referencing any EU institutions or courts; ramp up UK mirrors of all EU technical agencies;  massively increase the UK border capacity; prepare UK business for customs of origins checks; prepare UK border control for customs of origin checks; implement a tariff payment and rebate system;  plan for the transcription of EU treaties into politically acceptable Free Trade Agreements; hire and train tens of thousands of staff.  To be honest, I'm just an amateur blogger so that probably only scratches the surface of the work that needs to be done. To make matters worse, instead of handing this work to established departments with existing procedures and expertise, Whitehall has been asked to play a prolonged game of musical chairs in the newly formed Department of International Trade and Department for Exiting the EU.  I think we can all agree it is a lot of work but is it an insurmountable goal? Luckily, we don't need to guess an answer because Liam Fox admitted that capacity was an issue and that he was "simply unable" to make it work.   Just in case you missed it let's repeat that one more time: Liam Fox admitted in public that the UK does not have capacity to complete the jobs required to smoothly exit the EU.

Can it get worse?  Yes, of course it can get worse.  Liam Fox is forbidden by EU law from signing trade deals before the UK exits the EU.  There is some legal debate about whether the UK can even negotiate trade deals while still a member of the EU but that is a moot point because a) it will seriously break down trust between the UK and the EU by turning the UK into a trade competitor and b) the UK has anyway used up all its capacity on negotiating its escape from the ghost of Jacques Delors.  When David Davis and Liam Fox made all those promises were they deluded or telling an outright lie?

Let's imagine Liam Fox invited his mate Adam Werrity round and all his mates and all their mates.  I'm not sure the universe could handle that concentration of raw talent but let's imagine that it could and that they all agreed to bat for UK trade at the weekend.  Let's imagine they chose Canada as their first port of call.  How might that go?  To work that out we need to think about the career goals of a typical Canadian trade negotiator.  My guess is they'll want to do this quickly so they can catch the ice hockey highlights on the gogglebox.  The last thing they want to do is to promise the earth to their boss only to find out that it will be a rocky ride getting there.  As a consequence, the first question they'll ask is if the UK is going to be a regulatory annexe of the EU. Does the UK intend to uphold the regulatory standards of the EU but through a different legal mechanism or does it intend to completely change to a new set of standards?  If the UK commits itself to EU regulatory equivalence then it might point to a favourable outcome using CETA as a template. This is great for Canada because everything they invest to make CETA work will also benefit the Canada/UK deal.  It also creates a Canada/UK/EU trading zone with all the attendant benefits of scale.  The problem is that neither Liam Fox nor Adam Werrity nor any of their mates nor David Davis knows the answer to this basic question.  The UK truly cannot decide a course for its future.  On the one hand, it cites a "deep and special" partnership with the EU and publishes position papers that foretell a future of EU equivalence.  On the other, meanwhile, the bumbling Foreign Secretary publishes a 4000 word hymn to Brexit that once again threatens to turn the UK into a low tax, low regulation economy.   Which is it to be?  The truth is that nobody knows and nobody will know until the UK finalises its relationship with the EU. Until that happens nobody will seriously discuss trade with Liam Fox because it would be a waste of time.

If you're a news fanatic you'll probably have noticed that Theresa May has been over in Canada talking to Justin Trudeau and that issues around trade have been discussed.   It's quite clear that Theresa May has convinced the Canadians that the UK will be a regulatory annexe of the EU because it seems that everyone is keen for something like CETA to continue with the UK after Brexit.  Despite Fox and Hammond and Johnson all making headlines with their incessant talk of an economy diverging from the regulatory standards of the  EU, May has unilaterally convinced a foreign head of state that is all mere chit chat and that the UK will be nothing more than a regulatory extension of the EU.  She must have spent her time outlining her vision for the UK's relationship with the EU as something akin to today's situation but with a few cosmetic changes here and there.  With that decided, the UK and Canada can use CETA as a template.  Except, of course, it hasn't been decided at all.  Theresa May might have decided in her own mind but I think we all recognise that the situation is fluid, at the very least. Would Jacob Rees-Mogg accept the UK automatically mirroring EU Regulations and Directives even if freed from the clutches of the ECJ?

We now see the only way forward for the UK.  If the UK is to sign any trade deals at all in the next 5 years or so it will have to become a regulatory annex of the EU.  Only by following that path can it relatively painlessly repair all the trade deals that it breaks by leaving the EU.  That brings us to the second most entertaining problem.  The EU is currently in trade talks with Japan and has voiced an interest in starting trade talks with Australia and New Zealand.  These countries also have capacity limits of their own and will prioritise their resources for the biggest fish.  Given that the EU has a population 8x that of the UK and includes Germany, already a larger market than the UK, it is obviously going to talk to the EU first.  It is going to choose the EU anyway because they have stable governance and are able to commit to long-term plans and initiatives.  Moreover, they know that they can just take the deal they strike with the EU and the UK will fall in line. Is this a good thing?  Well, no, because the UK will end up adopting trade positions that don't reflect the needs of its economy.  Trading conditions that might benefit Audi in Stuttgart probably don't necessarily apply to a payroll services company in Solihull.

Now we come to the most entertaining problem.  The problem is that the UK is supposed to be free to take control of its own trading affairs but we've just seen that the only political solution that has any chance of diverting the Brexit bus from the cliffs is to be, in the words of both Johnson and Gardiner, a vassal state.  Surely, though, the UK can go ahead and forge its own trade deals with its nimble legislative processes?  Well, this is where it gets really hard.  The truth is that, apart from the US, the EU pretty much has it covered with anyone interested in doing substantial trade deals and harmonising with EU standards to a meaningful degree.  Huge parts of the world actually run protected economies.  Brazil and India, for example, both fall into that category.  In comparison, the EU's WTO tariff rates average 4.8% and are much lower than the world average of 9% and insignificant compared to WTO bound rates that often run as high as 39%.  The trouble is that a trade deal only really has to liberalise trade relative to where it is right now and that might not mean very much in terms of real value.  A trade deal with a divergent and protected economy half-way round the world will have even less monetary significance and be even harder to sign.  Besides, if they know the UK will just fall in line why would they bother with the UK until they've sorted out a deal with the EU?

The simple truth is that the most stable outcome is guaranteed to be worse than the trading conditions enjoyed today by the UK.  I don't think anyone voted to be a regulatory annexe of the EU, to take on 2nd hand trade deals that we didn't influence and don't reflect the needs of the economy.  This is not an attractive option at all.  What are the alternatives?  What about the low tax, low regulation economy everyone keeps mentioning?  I've kept the best for last because the fantasy of Fox and Minford is to become a "beacon of free trade" by slashing as many tariff and non-tariff barriers as feasible and turning the UK into an economic free-for-all. Who would sign a free trade agreement with the UK when they already have complete and unfettered access to the UK's economy?  Nobody.

Over and out,

Terry

PS The US is a special case because it looks like TTIP has been abandoned so there won't be an existing FTA for the UK to adopt.  I've blogged about the specific issues of TPA and Congress in more detail but let's just say that we are dealing with a President who consistently wants more tariffs rather than fewer.   Trump is now on record as having said: "So, John, I want you to know, this is my view. I want tariffs. And I want someone to bring me some tariffs."

PPS There is still one issue that I haven't deal with.  If the UK manages to agree an extended period of negotiation beyond the 2 years laid out in Article 50 then it is most likely it will not be allowed  to sign trade deals for its duration. The Canada/EU deal, for example, will cease for the UK on 31 March, 2019 yet the UK will not be able to enforce any proposed agreement with any 3rd party for some years after that date.  The EU could concede on this point but what will that cost? Never forget who holds all the aces.


Thursday, 14 September 2017

The Brexit Game

I invented a pub game on my holidays. Truthfully, it is not a very good game and players will quickly tire of it but despite its low entertainment value I'm going to devote the entirety of my first post-holiday blog post to an utterly pointless discussion of The Brexit Game.  If you'd like to play the game in your local hostelry I'm going to describe the rules but they're not hard and fast or anything like that so feel free to customise them to maximise your enjoyment. When you've finished playing the game it might also be fun to chat about the patterns that you observed and see if you can draw any conclusions. I've only played a handful of times (and I'll probably never play again because, as I said, it isn't really a very good game) but it was fun to gamify what I was already obsessively doing with every waking thought.



If you want to play along, the game is quite simple to play. The game hinges on the idea that literally everything can be categorised as Remain or Leave. Some might say that is a spurious notion but I like to make bold, binary statements because a) exaggerating differences allows us to work out what they actually are and b) let's face it, it's more fun that way. The idea of the game is to propose a cultural figure that most divides opinion about their Brexit status. Play begins by agreeing the play order of all participants and the number of times you intend to cycle round. The first player then takes up the mantle of the nominating player and proposes a famous individual. That is followed by a vote of all players on the Leave/Remain status of the chosen celebrity. Points are awarded to the nominating player by subtracting the difference of Leave and Remain votes from the total number of players. The next person in the play order then takes on the role of the nominating player and so on until the chosen number of rounds are complete. The winner is obviously the player with the most points.

Let's try out a trial round. I reckon about 6 people read this blog so it makes sense that there are six players in our imaginary scenario. To get the ball rolling, I'm going to start by nominating Paul Daniels, 70's magician and all-round cultural reactionary. Was he Leave or Remain? Let's all vote and let aggregate opinion settle the debate once and for all. The scores are in and it turns out we're almost in agreement but one of you lot thinks he would have voted Remain. Oh dear, I don't think everyone is as familiar with the Gesamtkunstwerk of Paul Daniels as I originally thought. Anyway, let's work out that score. The difference between Leave and Remain votes is 4 (= 5 Leave - 1 Remain) so I score 2 points (= 6 players - 4 difference). I hope you can all see how it works. If I had proposed a celebrity that completely divided opinion I would have scored a maximum of 6 points. On the other hand, nominations that generate clear agreement of either Leave or Remain lead to nul points. Let's pass on to the next nominating player. Did I hear Tony Blackburn? Wow, good choice.

The game can be extended as much as you like. Personally, I found it slightly less tiresome when I tried to categorise literally everything into culturally Remain or Leave rather than just focus on voting intentions of humans. The great thing about that is that it allows bands, films, TV series and even snacks to be included. Is it even possible to categorise the cultural leanings of crisps? I don't know, to be honest, but let's at least give it a go because there are no quitlings on this blog. What do you all think about Quavers? I reckon they are Leave but I'm equally certain that Space Raiders are Remain. Howzat for brinksmanship?

After playing a few times and thinking about this most important topic for a few minutes I came up with another variation. This time the game is called "The Brexit Partners Game". The idea of the game is to come up with perfect Leave/Remain partnerships. To be honest, I couldn't didn't bother to come up with a scoring mechanism but that doesn't really matter. I'm guessing something that maximises points for the most divergent pair but the hard part is to agree what constitutes a legal pair. Here's a few I prepared earlier to give you an idea just in case anyone is inclined to take up the challenge of turning this into a playable parlour game that is guaranteed fun for none of the family.


Leave Remain
John Lennon Paul McCartney
Oasis Blur
Sid Little Eddie Large
Bill Wyman Mick Jagger
Joe Cocker Jarvis Cocker
Paul Daniels Phil Daniels
Ernie Wise Eric Morecambe
HP Sauce Soy Sauce
Stilton Gruyere
Dire Straits Sting
Morrissey Johnny Marr
Grant Mitchell Phil Mitchell
Sherlock Doctor Who
Quavers Space Raiders
Gary Numan Human League
Jerry Tom
Terry June
Cilla Black Sarah Greene
Michael Caine Roger Moore
Adele Amy Winehouse
Lewis Morse
Liverbirds Robin's Nest
Sex Pistols X-Ray Spex
John Cale Moe Tucker
John Humphrys John Snow
The Liverbirds Girls On Top
Ray Barraclough Les Dawson
The Goodes The Ledbetters
Jonathan Ross Graham Norton
Bruce Forsyth Tess Daly
Ken Barlow Deirdrie Barlow

I bet you're probably all impatient to hear the highest scoring nomination over my holiday break. Even if you're not, I'm going to go right ahead and tell you. It was Gary Numan and it was proposed by my fantastic friend and fellow idiot Mothra de Suave. On the one hand, Numan's music is futuristic. Gary Numan was a electronic pop pioneer who wasn't afraid of replacing mechanistic human effort with devices better equipped for the job. Removing all that drudgery of heavy guitars and faulty amplifiers and sore hands and broken strings freed up more time to focus on the core task of writing and recording a great song. More than that, synthesisers democratised the creative process so that everyone with a good idea could quickly participate. Reducing the barrier to entry (all that tedious learning of chords, finger exercises, scales training, expensive equipment) meant that ideas came to the fore. Isn't progress all about letting as many ideas as possible percolate through society and letting as many people as possible take part? Gary Numan was borrowing from Kraftwerk (Germany) and David Bowie (another planet altogether) and punk (London) and New Wave (New York). His output was nothing less than a cultural melange that contained a message for the whole world. That all sounds quite Remain, doesn't it? It certainly does but we need to look at that message a bit more closely before passing final judgement. Numan's music conjured a vision of a fearful and lonely future. His was a future where the machines were in control; human friendship had been electrified and would by now be entirely digital; solace and safety could only be found behind the locked door of a car. That all sounds like Leave to me. Yes, that all sounds like someone who wants to turn the clock back rather than look to the future; someone who shuns the green experience of shared transport for a solitary trip on a polluted motorway that used to be the home of frogs and rabbits. It's more than a tad Leavey. Well, this is vexatious. Are there any other clues that might help us settle it? Well, there is always the story that he came out as a Tory back in the 80s. Does that help? Not really because it might not be true and even if it was I'd say that historic party allegiances serve poorly as a Brexit benchmark. The clue that eventually tipped me towards Leave is that poor old Gary left the UK due to a sense that society was breaking down after some cheeky kids yelled at his wife.  He moved to Santa Monica, a city that might appear polite on the surface but actually has a significant problem with deadly gun crime, car theft and, as it turned out, a high rate of anti-social behaviour. He didn't think that through, did he? That is pure Brexit so I'm tipping Gary for Leave but I could be easily swayed back by anecdotes that point the other way. If anyone can beat Numan please let me know.


What have we learned? Not a lot, to be honest, but at least Brexit brought us all a shit pub game. That's honestly about as good as Brexit is ever going to get.

Over and out,

Terry

PS It probably took longer to think up this rubbish game than most Brexiters spent trying to understand even the basic operational details of the EU.

PPS If the Daily Express can attempt to categorise every substance in the world as cancer forming or cancer curing then I can do the same with Brexit. In keeping with that spirit, my next blog post will be about Princess Diana.