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.

Tuesday, 17 January 2017

Theresa May is away with the fairies

 
Three hundred areas of cooperation to discuss. To be compared against where we are now with where we want to be. In each policy area we submit our proposals which must be put to member states governments and then out for wider consultation. Positions have to be translated into twenty three languages and responses have to be translated back. 
 
There is a limited number of interpreters, all tied up with existing EU business. A three week lag at the very least on any one transaction. Anyone who has worked in the EU will tell you that meetings are routinely cancelled because they can't get interpreters at short notice.

Every new measure must be cross referenced by EU lawyers and measured against the treaties and against international law. That's quite difficult when you're negotiating an accession agreement where you are going from the known to the known - but here we are going from the known to the yet to exist.

Then keep in mind all the technical areas of cooperation that require legal and scientific opinion. Then there's the conditions of the agency de-mergers and the financial arrangements. Just from a paperwork angle Brexit is insanely bureaucratic before you even get to the negotiations.

Then let's not forget that we have to resource this. There is huge competition for the best people and most of them will already be working for the EU. Then there is the timing of the transitions which will have to be project planned and agreed. In this there is no model to follow because it has simply never been done before.

With the best will in the world there is no way this can be agreed in two years. Even if we were taking massive shortcuts it cannot be done - and this is assuming we live in a perfect world where member states actually cooperate. More than likely there will be multiple crunch points not least on immigration and visas. If we are closing down huge revenue streams for member states then they will want to take a chunk out of us as we leave - or even veto the possibility of leaving.

Just from a practical perspective I do not see any avenue where this can be done and politically it seems wholly implausible. Theresa May is away with the fairies. As much as negotiating the substance of a comprehensive agreement is complex and fraught with political risk, the transition has to be negotiated because our "taking back control", in fisheries especially has transboundary implications and multiple externalities that we must compensate for. 

Frankly, I am in a state of bewilderment. Hitherto now May had given us the impression that there was some distance between her position and that of her lunatic fringe. Now it would appear that the differences are slight. I have chastised other writers for catastrophising on the basis of no evidence, and I stick by that - but now it's out in the clear it's open season as far as I'm concerned. 

Normally I can bring to this some degree of distant thoughtful analysis but until this sinks in I am in a state of shock that May could be so profoundly misguided. The purpose of Article 50 is to establish a framework for leaving. There was never any realistic proposal that sees Brexit settled in two years unless we were prepared to adopt off the shelf measures. The goal should have been to buy ourselves time and space to start the Brexit process meticulously and to a timetable that caused neither side to rush into anything. Now we find Mrs May wants it all done and dusted and ready for transition in two years. Can you imagine anything more crass?

I expect over the coming days I will have a procession of dimwitted Brexiteers telling me to give Mrs May a chance and to wait and see what she is made of - but now we know from her speech that she has entirely misread the situation and the potential risks and ultimately misunderstood the depth of EU integration much like her cretinous back bench Brexiteers. 
 
I expect we will very rapidly see May backed into a corner with nowhere to turn. The penny won't drop until she has triggered article 50 and soon after she will learn the depth of her error. The childish notion that we can go to Brussels and throw our weight around expecting them to bend over backwards for us is the worst kind of bombastic kipperish politics that will likely be met with disdain and disbelief. 

It won't take very long for talks to stall and hit a crisis point. We can expect multiple market panics when that happens and as the risk of a trainwreck Brexit looms we will see jitters from investors. Britain's credibility will very rapidly tank and the EU won't lift a finger to stop us making fools of ourselves. I really don't see this ending well. If we get a deal at all it will be a poor shadow of what was there for the taking. Theresa May is going to blow it. 

Mrs May's fumble in the dark


What I saw today was a prime minister with only a very flimsy grasp of what lies ahead of us. Tucked inside her speech was a number of calculated insults from the Tory right specifically to close down certain options. There was a certain gloating delight in knowing they have got it all their own way.

What you heard was the culmination of a long war between more reasoned voices and Tory ideologues. The zealots have won. These are men who are determinedly ignorant about what the EU is and singularly unconcerned about the consequences of their actions.

You have often heard me say that in this age of information ignorance is a choice. That goes double for the Tory Brexiteers. Ignorance is a necessary cornerstone of their "free trade" religion.

Their victory is something of an achievement though. For the prime minister to have maintained her ignorance it would have taken a gargantuan effort to control the flow of information to her and to isolate her from sources with more realistic ideas. This is a victory for the hive mind. What we can take from this is that Mrs May is surrounded by idiots, zealots and yes men.

What we discover is that the system is incapable of taking on new information and in most respects the level of debate within the bubble has regressed.

What it tells you is that the people around Mrs May have studiously connived to keep articles of faith alive and to exclude voices to the contrary. The disconnect between the public and their rulers is not accidental. It is systematically enforced.

Certainly the remain side have not helped the situation by raising suspicions and acting in bad faith. Against a backdrop of open defiance against the referendum, politically there was little else May could do - and since there is no informed opposition there is very little to stop her. MPs to this day are still struggling to grasp the basic terminology.

Mrs May has set upon a course of action that is quite simply undeliverable. You may call it ambitious. I call it deranged. The belief that an agreement of this nature can be concluded in just two years is outrageous hubris. So too is the notion that we can make ultimatums when we will need a great deal of technical assistance from the EU. May's confrontational tone has been noted on the continent and that will now shape the process.

It is now ironic that our fate now lies in the hands of the EU which is more than likely going to strike out most of her demands and dictate the terms. We should hope that this causes Mrs May to go back to the drawing board. That though will waste considerable time and the clock will be ticking.

If May really is so deluded as to believe that we should be prepared to walk away from the table then she will be hitting the factory reset button on every single facet of EU relations and all the agreements therein. Effectively the entire system is driven into chaos.

If this is meant as some kind of threat to force the EU to concede then it is a mighty gamble because even if the EU were to concede there simply isn't any possibility of concluding a comprehensive deal without effectively copying and pasting facets of the Swiss agreement without even discussing the contents therein. Far from getting a new negotiated settlement we will rush to accept what we can get in order to stay on track. This is why the EEA was necessary so that we could avoid rushed and contentious negotiations.

There is now no possibility that the UK walks away with an amicable and workable agreement. What we will get if we get anything at all will be a bodge that will take decades to repair, pretty much destroying UK EU relations in the process. May could not have taken a more hostile and self defeating approach.

As to the nature of any transition, it will have to be in stages. We do not yet know how that would work but May will discover after the fact that the transition is equally important to the settlement. What she will find is that, having negotiated a settlement rather than a framework, she has no room for renegotiation and will be forced to implement a bad deal whether she likes it or not. Whatever concessions we get now, we will pay through the nose for them.

I am now of the view that this is almost certain to collapse and May will be humiliated. She will go down as one of the most incompetent prime ministers of all time. She will be ignominiously dispatched and the following prime minister, probably from the remain side, will seek an emergency association agreement - but not before we pay a heavy price and lose a substantial chunk of our trade. The only comfort I take from this is that it's about to become abundantly clear that the Westminster system of governance is no longer fit for purpose. Perhaps these events may be just enough for us to finally do something about it. One can certainly hope because there are no other positives to be had from this.

A wash out from Theresa May


I've always thought Britain should leave the EU. I have never seen a convincing argument that political subordination is required to secure the maximum level of economic cooperation. I voted to leave and I would do so again. I went into this with open eyes in the full knowledge that there would be a price to pay. I campaigned on the back of a plan and have argued fiercely to ensure that the price we do pay will be affordable.

I spoke out against the Brexiteers and backed Theresa May because I foolishly thought that her influence would ensure a measured and sensible Brexit. I have never been more wrong about anything in my life. In just a few short passages May has driven a horse and cart through all good sense.

For starters May has misunderstood the exam question. The process of leaving the EU is to negotiate a framework for leaving and a framework for continued cooperation. Instead she has taken it as the process of securing a trade deal - which doesn't even begin to acknowledge the depth and complexity of the task. Because of this Theresa May will ensure we pay the maximum price possible.

By any estimation there is no possibility of securing a comprehensive agreement in two years and if we reach any kind of impasse then all of the leverage falls to member states as we beg for an extension.

Worse still, May has fallen for the mantra that no deal is better than a bad deal and is prepared to walk away from the table. This would result in the WTO option and would be the single most egregious act of economic self harm ever recorded. As much as that is to be avoided there is now every chance that it will happen by accident as our time expires.

May has drunk deeply from the Brexiteer kool aid and Britain is about to find itself substantially poorer with fewer opportunities for trade. This will be the Tory Iraq. Blundering with half a clue and no plan and no real understanding of the landscape, resting the fate of the adventure on some overly optimistic patriotic nostrums that fold at first exposure to reality.

Today begins a dark chapter for Britain. We are about to find out just how criminally inept Tories can be in ways even I never anticipated. Today marks the beginning of a new political era that will define the next two decades of European politics. Mark this day as the day Britain shot itself in the foot.

Don't place any Brexit bets

Amidst the histrionics of the UK press, what is overlooked is the fact that EU member states have a say in this too. The deputy prime minister of the Netherlands has said his country will block any post-Brexit EU trade deal with the UK unless it can agree on “firmly tackling” tax avoidance. That presumably means signing up to one of the existing frameworks or hammering out something from scratch. We can safely assume that other member states will have ideas of their own on this and other matters.

In this, it may actually be a smart move for Mrs May to go all out for "all out" on the broad assumption that EU member states have very different ideas - and if we do end up "half in, half out" then Mrs May can deflect the blame and hail a "workable compromise" on single market participation. 

As yet we do not know what the respective red lines of member states are or even what the Commission has in mind - or if it even has a united view. And though it is safe to assume that May is operating with only half a clue we can likely say the same of her counterparts.  

This is why I'm not making any predictions. We know where it would likely go if all the parties had all the facts but each party has only half the facts and we can only guess which half they don't have. At some point Mrs May will have officials whispering in her ear telling her what she can't do and what we are not equipped to do. That's when our own red lines start to fold. Things will look very different when the pennies start to drop. What is said between now and then doesn't really matter. 

Monday, 16 January 2017

Still none the wiser


As is normal we don't have to wait for the day of the speech to get media briefing notes. What we get though brings us no closer to understanding what Mrs May has in mind. It would appear to be explicit to those in the media with no critical faculties but those who know what the respective terms are, there is room for interpretation.

For instance, Norway is not half in or half out. Norway categorically is not a member of the EU. As to "we do not seek a model already enjoyed by other countries", it still leaves things wide open. Britain being a more diverse economy than most necessarily requires an adaptation even if it uses components of an existing agreement. Moreover, what Mrs May seeks is neither here nor there. It's what she can negotiate that matters.

As to not holding on to bits of membership as we leave... dream on lady. We do not have the administrative capacity to repatriate all of it all at once. Fishing alone is a major headache and with Andrea Loathsome as Defra boss there is no possibility of anything approaching a competent policy coming from her shop.

Admittedly it looks like the intention is to leave the single market but May has not categorically said that. She hasn't given herself much wiggle room - but then this is the Tory party we are talking about. We know what Tory promises are worth when it comes to the EU.

If I had to take a guess at what this actually means, I still think we are on for Bonehead Brexit - trying to secure a comprehensive deal in a single bound. I see no scenario where that is feasible in two years (or even five) and unless May is keeping something from us, it is clear that she has been fed a lot of faulty information about the challenges she faces. Unless we are looking at comprehensive transitional measures then Mrs May is going to land us in hot water.

Don't bet on a worthwhile deal from President Trump


Let me put this as simply as I can. There is not going to be a comprehensive deal between the UK and the USA. You have two mature and embedded regulatory regimes founded on entirely different cultures. They are broadly incompatible. UK law is largely proscriptive where government prosecutes those who break the rules. The USA has a different system whereby you are at liberty to release virtually any old toss on to the market only you run the risk of civil cases that can wipe you out completely.

This is the reason why comprehensive agreements have failed since the war and this is why TTIP struggled to complete and the areas where convergence or mutual recognition can be achieved are minimal. Complex and well established regimes are not easily overturned and US protectionist instincts will fight tooth and nail against any modification to their own regulatory code.

All this leaves you is some scope for superficial preferential agreements on tariffs which are neither here nor there and assuming the UK isn't entirely gullible we will resist anything that directly damages our own farming sector.

There is next to no chance that a framework can be established before we know what the Brexit settlement looks like and in all likelihood any deal will require continued regulatory harmonisation with the EU. That is where our best interests lie because third countries without regulatory codes are adopting EU inspired global regulations. America is the freak and will always resist harmonisation efforts on legacy systems. The US is big enough and diverse enough not to really worry about trade. Its main interest is arms exports and we are already a favoured customer.

We may get a symbolic deal with the USA but it won't be comprehensive and it will be concluded as a face saver and a chance for Trump to snub the EU. It will not substantially add to trade volumes and given how the UK is keen to take any deal going for propaganda reasons there is every likelihood that we will voluntarily take a deal that does not favour our interests. There is certainly no danger of a sweeping realignment with the USA because it would damage our trade with the EU.

Much of the media think the fullest extent of trade is chipping away at tariffs and it doesn't really comprehend the process or the significance of regulation as an aspect of trade facilitation and they talk about trade as though it were a bartering session rather than a forensic and analytical process involving hundreds sector specific technicians and specialists supervised by high ranking diplomatic officials. The visible politics of such trade is largely divorced from what actually happens.

In order to keep our trading options open we have to stay as close to the global standard as possible and pretty much treat the USA as though it doesn't exist because it is not going to assist us in multilateral efforts nor is it going to open up its borders to anyone. Moreover, bilateral concessions on regulations (lowering standards to allow entry) are counter to the spirit of achieving global standards and can only be allowed as temporary waivers at the WTO.

If we want to increase trade with those who cannot meet the standards then we have to make the investment to ensure that they get the technical assistance in order to comply. This is why foreign aid is an essential part of foreign and trade policy. If that then is insufficient then we have to lodge initiatives at the global regulatory bodies in order to secure regulatory reform rather than deregulation. If we get into a battle of tit for tat deregulation then the entire system breaks down, defeating the point of having standards at all.

I hope that in some way illuminates, but if it doesn't it at least gives you some indication that it is more complex than it would appear and if you read a snot-nosed toryboy eulogising "free trade" with America, you know you're dealing with your common or garden prat.

As to the notion that the single market does not cover services, ergo we need regulatory independence, much of our service provision benefits from liberal travel arrangements - which we are more likely to secure from the EU than we are any other country. Sure it would be nice to have preferential agreements with Australia but in or out of the EU, our closest neighbours still matter more than an underpopulated desert on the opposite side of the planet famed mostly for spiders, sharks and soap operas with too many primary colours.

To avoid being suckered by non-thinkers please steer well clear of The Spectator, Brexit Central, City AM, CapX and the Telegraph. These people know fuck all and seemingly they wish to keep it that way.

Nothing is off the table yet


A comment on Twitter has really nailed this issue for me. I've been trying to think of an analogy that is suitably graphic which properly communicates the process of Brexit. Brexit in surgical terms is like separating siamese twins. You can either do it in several surgeries to make sure both patients survive or you can use a stick of dynamite. The latter would be faster and more fun to watch but ultimately self defeating as neither patient survives and you are left with a big mess to clean up.

This by now ought to be self-evident but there is still a large and influential contingent of leavers who believe in the dynamite approach. Leavers tend to believe that the EU treaties are pipelines to the EU rather than making us a deeply intertwined part of it. We are not moored by ropes, we are integrated and joined by a million tiny fibres.

Whether not not the government has understood this remains to be seen but there is no possibility of Brexit without a long term transitional agreement and in some areas full separation may not be possible or even desirable. As a pragmatic leaver I still see massive scope for continued cooperation and if you have given the matter adequate scrutiny you will see that complex systems of governance are not so easily replaced.

In that regard, as much as the dynamite approach is not a workable Brexit proposition, it is not even a fallback position. The notion that we can walk away from the table is a wholly poisonous and stupid idea that would be an unmitigated disaster. To continually assert that there is any such thing as a quickie divorce requires a certain level of intellectual gymnastics bordering on mental illness.

Having said that I expect the speech from Mrs May tomorrow will clarify a few things. There are those who boldly declare that the Flexcit approach is dead, but if anyone's ideas will be dead and buried tomorrow it is those of the hardcore Brexiteers salvivating at the thought of lighting the fuse on the dynamite. One way or another, May will still be seeking a transitional exit simply because she has no choice. In that regard, unless she categorically rules out the EEA tomorrow, Flexcit is still very much in play. The noises made today by the WTO option brigade are the last cheers of the children before the teacher blows the whistle.

As much as we have seen a retrenchment of bad ideas today we have seen sources on the remain side, including Nick Clegg and The Guardian, waking up to the potential of Efta and the possibilities of invoking Article 112 to modify our arrangement on freedom of movement. It may be the case that those favouring a hard Brexit have considerable support, remainers and soft Brexiteers make up the majority by a substantial margin. I wouldn't be declaring game over just yet.

Though the UK media has taken it upon itself that leaving the single market is now a certainty, on the basis of a deeply flawed Telegraph report, more adult sources see it as I set out yesterday. EU Observer, a somewhat more dependable source, has it that "Theresa May aims to tell the EU that she is prepared to quit the single market if she does not get her way in Brexit talks, with one option being to turn the UK into a tax haven".

Being "prepared to quit" is somewhat different to an unambiguous declaration to quit. The media only takes it as read that we must leave because it believes that freedom of movement is non-negotiable despite the precedents establishing the opposite. I guess we'll find out tomorrow what Mrs May thinks. I think we can expect some clarity but her words will continue to be skillfully ambiguous.

If however, the media speculation is entirely correct then we all have a problem. Attempting a bespoke agreement, opening up many settled areas for renegotiation is an invitation for all the other member states to modify the various agreements that make up the EU and in so doing increases the risk of being jettisoned without an agreement. As much as that would be a disaster, even reaching that kind of impasse puts nearly all of the leverage in the hands of the EU. Yes, trainwreck Brexit would hurt the EU, but it would hurt us more. 

In the end though it's all in the hands of the gods. If at the conclusion Brexit sees us unnecessarily leaving the single market then remainers must acknowledge their responsibility for it. Peter Wilding of British Influence, Nick Clegg and many others have in recent weeks completely changed their tune in defence of the EEA when these people told countless lies about the Norway Option from the get go. Having then set about intercepting any decision through the courts, they have raised suspicions with leavers that there is a more sinister agenda - and when it comes to these people, there usually is. 

Sunday, 15 January 2017

Clean Brexit will be anything but

It would be foolish in the extreme to offer up speculation on what Mrs May will say tomorrow on the basis of a largely bogus report from the Telegraph. Mrs May has been quite diligent in policing her own language and has repeatedly spoken in terms of trading "within the single market". These words are not chosen by accident.

If I had to put money on what May will say it will be that she is prepared to leave the single market if we cannot control our own borders. The media will take this as a given since they have collectively convinced themselves that ending freedom of movement can only happen if we do leave the single market. I would be surprised if May takes the single market off the table though.

In any case, should we not opt for the EEA then what we are looking at is something close with its own system of arbitration and synchronisation. Equivalence created by the great repeal act is largely worthless unless there is a mechanism to ensure synchronisation. Like it or not, if we want to keep trading on the same basis with as few customs interventions as possible then a high degree of regulatory convergence is required.

This is why whatever happens it won't be "hard Brexit". There are only really degrees of single market participation and whatever happens there will be no free hand. Electing not to use the EEA just means we have to decide how much we are willing to give up for the kind of immigration control we want. I fully expect the EU will drive hard bargain and in the longer term I doubt Brexit will have any significant impact on EU immigration.

As to the nature of any transitional arrangements, there are going to be several areas of policy that will necessarily have to remain as they are simply because no thought has been put into what to replace it with and even if it had we wouldn't have the administrative capacity. IT systems have to change, inspection regimes must be updated and the inspectorate must be retrained. Nothing will happen quickly.

The real question is whether the EU realises that reduced market participation also has costs for them. If they have thought this far ahead they may realise that it is well with their interests to give a little of freedom of movement. Since other EU member states want to revise it we could secure a commitment to revisit the whole policy for Europe. In the end I think whatever we give up to get control back I think we will spend the next ten years horse-trading with the EU to get back, hoping that the public won't be paying much attention by then.

We must also be acutely aware that whatever Mrs May's opening gambit is, it will not be the final outcome. Nobody can really say what's going to happen. I took the view during the referendum that leaving the single market entirely was self-evidently stupid and that the penny would eventually drop but the capacity of the Tory party to maintain its own monumental ignorance has confounded even me.

If we do opt for an entirely bespoke Brexit then we are looking at a very messy and time consuming business fraught with risks and we will see panics along the way which definitely will hurt the economy. All of this was avoidable and I won't take any pleasure in saying I told you so. We will have massively increased the risk of accidental Brexit, the consequences of which are far more perilous than many understand.

Whatever decisions are taken this week they are likely to have profound and lasting consequences. Brexiteers stewed with rage over the last three decades and there is no reason not to expect similar from the remainers. It is likely that the vexed issue of our European relations will continue to simmer away for a long time yet. What we can be certain of is that "clean Brexit" will be anything but.

Saturday, 14 January 2017

Beware the cult of free trade


As some of you are probably aware I spend more time on Twitter than a well adjusted and sane person should. But then I never claimed to be any of those things. What I have noticed is that very few people are actually arguing with me. The comments from Brexiteers tend just to be the usual nostrums either in caps lock or with spelling errors.

Now I know a certain amount of assertive ignorance is only to be expected but it does tend to be centred around three central notions - that we can and should get out as fast as possible, we don't need cooperation from the EU and that we must control our borders.

If Brexiteers along the way acquired a reputation for being crass, thick and spectacularly under-informed then it is well deserved. The tweets directed at me are just so profoundly wrong it would take too much energy and time to address them.

I won't address the core issues here because this blog is mostly devoted to doing that the rest of the time. Instead it helps to understand the motives. As far as the Brexiteers are concerned a large motivation is to set about their ambition of unfettered free trade.

As we know in their minds, regulation is just pettifogging restrictions that business hates - which is not actually true and hasn't been for some time. Regulation is a pain but you're better with that without.

Essentially we are dealing with intellectually underdeveloped children with no analytical capabilities. The fact is that on a densely populated island such as ours commercial activities have externalities where the needs of business must be balanced against the needs of a properly functioning society. Effectively we have free trader zealots who have only ever really exposed themselves to one political idea and spend the rest of the time reading anything which reinforces that view.

It's easy to understand why. Libertarian and liberal theory is highly seductive in that it requires no real thinking. It is a binary consideration that government intervention of any kind is bad, and that we would all be wealthier if only people were free to do exactly as they please, winner takes all and pity the loser.

Except that if the aim of libertarianism is to extend liberty then the task of government is to ensure that someone exercising their liberty does not infringe on your own. That is especially required in a diverse high tech busy economy such as our own. Some things have to be safeguarded in the common good. Without planning our cities would have no green spaces, and without agricultural subsidies to ensure agriculture is sustainable then we would have strop farming where habitats essential to wildlife would be wiped out.

So when did I become a bunny hugger? Well, I didn't really. It's just that the way we farm shapes the countryside which is essential to leisure and tourism and our inherent culture. This is a perfectly normal conservative outlook. It's the basic rule of not shitting where you eat - a rule that humanity regularly disregards if given the opportunity.

As it happens, as much as I am highly critical of free trade zealots, I am not anti-free trade. But effective governance is is the first priority and we have to regulate in order to produce certain outcomes. We can either be slaves to capitalism or we can be masters of it.

I have always viewed capitalism not so much a a system as a natural behaviour pattern, albeit distorted by computerise hyper-capitalism. We each interact and exchange what we have for things we need. But like any force of nature man has learned to harness it and capitalise form it and control it for its own needs. It that regard the accumulation of wealth is not an end in itself. In a social democracy the aim ought to be to improve our surroundings and maintain them for the benefit of everybody. Unfettered capitalism does not do this.

A canard I heard just recently goes something like "who is happier? the Ferrari driver on roads full of potholes or the Porsche driver on well maintained roads". And that to me pretty much surrounds the issue. The function of government is to do those things that the private sector cannot or will not. In this you could point to some examples of private munificence but for society to function there needs to be continuity. That is why we have regulations.

To take one example, agriculture, I am particularly concerned by the free trade lobby seeking to open up markets post-Brexit. This is to take an entirely commercial view of agriculture where the only concern is food production. The problem with that is that we have an entirely different culture where we have different attitudes to farming practices and animal welfare which are not observed by other countries. Were we to compete on an entirely level playing field then the net result would be that we have no farming at all and very soon we would have a derelict countryside or, like Poland, vast industrial farming which doesn't maintain hedgerows or drains and the resultant flooding becomes everyone's problem.

Before you can apply free trade theory you first have to establish what your social objectives are and what protections are necessary for continuity. That may need either protectionist tariffs or regulation - but the result would be the continued management of land inside a rural policy according to our customs rather than one geared strictly to compete in food production.

In this regard, any sweeping policy changes must be carefully examined and measured against certain realities. None of this matters to free trader zealots though. These people would go at it like a bull in a china shop - believing radicalism is the only cure. In order to do this, like their views on Brexit, they have to pretend something which is deeply interwoven and complex requires only simple solutions and it's only nannying bureaucrats standing between us and prosperity.

As ever, what goes hand in hand with this wilful self-nurtured ignorance is a profound combative arrogance with which there is no reasoning. This is why I now block on sight when it comes to Twitter. We are dealing with cult like behaviour from people who would vandalise our economy on an article of faith - that free trade trumps all.

For all that has been said about globalisation causing disenfranchisement and social exclusion, I cannot imagine anything more likely to make it worse than to let toryboy free trade dingbats anywhere near the levers of power. They are children and should not be trusted with so much as the TV remote.

Brexit and beyond


Unless the UK adopts the EEA as a framework for relations with the EU then we can expect the axe to fall somewhere in terms of single market participation. Noticeably so. Brexit was always going to have consequences. In that regard we are about to go through the mill of what Switzerland has experienced - engaging in a constant dialogue with the EU to improve terms of trade.

In the case of Britain we can expect a certain amount of foot dragging and churlishness, especially if Cecilia Malmstrom is involved. She is very much of a "you pays your money, you takes your choice" demeanour.

In that it will be a useful learning curve for the UK as we experience what it is like to be on the other side of the divide and we will better understand the difficulties experienced by other non-EU states. There is no reason why we should take that lying down. In fact, it' a real opportunity to take soundings from other countries and form strategic relationships in order to put pressure on the EU. Having lost the world's fifth largest economy, with three of its major members in financial trouble, the EU is a much weaker position after we leave.

As far as Article 50 talks go, much of the leverage is in the hands of Brussels because the roadblocks are administrative not economic. That is why I am more pessimistic than most about the exit terms. The usual mantras of "they need us more than we need them" don't really stack up. Our strongest asset being the City will most likely be the means by which we secure curbs on freedom of movement and after that we are looking at a number of buy-ins for continued participation.

This shouldn't distract us too much. It's all in the game. The real concern is the space race that comes afterwards. The EU is already making moves to weaken our post-Brexit position by wrapping up a number of deals elsewhere which will reduce the scope for comprehensive bilateral deals for the UK. The EU will make demands for regulatory concessions or further harmonisation which will reduce our scope for divergence and any deals we secure will have to be cross referenced with existing deals with the EU.

It is also likely that, for the purposes of a smooth transition, we will be locked into our existing tariff regime for some time to come. Some Brexiteers think that leaving the EU is like letting a whippet of a leash where the moment the lead comes off it goes racing into the horizon. In truth it's more like extending the give on a flexi-lead. We will still be constrained and still bound to our global regulatory obligations.

It is unlikely that this particular penny will drop before we leave and the buccaneering Brexit free traders will be wiping egg off their faces as the bilateral deals they secure fail to impress. Marginally cheaper tinned sardines from Ghana are unlikely to compensate for increasing the cost of trade with the EU.

Only when we have been through this learning experience will it dawn on the UK government that our trading interests still lie in liberalising European markets. In this it will become apparent that the trading advantages we seek are of a nature that we have never had even as EU members.

Though the UK businesses notionally have the right to operate inside the EU, very often it's the local internal bureaucracy that stands in the way. Recognition of qualifications, obtaining insurance and banking facilities can prove to be prohibitive - and this asymmetrical. It's easier for Poles to get UK bank accounts than it is for UK citizens to get a Polish account - not least because of the language barrier which stacks mostly in their favour.

This is something the EU has attempted to address but improvements in services continue to be elusive. Further improvements require a further transfer of sovereignty at a time when member states are already asking questions about how much they have already surrendered.

This means we are going to have to be creative about how we go about doing things. What we gain by leaving the EU is the right of initiative in terms of regulatory innovations. In order to approach many of the global regulators we presently have to filter our initiatives through Brussels - which then get bogged down in the system or vetoed outright for entirely unrelated reasons.

Free of the EU will will be able to deal directly with the various global institutions which form the basis of EU rules. In so doing we can build alliances and find backers for initiatives so that the EU is pressured on all sides to sign up. This is how Australia has been able to modify the CAP from the outside.

As discussed previously on this blog, one of the emerging issues on the block is government procurement and the OJEU system which publishes calls for tenders, contract awards and pre-information notices for public procurement. It is based on the WTO Agreement on Government Procurement - which was very much a British initiative. In this regard it is our market clout and our expertise that opens doors. Market size is not so relevant. These are the sorts of initiatives that can add real value, effectively enhancing our market participation without having to modify our existing agreements with the EU.

In effect, by acting at the global level and floating initiatives that give other allies a back door into the EU we might find that we can liberalise the EU in ways we never could as a member. This would be both amusing and ironic. I suspect it would be a lot harder to exploit if we leave the single market - and at this stage it looks like we probably will. Such is the short-sightedness and lack of vision among Brexiteers who are still pegging their fortunes on outdated bilateral deals and tinkering with tariffs.

In an ever more connected world with multiple treaty overlaps and interdependencies there is no absolute sovereignty nor is there complete freedom to do as we please. There is a nexus of global bodies and agreements we must navigate and where possible enhance and it will be our agility and pragmatism that ultimately pays off for us. Britain is not without allies and is perfectly capable of securing strategic alliances with less friendly countries to push Brussels into a corner. If we act with a view to increasing global access to EU markets then eventually we will have more clout than we ever did as EU members.

Through trade facilitation measures we can enable African exporters to take advantage of the zero tariff agreements they already have with the EU but cannot exploit due to regulatory barriers. There is nothing the EU can do to stop us.

When Mrs May notifies the EU that we are leaving she is moving the first pawn in a long game of chess which extends well beyond the Brexit process. The EU has already calculated the first few moves hence why it is in a sudden rush to complete outstanding trade agreements with third countries. With drongos like Liam Fox in office, surrounded by LSE nerds obsessed with tariffs, for the time being we will be outmanoeuvred and be left with a rag bag of marginal bilateral deals that impress nobody - except for the Tory right who will hail any deal with an English speaking country as stunning victory.

In fact, the malign influence of the Tory right and the general ignorance that exists in Westminster will add ten years of dithering and losses where we could otherwise have been making progress. This will be the unrecorded cost of Brexit. That though is a consequence of having disengaged from trade as a whole and having dismantled our domestic diplomatic capability.

Having abdicated from our role in the world Britain has suffered from diplomatic atrophy. Our foreign and trade policy went into stasis some time ago, we lost all our best people to Brussels and now we find that our collective knowledge is decades out of date and completely at odds with the world as we find it. That is why we should never have joined the EU and that is ultimately the price we pay to correct a historic mistake.