Tuesday, 24 January 2017

Brexiteers are in for a disappointment

A lot of people can't tell where I stand at the moment because I seem to direct most of my ire at Brexiteers. I've been asking myself a number of questions to that end just recently. On balance I think that Brexit is pretty horrendous. The only thing more dumb than Brexit was ever getting ourselves in this mess to begin with. Because of a completely unchecked parliament we have ended up with a system of governance that nobody especially wanted, very few understand and one that was always destined to fail.

It's one thing to establish a common market of rules but it's another thing entirely to create and overarching central authority that exists only for the purposes of accumulating more power. Eventually people will start asking questions and they will want rid of it no matter the cost. You don't have to be Oliver Cromwell to work that out.

Moreover, the structure of the EU is one that was never going to result in prompt or even workable policies. Good governance is governance that can respond to change. That is not something the EU has ever been able to do. Even minor modifications to is disastrous fishing policy took several years to hammer out. As to its response to the migration crisis, well, I need not elaborate.

The problem with Brexit is that the EU has obscured much of what has been happening in world affairs over the last three decades. The EU is only one cog in an elaborate machine. The inherent genius of the EU was to convince EU citizens that it was the whole of the machine. That is why Brexiteers are in for a bit of a shock when we leave the EU and find that we are still bound by thousands of tiny strands, much like Switzerland.

Most people have a very stunted idea of what national sovereignty is. They believe it to be the right to do exactly as we please with no reference to the rest of the world. The only notable examples of nations who act in this way a Belarus and North Korea. Everyone else is engaged in trade where common agreements necessarily require a sacrifice of some sovereignty in the common good.

Were we to have absolute sovereignty and total control we would never get anything useful done as politics would be bogged down in technical minutia while losing out on the advantages of commonality. It is for this reason that few nations on earth make all their own laws and the ones that do are not very pleasant places. Even the USA makes major concessions to international standards and regulations and will continue to do so. Most of it is below Trump's radar because it's not controversial. Who honestly wants a vote on aubergine marketing standards? There are some things we have to let industry sort out among themselves that don't really require any public intervention.

That is why we have a number of global multilateral regulatory forums. Many of them have a far more profound effect on the technical regulations that shape our society and yet nobody really bats an eyelid. The problem with the EU was that few believed it had honest intentions and was not content to merely regulate trade. Which is entirely correct.

Now that we are leaving the EU though, the game is about to change. Rather than being free of rules we are bound by slightly different ones and probably more of them. Most of the Brexiteer narratives are about to become unstuck. Trading with the rest of the world is not about to become any easier or more profitable and trade with Europe isn't going to be as free as it was. Economically there are few positives to Brexit for the foreseeable future. It will re-balance the economy but in ways few could anticipate. Most of the positives will be serendipitous and at the expense of something else.

We do not as yet know what Brexit will look like but member states will have their own red lines and we won't necessarily have the free hand to become a new Singapore or a tax haven of some type. All we do know is that a large contingent of EU law will remain virtually untouched and is unlikely to ever diverge. That is why Brexit is not the catastrophe some think it is, and is only likely to be one if we are stupid enough to make it so. Which is entirely possible.

As to the democratic question, many of the legacy issues will stay with us. In fact the legacy issues will eventually point to the reality that divergence is neither necessary or desirable and we will probably be knocking on the EU's door to restore certain rights in exchange for certain concessions - most likely immigration. We will go full circle - as indeed has Switzerland. We won't have a free hand in deregulating and parliament will still be as remote as Brussels ever was.

In fact, the main benefit to all this is that Brexit is a political refresher course in the realities of trade and international politics. It is something we have neglected for so long that we are no longer in the habit. Our efforts on the global stage have largely been for show; turning up to the right jamborees to sign a red book. A pale shadow of internationalism.

We will find that those silver bullets are in short supply and there isn't a world full of compensatory deals waiting in the wings. None that are of much use anyway. It will take some time for it to sink in that May's bungled Brexit is a busted flush. That's when real questions will be asked and that is when things will get interesting. We'll have to come up with a plan B for Britain. From there begins the renewal that we voted for. What shape it will take is anyone's guess. We'll get to the right place, but there are a few wrong turns to make before we get there. Brexiteers are not going to get what they bargained for.

Monday, 23 January 2017

Brexit: It's the systems, stupid.

Today EUreferendum.com has once again picks up on customs systems which are about to filter their way into the mainstream debate. "Slowly, laboriously, the legacy media is beginning to pick up on some of the technical issues involved in withdrawing from the EU, with The Times reporting on fears that, post-Brexit, the customs computers will not be able to cope with the workload".

This is why a transition will be very necessary. Since we are leaving the customs union and the single market we will have to develop our own systems. More importantly they will have to seamlessly interact with EU systems and must also be recognised in law. That is why we won't be fully leaving the single market any time soon.

There will need to be a provision for delayed implementation - and since our government will screw it up as a matter of course, we can expect this to linger for a very long time. I expect this to remain in force for seven years at the bare minimum. It will be something of a miracle if a new system can be developed in time, especially not yet knowing what the final agreement looks like.

Any Article 50 agreement will state something along the lines of "Until the dates of deployment or upgrading of the relevant IT systems, the European Union Customs Code shall be used where the relevant electronic systems are not yet operational. The formats and codes required for declarations, notifications and proof of customs status shall be subject to the data requirements set out in existing regulation establishing transitional rules for certain provisions EU where the relevant electronic systems are not yet operational".

This is why I have trouble believing that trade talks can happen separately from the divorce proceedings. The issues seem indivisible to me. The danger in all this is that we drop out of the EU without an agreement where all access rights to these systems are nullified and the customs code ceases to apply. That then send the whole system into chaos. The only good news is that the department for exiting the EU is becoming aware of this.

A report from the joint consultative committee, the government-industry body that oversees border issues, warned: “The possible reintroduction of customs declaration requirements and frontier controls could potentially cause major disruption at the border, particularly at ferry ports and for trade using the Channel tunnel.”

Ministers are also being warned that a large amount of legislation will be needed to replace regulations. “We believe there are some 700 items of legislation that would need to be written as the basis of customs law going forward,” the report from the committee said.

This is where Theresa May's great repeal bill comes in. A lot of people think that the respective regulatory conformity issues disappear by porting EU law into UK law. This is not so easily achieved. Turning it into UK law cannot give it legal effect in the EU itself.

These laws mainly impose duties on Member States towards each other. None of the Member States will recognise the UK as a Member State, as we will no longer be one, and the Commission cannot require them to. The point, therefore, is that we can conform with EU law, but we cannot legislate for the EU Member States to recognise that. In terms of EU law, we no longer exist.

As much as it will all need extensive re-writes the EU must also do the same. That is a hefty legal process that will only happen through a process of co-determination. That, I suspect, can only be agreed after the basic Article 50 terms are set and there will need to be another transition period for both sides to get their ducks in a row before setting the clock running on implementation.

This is why I get irritated with the legal profession opining on the repeal bill because they have no affinity for regulation or the systems that make up the single market. Fellow Brexiteers too are equally frustrating.

It's all very well warbling about making our own laws and taking back control in line with the sovereign demands of the people but the fact is that we do not live in an isolated pocket. Our systems must at the very least respect their systems. There will need to be major compromises. The USA is big enough and diverse enough not to have to bend to the will of its neighbours, but we as a nation dependent on food imports necessarily need to be part of a wider network of interdependent customs systems, not least with our closest neighbours. That, like it or not, means we do not have absolute control over the form our laws will take. Unilateralism has grave and self harming consequences.

To participate in any such systems means spending on the surveillance systems and the databases that make it all work and this is why we cannot reasonably expect to end payments to the EU any time soon. Customs cooperation costs money. Making petulant demands will be met with confusion and ridicule.

To start with Brexiteers must acknowledge that there are some irreconcilable compromises between sovereignty and free movement of goods and services. Pretending that there isn't is deeply dishonest. Saying we can have it all our own way with no reference to the EU ducks the question of whether we want free movement of goods and free trade. It seems our government wants it both ways. It is the equivalent of saying "we'll build a wall and the Mexicans are going to pay for it". Unless you are prepared to acknowledge these details then you are simply not capable of debating the matter honestly.

The same can be said of those who believe Brexit is straightforward. To suddenly introduce all of this paperwork where previously none existed will take a while and business will need time to adapt. Even worthwhile change has expensive externalities and even with the most competent government ever this is going to be a herculean effort. It will add to the costs of exports and it will increase bureaucracy. But then you wanted to take back control of our borders. Well kids, this is what it looks like.

Gina Miller has wasted her money

The supreme court is expected to rule tomorrow. I predicted that the government would win it because they would be spectacularly incompetent to lose it. You can see why my reasoning was flawed. Even though I hold the government in particularly low regard I still seem to be overestimating their competence. From now on I will base any future predictions on the most stupid they could possibly be and leave room for them to make it worse.

What we are going to see though is endless tedious speculative rants on the outcome should the government lose - and I expect it probably will. As you know I have not invested too much energy in deciphering it because Brexit has taken on a life of its own. The court case has been skilfully sidelined and any vote on Article 50 is now going to be an administrative chore where the opposition won't put up much of a fight.

There will likely be a few high profile rebellions on the government benches but most Tories will fall into line. What we will see is more muddled thinking from Labour who still haven't understood the Article 50 process. All in all it's going to be a huge waste of time.

I still maintain the view that MPs have no need to wait on this court ruling in order for parliament to assert itself. It could have done so at any point and could have frustrated the government in any number of ways to force a vote. Because Labour has no coherent position on Brexit, with MPs not understanding the gulf between their personal interpretations of the vote and and that of their constituents, all we can expect is mealy mouthed posturing.

This is actually a depressing day for parliamentary process because this is about the time we need an effective opposition. By all means parliament has no real right to stand in the way of Brexit but it should be organised and informed enough to be hauling the government over the coals for what is a deeply precarious Brexit position from the government.

Instead, Labour cling on to the customs union and the single market as a comfort blanket largely because they do not want the EU relationship to change. That prevents them from being able to a make a principled defence of it, and not knowing what each facet is they cannot speak with conviction or authority over the consequences of a botched withdrawal.

In that regard Ms Miller has wasted her money. She has invested a great deal of her life energy into giving parliament a chance to make a worthwhile contribution and now that it looks like she will get her way, they will likely squander it. More than likely the government will continue to cling to its deeply flawed idea of what is involved and nobody will be able to stop them from turning an opportunity into a shambles.

Friday, 20 January 2017

Yes, you should be worried.

The above tweet is very seriously wrong. The Ukraine relationship with the EU actually goes back to 2001. The Ukraine Country Strategy Paper was adopted by the European Commission on 27 December 2001 and it effectively took 12 years to evolve.

The Ukraine "deal" in its current mode began at the Paris Summit in 2008 when leaders of the EU and Ukraine agreed that an Association Agreement should be the successor agreement to the previous Partnership and Co-operation Agreement. The EU-Ukraine Association Agreement was the first of a new generation of Association Agreements with Eastern Partnership countries.

In February 2008, following confirmation of Ukraine’s WTO membership, the EU and Ukraine launched negotiations on a Deep and Comprehensive Free Trade Area (DCFTA) as a core element of the Association Agreement. At the 15th Ukraine-EU Summit of 19 December 2011, the EU leaders and President Yanukovych noted that a common understanding on the text of the Association Agreement was reached. It is not yet fully in force.

As to how long a Brexit agreement would take, have a look at this. So what?, I hear you say. Somebody on Twitter is wrong. Big deal. Except this particular somebody is a special adviser at the Department for International Development. Terrifying isn't it?

Go figure...

Twitter is blathering on about a report from Oxfam about income inequality. You've probably seen it. It's quite obviously silly and there's no need to rehash the arguments. What I will say though is that Oxfam have chosen a very poor tactic that undermines what is still a very necessary message. While the statistical trends may show overall growth an inexcusably large number of people still live in miserable, entirely avoidable poverty.

All Oxfam has achieved is to create an opportunity for poverty deniers (yes, I used that word) to claim that there isn't a problem. If there wasn't an urgent issue we wouldn't be seeing the most unprecedented migration crisis of all time. For all that is spoken of it we have yet to see any useful and concerted effort to address it. We still see institutional paralysis from the EU - and trade policies that make it worse. Interesting though that the press would pick up on such a dismal piece of flotsam yet ignore the very valid and damning critiques of EU trade policy written by... Oxfam.

Cry me a river

A reader alerted me to a tweet by Captain Histrionics. Suffice to say that if we had a democracy we would not be in this mess to begin with. We would have been adequately consulted on Lisbon and there would be no such thing as Article 50. There would not have been a burning resentment of the political class and perhaps we would not be leaving the EU. And maybe had there not been such a collapse of trust on the back of it the government would now be trusted to take a more nuanced path on Brexit. What you reap is what you sow. Ian Dunt, a practised liar, should admit his very minor role in our predicament.

Howsoever, we are presently lumbered with the system we have. I would have it another way. Sadly it does mean if the majority decides we must all go over a cliff then that is what we must do. The alternative is to leave it in entirely in the hands of the few who think they alone know how to run our lives - they who have brought us to this pretty pass by taking us deeper into the EU without our consent. If you ignore the people for long enough and belittle their concerns, whether valid or not, there will be consequences. This is your mess. Suck it up, dickhead. It's time to put on the big boy pants.

The one track obsession with tariffs will kill Britain's trade reputation

One of the most depressing aspects of the Toryboy fixation with tariffs is that it pays no real attention to the facts on the ground. What use is a free trade agreement if you lack the means to trade with the UK? If archaic infrastructure and corrupt and inefficient ports are eating into your profit margins then any agreement on tariffs is not worth the paper it is written on.

Worse still, with ever more trade requiring sophisticated IT systems for conformity and compliance - and ease of navigating customs, much of the world is excluded. 57% population can't afford the Internet and 50% don't have access to relevant content in their language

If we want cheaper food then we need to be looking at developing countries but half of Africans don't have mobile phones and there isn't the infrastructure to support those who do. A recent Guardian article shows what happens when you build a mobile mast in rural Africa. Very rapidly it becomes a population centre with a whole village popping up in its shadow. That is the kind of investment needed to facilitate trade. These days, without internet, trade just doesn't happen.

But what is also lacking are the mature systems that make for trustworthy and reliable trade. There have been improvements but still the system is nowhere near adequate. It is readily exploited by the worldwide black market in counterfeit goods. If the net result of "free trade" deals means dangerous or poisonous goods then trust in the system collapses.

The World Customs Organization (WCO) and the International Institute for Research Against Counterfeit Medicines (IRACM) announced this week the results of their fourth common initiative in the fight against fake medicines on the African continent. There were record seizures of 113 million illicit and potentially dangerous pharmaceutical products, which took place in the context of Operation ACIM (Action against Counterfeit and Illicit Medicines) in September 2016.

The number of seizures made in joint IRACM-WCO operations has now reached dramatic proportions, with almost 900 million counterfeit and illicit medicines seized at the borders of the continent. “Of the 243 maritime containers inspected, 150 contained illicit or counterfeit products". Staggering. And that's without looking at food fraud.

That's really the sort of thing we have all the single market agencies for. For all that some have it that the single market firewall diverts trade away from Europe, ultra free trade comes with massive costs and externalities, not least counterfeit medicines. It's why we have the AEO system along with sophisticated and expensive market surveillance mechanisms.

It's one of the many reasons life in the west is better. We can buy food and medicine with confidence. This kind of thing can only come about through a network of international cooperation and if we wish to maintain it and we wish to shape it then it necessarily requires that we contribute to the running of it. The fact that many of these agencies fall under EU jurisdiction is neither here nor there. It is a fact of life, that is how the system has evolved and maintaining present levels of involvement is unavoidable.

Chancers and free trade frauds like Shanker Singham have it that we should leave the single market so that we have the ability to relax regulations where really that's the last thing we want to do in the face of the massive liabilities that creates. As much as there is less scope for deregulation as single market standards are derived from global standards, much of the base level of regulation exists for a very good reason.

If Britain wants to become a global Britain and take a leading role in the world then a myopic and crass fixation with tariffs will get us nowhere. Rather than breaking up the sophisticated systems that facilitate free and fair trade we need to be investing all the way through supply chains in the common good - to break the stagnation of trade normalisation. In this we still have to prioritise supply chain security and if we want better trade then we need to lend our regulatory expertise to developing counties to solve the blight of counterfeiting.

Dropping standards and reducing tariffs doesn't really get us anywhere. Only through working with various global agencies can we tackle the many problems that hinder trade and that is not going to happen without considerable aid spending. If there is a Brexit dividend, which is highly unlikely, it will have to be spent on trade facilitation because scraps of paper signed by politicians aren't going to get the containers rolling. We will have to work doubly hard to replace the trade we lose by way of erecting non tariff barriers with Europe, it's not going to come for free and anyone who believes the Tory mantra of "bumper free trade deals" after Brexit was pretty much born yesterday.

Bilateral deals on tariffs can only give us marginal increments to existing supply chains. Many tariffs exist for pretty sound legacy reasons and we should not be any hurry to casually disregard them. Any future agreements must be meticulously studied rather than ratified for their own sake. That is why MPs need to take trade far more seriously than they do presently. There is enormous scope for self harm. If we want progress on trade then we have to recognise we are limited in what we can do alone and we will have to build up strategic alliances to split the costs of developing new trade lines.

In this the answers are to be found in regulatory harmonisation and customs cooperation through multilateral bodies. Trade unilateralism is an obsolete and unproductive mentality and in many ways it subverts efforts to bring about a global system of trade that matches the single market for security and stability. That will not make us any friends. I am sad to say that those driving the Brexit agenda have only a two dimensional view of trade which is ultimately self-defeating and a zero sum game. If we really are sincere about our commitment to international cooperation then a purely mercantile approach to trade and development is insufficient. We need to think bigger and longer term.

If we allow the agenda to be set by the likes of Fox, Baker and Redwood then we stand to demolish our credibility and ultimately Britain will be worse off for having left the EU. Brexit need not make us substantially poorer and in fact it could be a major opportunity but first the establishment must lose its infantile obsession with tariffs and learn to appreciate that trade is a far more involved discipline. How these people ever ended up in positions of influence given how little they know really does beat the hell out of me. The sooner they are removed, the better.

Tories are a luxury we can no longer afford

The problem I see is the assumption that trade is detached from all other considerations. The easiest part of a trade deal to agree is an agreement on tariffs, but then you move on to the matter of "frictionless" customs. It's not so simple as to have an agreement to wave lorries through on the nod. That is not how it works. Lorries travel through ports unimpeded because of a degree of up front registration and regulatory conformity.

To have that you have to have mutual recognition of conformity assessment and and agreement on standards so you can't start thumping the table demanding that goods are nodded through if you're saying at the same time you don't wish to cooperate on regulatory harmonisation or maintain equivalence.

Moreover, if you want to reciprocate and allow goods in without friction then you are taking a lot on trust. Obviously we don't want to relax our borders like this. We will want EU customs agencies to issue us with intercept alerts of possible fraudulent, faulty or dangerous goods. I can't see that happening for free. So at the very least you are looking at some involvement in EU decentralised agencies and we will need a presence in Europol and other surveillance mechanisms.

So before you can decide what form a trade deal is going to take you need to know which bits you want to disengage from and a justification for doing so. Since the justifications for dismantling free movement of goods are slender, you concede that a considerable level of institutional involvement is required and with that comes payments to the EU budget.

A lot of this is overcome by recent innovations in customs systems many of which are recognised internationally beyond the confines of the EU but if you are looking for maximum continuity of free movement in goods then it follows that any agreement necessarily will be complex and comprehensive. Anything less will see a substantial reduction in trade or an increase in costs.

Hammond has said that said establishing "significant new infrastructure" to deal with potential issues such as Britain's borders and customs "cannot be built and deployed in a few months", which is why a transition deal would be so important. It's all very well saying we will have a transition but a transition to what?

Now were I a small member state I might just take it upon myself to veto any new proposal to protect my own commercial interests. It one only take France to sponsor such an initiative for the whole process to start unravelling. What then? What's the plan B? Meanwhile, as we are transitioning who has jurisdictional authority?

These are exactly the kind of negotiations we didn't want to be having. This is why we needed off the shelf measures which are already agreed. All we're going to end up doing is incrementally adding more to whatever base agreement is agreed which, to visualise it would be like watching a time-lapse of onion peeling in reverse.

The moment it comes into force it will dawn on the powers that be that quitting the single market has considerable disadvantages which cannot be compensated for and then we'll be hammering on the glass asking for a renegotiation - as Switzerland has. The EU will take its own sweet time.

Meanwhile the free trade freaks will be sat there scratching their backsides wondering when all the deregulation starts, only to discover the only scope they have for deregulating adds more paperwork and bureaucracy to trade.

The most magnificent misapprehension of all time is the Tory notion that we pay a fee to access the single market. We don't. We pay for services and we contribute to the running costs of the systems therein that allow for free passage of goods. Yes, it does make for a bewilderingly bloated and expansive government estate but it exists to keep bureaucracy away from business.

The notion that we can just bin it for its own sake and squander the money on the NHS and that the natural consequence of this is "free trade" is one of the most outlandishly stupid facets of this whole debate. It's up there with anti-vaxers.

All of this is happening because of the ignorance of the Tory right and the wider public ignorance. They don't know what free trade is, they don't know what the single market is and have no conception of the social utility of regulation.

If by some miracle we do achieve an agreement with the EU it will be a significantly less favourable deal that the EEA agreement, one which will harm trade and reduce our ability operate in Europe. Free trade in services and free movement of people go hand in hand. This is another Tory blindspot that thinks the single market does not cover services. Effectively, freedom of movement is the single market in services. They are indivisible.

Thanks to the colossal ignorance of the right we are about to commit an act of self sabotage only to have to spend decades repairing it with none of the leverage we had previously. It means we will remain in the EU for longer while we negotiate the every tiny detail while keeping business in a state of limbo. Had we taken what was already agreed we could have been out far sooner without the economic hit. We would then have all the time in the world to transition away from the EEA or reform it so that we didn't even have to leave. Thanks to the Tories we are looking at a wasted decade and we will end up back where we started.

Ultimately I think Tories are a luxury we cannot afford. For all the remarkably stupid ideas of Corbyn and his fellow travellers, the manifest incompetence of the Tories is equal or greater. When it comes to egregious idiocy there is not much that marks them as apart.

Thursday, 19 January 2017

There is an up side to a trainwreck Brexit

If 2016 taught us anything it is to expect the unexpected. I didn't see us leaving the EU. The leave campaign was shambolic and cretinous. There was little room for optimism and in the end it was only a series of events that swung it for leave. I think any leavers who were confidently predicting a win were deluding themselves. The result was a momentary snapshot of public attitudes toward the London establishment. That though seems ancient history now.

Though we have yet to hear the verdict of the respective Article 50 court cases, events have overtaken them. Brexit now has a momentum of its own and even if parliament must vote there is now no stopping this. It doesn't look like Labour will put up much of a fight. I think that much will be noted and we can expect to see a Lib Dem revival because of it. The train has left the station.

Now that we know what the prime minister has in mind much of what was previously unthinkable is now a very real possibility. Before the 2015 general election Channel 4 aired a mockumentary entitled "UKIP - First 100 days". It was an obvious hack job with some grotesque exaggerations but there were some subtle elements of truth in it. It painted a picture of a Britain in chaos with protests redundancies and crackdowns on immigration. Such is not unthinkable if Britain leaves the EU without an agreement - and we should be prepared for that eventuality.

EUreferendum.com today gives us a working insight as to the shape negotiations will likely take and it shows that without a comprehensive grasp of the process there are a number of pinch points which could derail Brexit. With Mrs May having taken a provocative stance it is likely that we will see an erosion of political good will. Everything now depends on whether the EU is willing to allow a trainwreck Brexit.

A sudden death Brexit would likely result in a number of a EU institutions grinding to a halt and very quickly having to undergo restructuring. While inter-EU trade carries on pretty much as normal, a number of important joint programmes will be shut down due to funding issues. Without an agreement there will be a running dispute with the EU over restoration of trade until Britain fulfils its financial obligations. What should have been an ordered process of negotiation will be an acrimonious, petulant and long process that will very much hurt the UK.

It all comes down to whether the EU thinks it can adapt - and it probably can. It would be an act of self-harm for the EU but certainly not an existential crisis. Some may take the view that it is worth taking the hit to punish Britain. Any hope of good relations with the EU after that would be nil. This is why the tone taken by Theresa May is so reckless.

While the EU has made soothing noises that it does not intend to punish Britain there is nothing they can do to stop Britain needlessly punishing itself. Taking an aggressively demanding stance can only really result in a firm rebuke. Cause and effect.

In many respects Theresa May has already blown it. Nobody with any real grasp of what is involved thinks a settlement is possible in two years and it will be the UK eating humble pie in order to get the extension. For now May is making noises about being prepared to walk away but the message coming from industry in public and through back channels is "don't even think about it". I suspect they will call her bluff.

What remains to be seen is whether the determined arrogance of the Tory right has infected Theresa May. It certainly looks like she has caught the virus - for which there is no cure, and if that really is the case then there may be no reasoning with her. She might very well think she can walk away without a deal. Previously I didn't think she could be that crass but now I'd say all bets are off. It's probably a safe bet to bet on total incompetence.

During the referendum I took the view that a certain level of self-delusion was only to be expected and in the end it would be corrected by the legion of Sir Humphreys but it would appear the disease has spread to them and anyone with immunity has been purged. There is apparently no earth rod. Nothing that would indicate any sane voices within.

But then this is reflected from without as well. It is now a mainstream opinion on the right that we can walk away and that there is a fall-back position in WTO rules. Brexiteers have simply not understood the functioning of the EU or how deeply dependent trade is on the various systems that keep it all working. Nothing exists beyond tariffs in their minds and everything else is just meddlesome red tape. If they haven't learned the basics by now then they never will.

Underlying all this is an extremely presumptive view that we don't need a comprehensive agreement with the EU because the EU will implode anyway. Though I expect the EU cannot survive in its current form I certainly wouldn't be predicting its demise any time soon - and it's not in our interests to see a disorderly implosion.

It seems we are marching headlong into an ambush with an overinflated national ego and a trailer full of flawed assumptions. So much so that it will be a huge relief even to secure the most meagre trade agreement with the EU. Any way you look at it, the prognosis is not good. The free trade fantasists on the Tory right are about to have a collision with reality and will have to learn the hard way what non-tariff barriers are. We will all pay for their ignorance.

In effect the Tories are frog-marching us toward an accidental scorched earth policy where Britain stands humiliated with only a handful of useless bilateral deals to protect our modesty. What could have been an orderly transition is likely to be a political mess the likes of which we have not seen since the eighties.

There is no doubt that Britain can weather the storm and we can recover - but it will take a lot longer than it should and the pain we will experience will have been entirely avoidable. It will likely see a decade of political turmoil in which all of our assumptions will be turned upside down. While the Tories are riding high in the polls right now it all depends on their reputation for political competence. That will be the first casualty of Brexit and when the public sees just how destructive untempered zealotry can be, we might well be in line for the hardest left wing government we have seen for many decades. That may explain why Mr Corbyn is happy to sit this fiasco out. I would in his shoes.

This blog has always maintained that a smooth Brexit was within our grasp. There is no need to burn bridges and there is certainly nothing to be gained by souring relations with our neighbours. Rather than attempting to modify freedom of movement to maintain open trade, Theresa May has caved without even trying. She is about to surrender a good deal for a massively inadequate deal for the phantom of controlling immigration. It's insane.

It would seem that before Britain becomes a "global Britain" we are going to spend a decade or more of navel gazing, out in the wilderness, while we learn what this country really believes. Perhaps that is what we really do need. Perhaps that really is the medicine. Maybe this really is the price to pay for having buried our politics deep inside the back rooms of Brussels and withdrawing from the world. Maybe this is the price we must pay for the hubris of Heath, Thatcher, Major, Blair and Brown. Just another chapter in our dismal tradition of having politicians doing as they please. Maybe this time we will do something about it.

If there is anything positive to take from a botched Brexit it is that the revolution will eat its children. By that measure I ought to be salivating at the prospect of the Tories hitting the rocks. Recent events have seen the party created by Blair utterly eradicated. For complete renewal the same must happen to the Tories which to a large extent is still run by the same establishment behind Mrs Thatcher. Davis, Redwood, Jenkins, Johnson and May etc were products of the Thatcher government and their supporting cast in this Brexit trainwreck were the up and coming Toryboys of the era.

If there is to be a new economic era and a new politics then as much as leaving the EU is necessary then it also follows that the Tories, the party that did this to us in the first place, must also be destroyed. I suppose any price is worth paying for that outcome. Just an awful pity we must sacrifice a good deal of wealth to make it happen.

That though, I don't suppose, will keep the people of Stoke on Trent or Sunderland awake at night. I can't say I blame them. Maybe dispensing with our garbage is what really secures our future leadership role in the world. Since they handle everything else as badly as they will Brexit, what have we got to lose? Might as well stop worrying and break out the popcorn.

Not looking good

I am now at odds with nearly every leaver of note. Most of them are cock-a-hoop at the idea of leaving the single market. I could see that as a workable path but only if certain conditions are met. Primarily that those involved understand the game in play. I don't think they do.

Lord Kerr, former UK ambassador to the EU has it right by saying "Article 50 is not about trade, it is about divorce. It's about paying the bills, dividing the property. The money negotiation is going to be a very nasty negotiation."

He went on to predict there will be "no serious negotiations before the autumn", adding he expects "this calendar year will be mainly spent in a furious battle about money".

Effectively we are going to spend six months having a row about what we are going to have rows about. Kerr sees it as I do. There is slender chance we will actually conclude a deal in the time given. At best we will scrape it with only a very basic framework but it is difficult to see how this would be anywhere close to adequate given that we have been a core member for nearly half a century.

We should be prepared for an extension to talks with talks dragging on for at least four years. Given that this is interrupted by an election it may see May flounce off with whatever she can get; ie not very much. She will have to negotiate a deal that effectively keeps most of the single market in tact as an emergency patch until a deal concerning trade is reached. A two stage negotiation is the only way we can avoid substantial harm and we will likely have to concede something to get it. If May does not recognise this we are in trouble.

I am told by leavers to be a little less negative - and though I have no time for problematising, I know the improbable when I see it. There would be solutions had we bought ourselves time but May has bitten off more than she can chew. If it comes to a serious crunch there is a remote possibility of putting A50 on pause but that really depends on whether the EU intends to prevent automatic ejection. There is not a lot to be enthusiastic about at this time. I just listened to T-may on the radio. It's all empty mantras and babble. She will be crucified.

Wednesday, 18 January 2017

Brexit is now Project May-hem

Nobody serious, including the former head of the WTO, thinks Mrs May can get a deal in two years. Nobody. Attempting a bespoke deal from scratch is a passport to nowhere. Anyone who has given the matter any serious consideration recognises this. The only people incapable of comprehending this are Tory Brexiteers. Why? Because their not-so-hidden motive is that they don't even want a deal. They want WTO Brexit and hang the consequences. Pure unhinged lunacy.

Not so long ago I imagined a scenario where we could get a deal in two years if it was meticulously planned, based on existing frameworks and soundings had been taken well in advance of Article 50. That though would still depend on nobody rocking the boat and that seems unlikely. If that wasn't going to work then Mrs May's notion of renegotiating everything all at once in order to walk out with a finished product really is for the birds. This has yet to filter through into the public domain.

According to The Times a YouGov poll found "voters to be highly positive about the ideas in the prime minister’s speech on Tuesday, endorsing her plan for Britain by a margin of more than two to one. Some 55 per cent said it would be good for Britain, 19 per cent said it would not while 26 per cent did not know".

"Voters backed Mrs May’s threat to walk away from the negotiating table if the UK did not get the kind of deal it was seeking, paving the way for a disorderly and potentially costly Brexit. Some 48 per cent agreed that “no deal is better than a bad deal”, while 17 per cent thought she should be prepared to sign a deal even if it fell short of hopes".

This though is in the immediate aftermath of the May speech. Those numbers may look considerably different give it a week or so - and as it becomes clear that Mrs May is out of her depth attitudes could very will turn against her. That though is no certainty as the conduct of the EU has yet to be taken into account which may prompt considerable jingoistic support for May regardless of how crass her plan is.

With that kind of backing with no functioning feedback mechanisms and surrounded by zealots and yes men there is now a very real possibility that Brexit talks will stall and we stand on the edge of a precipice. The big question for Brexit thinkers is what happens then? As much as we need to know more about her plan we need to know that she has a plan B. The bet is that they do not have one and don't see the need for one.

A friend of mine remarks that "There seems to be this weird tinge of late Victorian empire nostalgia about them. Threatening to begin a tax cut war on all of their geographical neighbours, ably egged on by a press that says they will 'crush' an economy ten times their size. I've come to think a lot of these people are a bit unwell. It's one thing to be an imperialist. It's quite another to believe your middle ranking largish European economy is on its own a global superpower".

This is typically English arrogance blended with a hyper-neoliberalism that believes any and all strategic protectionism is fundamentally evil. There is no point trying to raise the alarm with these people as to the negative consequences because they do not see them as negative. They have no problem at all with wiping out UK agriculture and manufacturing regardless of its intrinsic and external value. It is a belief system and there is no reasoning with it. They will invent ever more elaborate justifications for the patently absurd.

This should worry sensible leavers and remainers alike. With fools like Johnson and Fox in key positions keen to secure any old deal just to keep the headlines rolling Brexit could very well become a vehicle for all the very worst ideas of the Tory right without any kind of restraint. There was a time ten years ago when I might have salivated at this prospect having been a fundamentalist libertarian but at some point between then and now I grew up and started taking an interest in grown up affairs.

In fact, this is what makes me uniquely qualified to comment in that I know exactly what they think and why, and the herd mentality behind it. If you're not worried, you should be. But then, as some will be keen to point out, this was always a very real danger of voting for Brexit. We now have a free for all with each major party going all out for their most extreme ideas. The Tory right risks everything on a clueless gamble which could very well see a hard left government eventually kicking them out. Brexit most certainly will be a renaissance of politics. Even the hardest of heads may come to miss the crushing tedium of consensus politics. 

Effectively Brexit has not so much uncorked a genie, rather it has released the pressure value on two decades of repressed politics - and will see unwelcome spikes in the extremes for some years to come. We are looking at a decade or more of political instability and economic uncertainty. In a lot of ways this is exactly what many very much did vote for. The chance to decide our own destiny. In that I have no regrets. It is rather a pity though that Mrs Mayhem is about to flush the baby away with the bathwater. 

I would sign off with the sentiment that I have faith that good sense may yet prevail, but on the back of what we have seen this week no rational mind could expect anything but a disorderly Brexit even if May, by some miracle, concludes a deal. We could avoid a punitive deal and ensure that the bare minimum is covered but I'm not alone in thinking it will be absolutely rubbish. Political competence is in short supply these days.

The Brexit legacy

My last few posts have chimed quite well with a number of remainers. I think we are moving past the stale adversarial stage and seeing people start to engage in the wider discussion of what Brexit should look like. It's largely academic since the government has no intention of listening to anybody and the decision making is now out of our hands.

Given the ferocity of my attacks on Theresa May it has prompted a number of people why I even voted to leave and why set ourselves up for all this pain? It's really quite simple. If you object to Theresa May making sweeping unilateral decisions without public or parliamentary consent then you must by the same logic object to the EU.

Politics is mainly about the accumulation and retention of power. This is something the EU is adept at and ever more decisions are being taken further away from the people and placed in the hands of largely anonymous political technicians who are unreachable let alone accountable.

We object to our own politicians abusing power and are quite vocal about it mainly because our media culture is centred in London and Westminster-centric. Little attention is given to shenanigans in Brussels, Strasbourg and Geneva. Our media doesn't care and by the manifest ignorance of how the EU works, our politicians aren't interested either. We have system on autopilot with very little scrutiny. That is why we need the power back where we can see it. 

When we have a system of governance that relies on the concept of out of sight, out of mind; it can do what it pleases - and it more often than not, it does. Worse still much of what it does happens under the radar but is implemented by national governments meaning our attention is deflected and responsibility is shirked. 

Having surrendered a great deal of power over decision making over significant areas of policy, our collective knowledge of it has atrophied whereby we lack the necessary intellectual equipment to properly scrutinise it and we drift down the road of being heavily dependent on technocrats - who are just as prone to human folly as anyone else.

Consequently we have a complex tapestry of governance which no single person understands and even those working within it have a distorted view of what happens and where. Shortening the chain of accountability is really the purpose of Brexit.

In order to restore that visibility and accountability we have a long road ahead of us a and it does come with a price tag. Brexit alone solves nothing because all we have done is passed the torch from a largely invisible power to one in Downing Street. This blog has always maintained that Brexit is only half the job and we need to go the rest of the way to ensure that we have a democracy.

Brexit more than anything demonstrates why our democracy is malfunctioning. Theresa May has committed us to a particular path and there is very little to stop her. Like Iraq, the government is committed to a path with religious fervour on a questionable mandate based on incomplete and largely fraudulent information. Isn't it time we brought that to an end?

Theresa May said in her speech "when future generations look back at this time, they will judge us not only by the decision that we made, but by what we made of that decision". That's about the only thing she is right about. There was always going to be a price to pay to take back our democracy. It was for us to choose how much we are willing to pay. May has ensured that we will pay more than we ever needed to.

That though will be her downfall. They may applaud her this week but she will go down as the woman who bodged Brexit, turning an opportunity into a calamity. The legacy though, I hope, is that we will have killed two birds with one stone. We will have taken back powers that should never have been surrendered while also demonstrating beyond argument that Westminster, a model from yesteryear, must be consigned to the dustbin of history.

There is no reason why we should have these people making our choices for us and little to be gained by trusting them. If the eventual legacy of Brexit means lasting constitutional reform then the lost decade May is about to deliver will be worth it - even if she makes sure we pay over the odds. 

Broken beyond repair

JP Morgan is bang on the money.
The notion that the UK can simply “fall back” to WTO rules as providing an alternative (as summarised in “no deal is better than a bad deal”) is, in our view, very dangerous. Significant parts of the UK service sector would, under these conditions, lose their ability to provide services to EU-based counterparties overnight. Much of the plumbing that supports trade in goods and services on a day-to- day basis would be left without defined administrative processes and legal foundation. The imposition of tariffs is almost a side show relative to these issues. In addition, the UK is threatening that under constrained market access it would reinvent itself as a pseudo-Singapore of Northern Europe via low corporate tax rates and a ‘new economic model’. We note that the success of such low-tax entrepots has typically been at least partially based on the ability of firms to access markets in their locale, not on the withdrawal of that access. And, as we wrote yesterday, it is far from clear that there is a durable political commitment to the UK becoming a permanently low-corporate tax, low-regulation locale. 
Taken as a whole, we do not view the no-deal WTO option as credible. So what happens in these negotiations? We assume that the EU will not seek a punitive arrangement for the UK, only that it will negotiate guided by its legitimate self-interest. Even so, we see a high likelihood of a disruptive and damaging outcome. For some time, we have argued that the bespoke FTA route would ultimately see the UK realise that it could not land the required deal within a pre-2020 election timeframe, while the option of a “WTO only” route would be recognised as untenable. Hence, it would be forced to prioritise a set of sectoral deals while seeking to extend the Article 50 process, and the result would be an exit under a hastily arranged patchwork of deals with some sectors seeing significant disruption upon the EU exit. An alternative (to which we ascribe only slightly less probability) is that the EU offers the UK a heavily modified temporary version of EEA membership to allow further time for discussion on future arrangements as the EU exit occurs. While that may have broader sectoral coverage, accepting it would come at high political cost for May, having eschewed the EEA route at the outset.
If Mrs May can deliver at all she can deliver only a mess that we will all live to regret that we will spend a decade or more trying to correct. May has completely misread the situation and the risks. We face a lost decade as we try to claw back the preferential terms we could have had if May had taken a more grown up approach.

Major UK manufacturers will struggle to compete even with a currency advantage. They will apply pressure all the way down the supply chain. We can expect less generous terms of employment and lower pay. We will see an economic and cultural retrenchment. For all the left have squealed about austerity over the last decade, they are about to find out what it actually looks like. Brexit will not come cheap and we will be spending and borrowing to cope with the administrative fallout.

We cannot expect any compensatory trade deals of significance. The power to trade on our own terms is only effective if you know how to wield it - and it is clear that the government and its advisers are still working to ideas from the previous century. We will be lucky not to be fleeced by the USA. I seriously doubt bilateral deals will be anything more than a morale booster.

This will be the legacy of Tory arrogance. In a way, I think we all deserve it. As members of the EU we have become disengaged and deeply complacent in assuming our politicians are guided by the wise. 

In voting for Brexit, Britain has voted for change. And change it will get - just not that which is anticipated. May has snubbed a workable solution for a cavalier approach to trade and diplomacy, apparently unconcerned for the consequences. When her dog's Brexit finally happens people will be asking what went wrong and who is to blame. On that day they will realise that Wesminster is responsible, there are no go-to excuses and will then start to demand long overdue constitutional changes.

As much as the Labour party is a hollowed out shell, when May makes a pigs ear of Brexit and the Tory Brexiteers are exposed as the clueless, malevolent frauds they are, the Conservative Party will be on borrowed time as well. With the last functioning party on the rocks there will be no-one left to vote for. It will be inescapably apparent that Westminster is broken beyond repair. 

Theresa May: a fool led astray by the wilfully ignorant

At the heart of Mrs May's "strategy" is the ignorant assumption that they need us more than we need them. This overlooks the fact that there are European producers more than happy to block UK access to markets. Moreover we are dependent on food imports. Europe can quite easily do without UK produce and can very easily switch modes of supply whereas the UK will struggle.

The second dumb assumption is that we can source cheaper food from elsewhere by unilaterally dropping tariffs. This ignores the fact that the EU Everything but Arms (EBA) agreement, in force since 2001, allows all imports from the Least Developed Countries duty-free and quota-free, with the exception of armaments.

The reason LDCs struggle to take advantage of it is the non tariff and regulatory barriers. In this, we do not have a free hand in relaxing standards because we are either pegged to the global standard or will need to maintain close harmony with the EU as our nearest trading partner. This is also on the assumption that supermarkets will even by non compliant goods. With any waiver comes the risk of increased inspections and added costs which may nullify any price advantage.

Central to Mrs May's stance is a number of bogus assumptions about how trade works, the leeway we will have once we are out, and the more disturbing reality that other countries might not even want our trade.

In most respects the world has reached a state of trade normalisation where any agricultural nation in the developed world is already running at capacity on established trade lines and may be unwilling to expand capacity without passing on the investment costs directly to us. They won't necessarily be able to supply what we want at the volumes we need.

The idea that we can flounce of and be a "global Britain" completely ignores the fact that most nations now have some kind of cooperation agreement with the EU (or the USA) and are consequently bound by those regulatory obligations - and are not equipped to make exceptions for the UK which now seems determined to be the odd one out.

If we are also dead set on a process of deregulation then that precludes the possibility of grandfathering EU deals in the long term. That then starts the clock on rebuilding our trade and diplomatic capabilities from scratch in order to reacquire what we already had and could have kept had we stayed in the single market. So now we have lumbered ourselves with the mammoth task of administering the Brexit process we are also forced to march at double pace just to stand still.

Before reading the May speech in full I had a feeling that it was an opening ploy, but in fact it is marked by naivety and colossal ignorance to such an extent that it could not by any measure be the work of informed people. Any ploy would not close down other options with such certitude. To now follow another path would result in a significant loss of face. That is not how politicians tend to operate. They really don't know what they are doing.