Monday, 12 June 2017

The Brexit headbangers will keep us in the EU

With most modern supply chains operating on a just in time basis, multinational assembly lines like Airbus and Toyota have to meticulously plan contingency suppliers in the event of disruption. Something like an earthquake or a tsunami can interrupt production at great cost.

We've seen seen the effect of this in recent times where manufacturers have been forced to switch suppliers of components and typically, unless there is a price advantage they take their time to go back to the original supplier. This is why we cannot afford a bodged Brexit. Though Brexit may not be a natural disaster, in many ways it has similar effects with blockages in the supply chain, a sudden ramping up of costs and IT systems unable to cope with the sudden change in conditions.

With Brexit you have the double whammy in that you first have the change in customs regime and then the added risk of another big change when a new settlement is found. The short of it is that any business we lose from not having a transitional agreement is never coming back.

Businesses may be worried about tariffs but tariffs are going to be the least of their concerns. The collapse in the value of the pound offsets that. Average tariffs are about 2%. The pound has fallen sharply. The real worry is that the UK simply won't be a reliable link in the supply chain - prone to regulatory divergence and major bureaucratic interruptions. It's actually astonishing that a number of trade bodies have not picked up on this - but the financial planners most likely will have done and the ones who have will already be planning to leave the UK. I wouldn't blame them.

The short of it is that unless we stay in the single market we are going to have serious problems. Without a commitment to doing so we will lose a lot of business in anticipation of an omnishambles. Our government has little idea of what is involved in transitioning to a basic free trade agreement and they are oblivious to the fact that we have no customs protocols of our own which would mean a lengthy consultation followed by commissioning of software to handle the new regime. Goods registrations would exponentially ramp up at customs, requiring fifty times the IT capacity - and when you look at the government's track record on IT procurement we won't have anything close to a workable system inside ten years.

We should also note that since much of our administrative capacity has been closed down because of our EU membership we will have to rebuild much of it which won't be fast or cheap. So before an agreement can go forward we have to effective agree to stay in the EU for ten years or more until we are ready to repatriate regulatory competences. You've all seen what can happen in just a year - or even six weeks. Ten years is more than ample time to kill Brexit. In that respect anyone who is serious about leaving the EU should be pushing for the Efta EEA option because otherwise we will never get out. It may not be ideal but at least the deed would be done with minimal disruption to the economy. The rest we can sort out later.

The way it's going now we will either end up crashing out of the EU and losing a substantial amount of international trade (which absolutely nobody but for a small band of Tory zealots wants) or negotiations go round in circles just long enough for Brexit to be sabotaged. It's time for leavers to ask just how serious they are about leaving. If they are serious then they need to get to grips with the issues and face a few home truths. You have one option and one window to get out of the EU intact. Insisting on a pointless self-immolation Brexit will ultimately be self-defeating one way or another.

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