No deal is not an option

Monday 4 June 2018  



Could food, medicines and petrol run out in the event of a no deal scenario? The short answer is yes, absolutely. It only takes a small disruption to sophisticated supply chains for things to grind to a halt.


Leaving the EU without a deal means becoming a third country overnight. The status of having no formal trade relations. The UK would not exist as an entity anywhere inside the EU legal framework. We would be subject to third country customs controls without any of the single market product approvals or valid certification.


If you don't have the valid paperwork for your goods to circulate freely in the market then you have to find a named importer and have your products re-certified inside the EU - at considerable cost. Some classes of foodstuffs must be diverted to border inspection posts.


So that means if we go from single market members to being a third country then overnight the ports back up, Operation Stack goes into effect and lorries are sat on the motorway for days. That takes trucks and drivers out of circulation. The normal flow of supply chains is interrupted.


Remember this works both ways for trucks coming in and out of the country. Meanwhile companies by law have to file declarations which our current system is not designed to cope with. For some suppliers there will be no point in trucks even leaving the depot.


With roads jammed with trucks, supply chains collapsing very rapidly we see rumours of shortages which leads to panic buying. It happens every time we get even a dusting of snow where Tescos run out of bread and loo roll even if there is no actual shortage.


Those of you old enough to remember the fuel strikes will remember how perilously close the country came to grinding to a complete halt. This would be the same with fuel lorries trapped in traffic. The way the EU legal system works is that if there is no paperwork and there's no tick in the box then there is no trade.


All the while keep in mind that we will have been ejected from the treaty system governing airways and flight-plans, and without legally valid flight-plans then aircraft are grounded. All rights in the EU airline market are rescinded.


There is nothing in WTO rules that compels the EU to breach its own rules even in an emergency. Driving licences wouldn't be valid, nor would qualifications so there would be no mutual recognition of conformity assessment. Veterinary inspectors, drivers and pilots would be disqualified.


This is not "remoaner" speculation. Our own findings at The Leave Alliance paint a pretty grim picture of the WTO Option. This is a simple matter of law. If we have no formal relations with the EU then trade simply does not happen.


Longer term, as a third country, the costs of delays, inspections and re-registration make UK business uncompetitive in the EU. Costs go up, contracts are lost, deadlines are missed, tariffs kick in. This is what it means to be outside the European Economic Area.


All of this has been made clear in the EU's Notices to Stakeholders. These are formal notifications based on the current law. This is no scaremongering or diplomatic threat. This is the business end of the EU.


We don't know how long it would take to get the trucks rolling again. We'd have to revert to paper declarations because the current IT is not set to cope with the volumes of declarations nor is it mapped to a third country regime.


There are mid term fixes in the form of bilateral agreements but these would take time and since the UK will have left without paying, the EU would not be in a rush to do us any favours. It will take years to rebuild a functioning customs and regulatory system.


In the meantime businesses cannot afford to wait. Suppliers to EU assembly lines will have no choice but to relocate. Delays will naturally mean production slowdowns and all the secondary suppliers will take the hit.


Trade is more than just movement of goods and there are far bigger worries than tariffs. By leaving without a deal all the otherwise manageable problems of exit happen overnight without the capacity to cope with them. We would be in very serious trouble.


Frictionless trade does not happen by accident. It is the product of thirty years of technical and regulatory collaboration and the result of several strands of agreements on everything from fishing to aviation. Without formal status in the system then UK trade collapses.


Additionally, it's not just the immediate effects we must consider. It's the ripple effect that passes through every supply chain, every regulatory system and anything that depends on licencing, certification and approvals. Nearly all of it has an EU dimension.


Without alternative arrangements a lot of our insurances become invalid, contracts voided and work will grind to a halt an major infrastructure programmes. It will simply be illegal to operate without valid insurances.


So deep and comprehensive is EU integration that there is no escaping the regulatory gravity of the EU without serious and lasting harm. It is therefore not remotely realistic to suggest that things can function without a formal framework for trade. Leaving without a deal simply is not an option.



04/06/2018 link

Not out of the woods yet

Friday 8 December 2017  



It is reported to much fanfare that a deal has been reached. In fact, it is an agreement to shunt the issue of Northern Ireland into the next phase of talks. We are kicking the can down the road. Though there is much to churn over, the significant accomplishment is an agreement that any solution must be a whole UK solution where, unless the UK can produce a unicorn, we will maintain "full alignment" with the rules of the internal market and the customs union.  


It should be noted that the EU is also bound by the exact wording of the agreement. That requires both parties agree in trade talks what "full alignment" means when both sides have implied it means frictionless borders. The government still thinks regulatory alignment can somehow be the foundation of frictionless trade without single market membership. They are wrong

Since full alignment would appear to be the inevitable destination given the condition "in the absence of agreed solutions" the Tory ultras may move to scupper such a deal. 

As to the customs union, the process of separating quotas and tariffs at the WTO is the mechanics of the UK becoming a distinct customs entity with its own customs code - ie leaving the customs union. It is therefore a matter for further discussion as to what full alignment with the customs union looks like. Likely it will require a shadow agreement whereby we uphold the EU common external tariff and apply the same rules of origin thresholds. Beyond that, the customs union is a red herring

We now expect the next stage of talks to be a discussion as to whether the final settlement will be conducted inside the framework of Article 50. Since any bespoke interim agreement is likely to require that same "full alignment" it begs the question of whether Article 50 should be extended to address the entire process. Logic will be overturned by politics.

Ultimately the outcome depends on the battle on the home front. Theresa May has reasserted this morning that we will leave the single market but at some point she will have to confront reality and have this out with her indignant back benchers. Collapse is still a very real possibility. 


08/12/2017 link

Brexit: the first crack in the dam

Monday 4 December 2017  




News has broken that Northern Ireland will maintain regulatory alignment for the purposes of keeping an open border. This should come as no real surprise as there was never any realistic alternative. If we turn our backs on regulatory cooperation we open a hole in the EU's customs firewall. It then has no choice but to police its frontier.

The EU will not make substantive concessions on the NI border because, when we leave, the border becomes the outer frontier of the most mature and complex customs and regulatory union on the planet. It cannot redesign it the for the sole benefit of a departing member. It's a choice of remaining in the single market or erecting a hard border. It is that simple.

To make any kind of substantial concession for the UK so as to avoid a hard border the EU would have to revise its treaties, and any concession would then apply to all third countries. That is simply not going to happen. 

As yet, we do not know what form the final agreement will take and the wording of today's announcement is typically vague, but the mechanics of it dictate that regulatory alignment alone is not enough. A broad statement may be enough to progress talks but we have not heard the last of this issue. The details are everything. We can expect a reaction from the Tory right who have some deeply flawed ideas on how frictionless trade can be accomplished.   

We can also expect a tantrum from Leave Means Leave in that they must be well aware that any arrangement for Northern Ireland which retains single market regulatory mechanisms will have obvious ramifications for the future relationship. It will not be the Brexit they demand.

The Leave Alliance, however, believes this is a step in the right direction. The arguments for divergence and absolute sovereignty over technical rules are not compelling. We would only seek that were there another market of a similar size where realignment would better serve our economic interests. There isn't.

Ultimately we would suggest that meat hygiene regulations are not worth going to the barricades over nor are they worth potentially disturbing the peace. We would also note that this kind of concession takes us one step closer to an amicable Brexit, avoiding what we believe to be a catastrophic no deal scenario. Any progress is good. 

There is no Brexit deal which satisfies everyone so a compromise must be found. Hard liners of any stripe are bound to be disappointed. As with most diplomacy, that is usually a good sign. 


04/12/2017 link

Only a big vision can rescue Britain

Tuesday 7 November 2017  



If there is one thing glaringly evident in the Brexit process then it is a fundamental lack of vision from all sides. The Tory drive for Brexit is based on a free trade fantasy which has no particular regard for legal reality nor is it particularly troubled by a thing like detail. It cannot deliver prosperity. More likely it will make the UK an oligarchy with few friends on the continent.


But then I am not especially impressed with the opposition either. Yesterday's parliamentary debate on the single market led by Stephen Kinnock was equally lacking in inspiration. What's missing is the big idea. It's easy enough to sell the EEA as a system patch to resolve a number of problems created by Brexit, but it's a technocratic solution that utterly fails to inspire. We are not making history here. I do not feel the hand of destiny upon us.


When Mrs May went to Florence to make her pitch, Florence was not chosen by accident. It is a place of European significance chosen to add gravitas to her proposal. This is how the EU likes to operate. It was a homage. The problem with it, though, was there was never any substance to it. Just empty words like "partnership"; going through the motions, mouthing the platitudes. No shared destination and no real ambition. May used the EU's bureaucratic lexicon but it was entirely hollow. 


One thing we can about the EU is that it is on a mission. It is in a race to bolster the WTO as the epicentre of the global rules based trading system - and every FTA it signs exemplifies that. There are clear strategic objectives while the UK has none except to leave the EU, which is little more than a bureaucratic transaction. What then? What is our role to be?


It would appear that, without a strategy, our fate is to be a client state of the USA - as a dumping ground for agricultural surpluses at the expense of our own agriculture, in exchange for marginally better access for UK services.


For some leavers we can see the attraction. Conservatives of a certain bent for far prefer a transatlantic relationship than any kind of comprehensive EU relationship. We hold a particular delusion that there is such a thing as a "special relationship" when in fact it largely consists of being a fig leaf of internationalism for America's ill-conceived military adventures. As to trade, America has always run an America First trade policy and that is not going to change.


If that came with the sort of freedom of movement that comes with EU membership we wouldn't give it a second thought. But that is not going to happen. Consequently a realist is forced to admit that the national interest still lies in maintaining a deep and comprehensive EU relationship.


Many would argue that if this is the case then there is the is no advantage in ceding our controlling share in the European Union. But then in a geopolitical sense, arising from the fact we never joined the Euro, we are just not in the centre of the EU universe. Germany is at the helm trying to put out various brush fires as they arise while attempting to mollify disquiet internally. We look into the EU goldfish bowl and largely see little that concerns us and wonder why we are on the hook to bail out its various vanity projects.


I take the view that leaving the EU frees the EU to reform in ways that it never would with the continued presence of the UK. Europe can consolidate its gains, make the necessary adjustments and  Britain can feel more comfortable being a close and valued trade partner while looking beyond Europe as indeed we always have.


In that respect we can't see the for the life of me why Brexit is especially controversial unless it is a particular article of faith that everything depends on membership. What is controversial is the process of how we get to where we want to be - and starting that process before we even know what the  destination is. Not knowing makes the default option of being a US client state all the more likely.


This is something we should be cautious to avoid. The Tory infatuation with the USA is not one shared by the whole country. Many resent the idea of being culturally subordinate and value close European ties as a protection against becoming the 51st state.  


We therefore need to agree upon a direction that recognises the practical necessity in maintaining the closest trade links possible, observing that economic cooperation goes far beyond the narrow definition of trade.


It really comes down to fleshing out what an actual partnership with the EU looks like. For starters any partnership is born of common objectives. Common security, defence and foreign policy are a given for the region. Being that we alone cannot sustain super power sized armed forces it follows that we must have a framework for cooperation.


As to economic partnership, any which way you look at it, the Single Market is the obvious framework. That, though, is the tough sell for those who thought Brexit would deliver far greater freedoms than is allowed by the EEA agreement. But again this perception is born of a lack of vision.


The fact is that the UK is not of equal stature to the EU. It therefore follows that if we want a genuine partnership where the EU does not call all of the shots then we must enlist allies. That is where the power of Efta is overlooked. UK membership of Efta evens out the balance.


What we can then do, by way of having an independent trade policy, is work to the same agenda as the EU - pulling more countries into the global rules based trade system, coalescing around global standards. This shifts the centre of gravity for the single market from Brussels to Geneva. 


In this we can address a number of domestic complaints by redirecting our aid spend toward technical assistance to bring more countries on board. This is with a view to expanding and enhancing the single market, wresting it from EU control. As an advocate of free trade, or rather regulated trade, we could very well be Europe's envoy in the world working to a common set of goals which increase the overall wealth of the continent.


Whatever trade designs we might have, being independent and agile is a useful asset but we cannot expect to go very far alone. There must be an appreciation that nobody works in isolation and nobody has absolute sovereignty. From that understanding we can nurture our own relationships while staying the best of friends with the EU, maintaining our global standing and retaining much of our European influence.


Brexit is really a matter of recognising the fact that Europe is evolving in different spheres at different speeds with different centres of gravity. It should, therefore, be our objective to work with the EU to build a more dynamic Europe where the supranational dogmatism of the EU takes back seat for those who want no part of it.


If there is a vision to enhance and improve Europe then there is every chance the EU will climb aboard and support us. Perhaps it will even be amenable to improving the EEA agreement with a view to respecting the Europe wide yearning for greater control. If, however, the message is that we are dumping Europe, striking out on or own and going into competition with the EU then we can expect acrimony, opposition and animosity.


If we want to Brexit to work in our interests then then there has to be a genuinely European vision behind it where both sides get something they want. Otherwise it's a zero sum game. It is, therefore, a question of selling Efta as a vision rather than a dismal technocratic solution to park Brexit. As much as anything, it is not a positive message to sent to Efta; - that we view Efta as a parking garage rather than a new home more befitting of our oceanic character.


If Brexit is treated purely as a transactional and administrative chore then there is no possibility of being in a better place. We would squander an opportunity while trading influence for the mirage of "global Britain". That would be a travesty.



07/11/2017 link

Legatum gets it badly wrong

Monday 6 November 2017  



A report published yesterday by Legatum Institute has made a fundamental error in saying conformity with EU rules will allow the UK to trade freely with the EU.

The Single Market is a regulatory union. For this to work effectively, there have to be two fundamentals: common regulation and common (coordinated) surveillance and enforcement – including record-keeping.

Subscribing to common (or equivalent) regulation is not sufficient. The crucial additional element is that members commit to the same level and style of market surveillance and enforcement, harmonised under the jurisdiction of Union institutions.

Because of this, it can be assumed that goods produced by enterprises subject to the Single Market regime will automatically conform with union regulation. There is, therefore, no need for conformity assessment at the internal borders. Goods can be traded without border checks or other formalities.

When goods are produced outside the regulatory union, different provisions apply. Although they might (either by agreement or via WTO agreements) be produced to common (or equivalent) regulatory standards – which can be verified – the enforcement regimes are not necessarily the same and EU institutions have no jurisdiction over them.

Therefore, in the absence of common or uniformly-applied surveillance and enforcement, the Union cannot assume that regulatory conformity is necessarily equivalent to the EU's provisions. Therefore, at the external border of the Union, goods entering from third countries are subject to varying levels of border checks.

For stable, mass produced goods (i.e., were items are identical and are not likely to change during distribution and transport), the checks can be minimal, amounting sometimes to no more than documentation checks – especially where there are agreements on the mutual recognition of conformity assessment.

This is not the case though with perishable goods, and particularly those of animal or vegetable origin. There are highly variable goods and can deteriorate through the production and distribution chain, which means the quality (and safety) of even similar products may vary substantially.

Such goods are produced extensively by third countries and exported to the EU. Many are subject to the WTO Sanitary and Phytosanitary (SPS) Agreement, where regulatory equivalence may be claimed. There may even be harmonised standards.

However, in the absence of common surveillance and enforcement measures and the fact that any measures applies lie outside the jurisdiction of the EU, full conformity of inherently variable products cannot be assumed. Therefore, the EU insists on carrying out its own conformity assessment at its external border. To do so is entirely compatible with the SBS Agreement, and therefore the EU procedures are considered to be WTO compliant.

On that basis, the UK – when it leaves the EU – might be able to claim that it has full regulatory harmonisation at the time that it leaves. It may even retain similar enforcement standards. But it cannot implement common enforcement and systems as these have to be fully integrated and coordinated with Union institutions and other members of the Single Market. This is not possible outside the Single Market.

Therefore, while the EU may continue to recognise UK product and SPS regulation and conformity assessment, that does not prevent it carrying out detailed border checks of UK products, once the UK has assumed third party status.

To suggest that conformity alone is any solution is to completely misunderstand how the system works.


06/11/2017 link

No, "dark money" is not the reason we're leaving the EU

Friday 3 November 2017  


 

We're not the sort to say "you lost, get over it", but you remainers most definitely did lose. Some are suggesting this was down to dark money from Russia. This is with a view to de-legitimising the result.

If there is credible evidence to suggest Russia may have attempted to influence the vote then it should be fully investigated - but it changes nothing. The most compelling evidence we have seen suggests a campaign of Twitter bot activity, largely replicating kipperish material which would have been disseminated anyway. While it may be unethical and deeply suspect, there is no tangible proof that it changed minds.

Unless it can categorically be said that Russia agents infiltrated the UK and tampered with the ballot boxes, this was as free and fair a vote as you are ever likely to see. There are many aspects of our democracy we can hold in question but the security and sanctity of the polling booth is the one thing we need not question.

There are still questions to be resolved as to the accounting practices of Vote Leave, and Arron Banks looks dodgier by the day, but this is largely a matter for the authorities and has no real bearing on the outcome.

Supposing the leave campaign overspent or had help from Russian bots, leave was still up against a remain inclined television media, remain inclined academia and a remain inclined government - who produced, at the cost of £9m, a booklet distributed to every household explaining why we should remain in the EU.

Additionally we had several months of fierce debate where everybody who wanted a say had a say. All the economic arguments were heard. All the options were explained - not least by us. Every celebrity, every MP and every international statesman was heard. The Bank of England made its views known. President Obama made his views known. The head of the WTO also made his views known. Morning, noon and night we were subjected to the views of of virtually everybody but the Queen herself.

In the end the result was a rejection of the status quo having been harangued by the great and the good, patronised and labelled with all the names under the sun. Against a backdrop of stagnating growth and growing inequality, the public decided to send a message to the powers that be. Leave didn't win it. Remain lost it. And deservedly so. What were they thinking putting Geldof and Izzard front and centre?

There's a lot of questions that need to be asked; The corrupt relationship between the Tories and the grubby world of right wing think tanks for starters. Arron Banks and Farage also have questions to answer. A lot of people used the referendum as a vehicle for self advancement and enrichment and a lot of people made a few quid. It is necessary to investigate and expose that - but to say that we are feeble minded serfs hypnotised by Russian Twitter bots is exactly the kind of insult that lost it for remain.

Like it or not, remainers will have to come to terms with the fact that we are leaving the EU because more people put their crosses in the leave box than remain. You may be able to prove that Russian activity amplified the messages of the leave narrative but ultimately remain failed to counter it with anything inspiring or believable. Referendums are about offer and counter offer. A lot of people asked "what has the status quo done for me lately?". Neither Labour nor the Tories nor the remain campaign had an adequate reply. That is why we are leaving.


03/11/2017 link

Brexit: last chance saloon

Thursday 12 October 2017  


 

It would seem that for some in the bubble the penny is starting to drop. A no deal Brexit is not the minor inconvenience that the Tory ultras pretend it is. The Leave Alliance has long warned that no responsible government should even consider leaving the EU without a deal, but it would appear that is where we are drifting as a consequence of Tory incoherence.

We should not, however, be surprised. It has taken until now for the media to properly focus on the consequences. Until now the debate has largely been confined to the FT and occasional Times articles with no real sense of urgency. The public is largely still in the dark as to what no deal actually entails and due to the histrionics of the remain campaign last year, many won't believe it until they see it.

Effectively a no deal Brexit is the severing of all of our external trade relations and the deletion of all of our single market permissions. It is as though a system administrator changed your mainframe password. Yes, you might still have a computer, but without being able to log on, all you can do is play Minesweeper.

Many assume we exaggerate as to the effects, and believe a traffic jam at Dover is hardly a show stopper. This is a naive view. The damage comes from the ripple effects where small interruptions to supply chains are multiplied and magnified across every sector. We are so deeply integrated with the EU that it is impossible to map all of the possible consequences. A no deal Brexit is akin with performing separation surgery on conjoined twins with a hammer and chisel without anaesthetic, hoping that the weaker one will live.

The longer term ramifications of this are incalculable. We can say with confidence that it would lead to a substantial loss of trade along with our international standing. Living standards will very rapidly fall. Recovery will not come soon.

As to whether this can be avoided is all in the hands of the gods. Events seem to have taken on a life of their own. Westminster seems incapable of acknowledging the immediate peril. It would seem that the event horizon has already been crossed and unless talks are extended we will run out of time.

If this is to be prevented the there is only a short window for politicians to act. The Prime Minister has made her play. She has extended her offer to the EU - knowing that the EU cannot indulge her. The Tory machine spinning hard to make it seem like EU intransigence is at fault rather than the refusal to engage in phase one issues. This sets the stage for a walkout where the Tories believe the EU will come chasing after us.

The EU is unlikely to respond well to such blackmail. If the UK is determined to walk out then the EU will do little to stop us. We cannot expect the EU to save us from ourselves. That is why this is the most crucial time of all. The domestic political impasse must be resolved. May must be prevented from pulling her stunt and we must make people wise to this cynical trickery.

If parliament gets its act together there is the possibility of salvaging the situation. This government would have to fall and in its place we would need a pragmatic and cooperative approach. For all that many have been keen to dismiss the EEA option, none be able to offer a more realistic approach. If we want to leave with the minimum of economic harm and legal difficulty it still presents itself as the only viable path.

This is is a fundamental test of British politics. It is a test of whether MPs can put the nation's interests before their tribal loyalties and whether reason can permeate the Westminster fog. Should they fail us in this then there is no turning back. They will have started something quite ugly and we will all pay the price.

For the moment it does not look good. We do not have confidence that there are sufficient numbers (or any) MPs who have enough grasp of the subject to be able to intervene effectively. Even the very best of them are lacklustre, and will miss the point. It may well be that this must play out to the disaster it has become. 



12/10/2017 link

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