Brexit: snakes and spiders

Thursday 29 September 2016  

The trouble with Mike Hawes of the Society of Motor Manufacturers and Traders is that he represents a thoroughly Europhile organisation which took an active part in the referendum campaign, calling for voters to resist the lure of Brexit.

But now, the same Mikes Hawes has been leading a delegation of motor manufacturers to Paris, in advance of the Paris Motor Show, to tell us that Britain's record-breaking car export boom risks stalling if the UK leaves the Single Market.

Hawes fears that ministers are being "blinded" and "lulled into a false sense of security" by the current buoyant car production and sales performance. All this could come abruptly to an end if the industry sees the re-imposition of tariffs and other barriers to trade. Leaving the Single Market could also put thousands of jobs and billions of pounds of investment at risk.

It is a pity that this was not the message Mr Hawes was delivering before the referendum, whence it might now have more credibility.

Nevertheless, Hanno Kirner, executive director for strategy at Jaguar Land Rover freely admits that his firm had always wanted Britain to remain in the EU. But now that it has voted to leave, he says, he wants the UK to stay in the Single Market.

Trading relations with "Europe" are vital to JLR's success, he adds: "Tariffs would affect not only what we sell, but what we buy. We need to be able to attract global talent without barriers".

If anything, though, the car industry is understating its own case. The manufacturing sector is fully integrated with complex cross-border flows of components, allowing plants to operate on a "just-in-time" basis, cutting out expensive stock inventories and storage.

This "lean" manufacturing is notoriously prone to disruption and the delays that might be encountered by resuming border checks could prove the death-knell of the British industry.

Last year the UK exported a record 1.23million cars, with 58 percent going to the EU, and new records are being set this year. But, depending on the manufacturer, between 20-50 percent of the components are imported from EU Member States, only for the bulk to be re-exported.

In essence, the industry is one of "snakes" and "spiders". "Snakes" involve a sequence in which intermediate goods are sent from country A to B, and incorporated into intermediate goods sent from B to C, and so on until they reach the final stage of production. "Spiders" involve multiple parts coming together from a number of destinations to a single location for assembly of a new component or final product.

A finished car, comprising thousands of products, relies on this extraordinarily complex web, so complex that it is very difficult to work out the precise proportions of national inputs. And by the time R&D, design, computer software and other inputs – including finance – have been factored in, the value chain is near-impossible to apportion.

The very last thing the automotive industry wants or needs, therefore, is a huge spanner in the works called "leaving the Single Market". And, as an industry which contributes the best part of four percent to the UK GDP, and seven percent of our entire export earnings, this is something the UK can do without as well.

Richard North 29/09/2016 link

Brexit: money walks

Wednesday 28 September 2016  

The Times is suggesting that a "hard" Brexit could cost the Treasury £10 billion in lost tax revenue from the City.

This supposedly comes from Treasury officials. Were they the same, one wonders, who came up with those pessimistic pre-referendum forecasts that only just stopped short of predicting that we were all going to die? 

Undoubtedly, this is also a pessimistic line, based as it is on the City losing its entire earnings from its EU business, which contributes about £10 billion in tax each year – about a third of the total £31 billion a year the City hands over in various forms of taxation.

Even the worst of the worst-case scenarios, however, can hardly be predicting that the City would lose all its EU business, even if some it at risk through the loss of passporting rights – which allow financial service businesses to set up in London and run branches the EU under the single "home regulator" approval.

Not least, there is the likelihood of some operations qualifying for "third country passports" – also known as equivalence – which would permit post-Brexit operations in London to trade in the EU – albeit restricted to wholesale business.

Nevertheless, there is a considerable amount of business at risk. About 15 percent of all branches and subsidiaries of non-euro area banks in the banking union are branches or subsidiaries of UK banks. Based on data at the end of 2014, these operations accounted for at least €750 billion of total assets.

And this is not the full extent of the risk. The City also stands to lose if some of the foreign banks walk. Those that have set up headquarters operations in London because of EU access might think twice about keeping their main offices in the UK capital.

The foreign presence in London is not insubstantial, as foreign banks (via branches or subsidiaries) represent 37 percent of total bank assets in the UK. The UK is also a major host for EU bank sub-entities – carrying approximately €1 trillion of assets.

On top of that, there is also the possibility of the loss of retail business. According to a confidential report produced for the British Banking Association (BBA), the UK credit-card industry - dominated by Barclaycard – is particularly at risk. It issues 73 percent of all cards across the EU and could see its market share eroded.

The UK would no longer be part of the bloc's Interchange Fees Regulation (IFR), which limits the charges for merchants accepting credit or debit cards and prevents retailers from discriminating against regulated cards. Customers could thus face stiff fees from retailers or cash machines across the bloc.

In truth, though, no one knows the precise effect of Brexit, hard or soft, on the financial services industry, although Brexit department officials have commissioned a detailed technical analysis to fill the knowledge gap.

The one thing for sure, though, is that a "soft" Brexit, keeping us in the EEA and in the Single Market would avoid most of the grief. UK firms would keep their passporting rights, and the overall impact on the business would be slight.

However, what The Times story does is remind us that the different Brexit strategies come with different price tags. And there can be no dispute that the "hard" Brexit will have a very substantial cost – possibly more even than we are currently paying in contributions to the EU.

Should the true cost of a "hard" Brexit be calculated (as best it can), and widely promulgated, one might see this having a strong effect on public sentiment. People will begin to realise that, while politicians talk, money walks – and, most likely, we will end up paying the price.

Richard North 28/09/2016 link

Brexit: a "massive overhead for very little gain"

Tuesday 27 September 2016  

There are no experts in Brexit, as such. The issue covers such a wide range of subjects and disciplines that no single person can hope to gain any more than an overall appreciation of the details. Likewise, no one profession – especially not economists, lawyers or even trade specialists – can call the issue their own. And politicians, largely, seem amongst those groups least qualified to comment. 

Obviously, though, some individuals will have more to contribute than others, one of whom is John Holland-Kaye, Heathrow's chief executive. He is in the current edition of the Financial Times, warning that a decision by Britain to leave the EU's Customs Union would mean "adding massive overhead for very little gain" at the UK's ports and terminals. He thus urges the government to avoid imposing major new costs on business.

And while, from his comments, it is evident that Mr Holland-Kaye has a great deal to offer, I'm not entirely sure he is correct on focusing on the Customs Union. Much of what he has to say would seem to apply to the Single Market rather than the Customs Union. If that is the case, he would be by no means the first to confuse the two.

Certainly, confusion there is, with the Financial Times declaring that: "Ministers have not announced a decision on whether the UK should leave the customs union, which allows UK exporters to sell into the European Single Market without having to fill in forms or customs checks".

This is an absurd conflation of two different things. The Customs Union, of course, deals only with tariffs, removing tariff barriers between members, while imposing a common external tariff applicable to all third countries.

Crucially, the Single Market goes much further, covering a wide range of non-tariff barriers – as well as tariffs – so it would appear that the main issue is indeed the Single Market.

However, just to complicate things, in terms of having to filling in forms and customs checks, much of this depends on the AEO programme which is currently embedded in the Union Customs Code (UCC) and could therefore be regarded as part of the Customs Union.

However, since an AEO programme can be a stand-alone agreement, there is no need for it to be tied into the Customs Union and can just as well be attached to Single Market – as indeed it is for Norway via the EEA Agreement.

When Holland-Kaye gets into the detail, however, he is not wrong when he says that a decision to apply customs checks on goods passing between Britain and the EU "would be burdensome". It's when he then says that "an alternative to leaving the customs union probably needs to be found" that he confuses the issue.

Mixing the good with the bad, though, Holland-Kaye notes that customs checks and tariffs have to be applied for goods coming into the UK from China, when he says: "No one's going to want to be doing that for EU goods as well. That's adding massive overhead for very little gain".

Holland-Kaye then adds: "I've had no indication that there's an expectation that we will be putting up customs controls for goods coming in and out of the UK. Can you imagine operating something like the Euro[tunnel] if you had to suddenly build in all these checks in place? It would be completely unmanageable, which is why I think, pragmatically, [ministers] will find another way round it".

At the moment it is as easy to send a truckload of goods from London to Munich as it is from London to Manchester. But, we are told, "if the UK leaves the customs union, businesses will have to fill in additional documents and clear additional checks - in particular, to prove the origin of the goods - even if the UK strikes a favourable trade deal with the EU. Delivery companies say additional tax hurdles - such as paying VAT and duties - are particularly time-consuming".

Thus continues the confusion between "Customs Union" and "Single Market". But, essentially, this is about the Single Market.

To what extent additional checks will apply if we leave is not known, and we cannot know until the shape of the Brexit plan is clear. But it is certainly the case that, if the UK drops out of the Single Market and relies solely on the WTO option – without seeking a negotiated settlement - paperwork will multiply and the number of border checks will increase.

What is not understood fully by many of the pundits that have explored this issues, is that the decision as to whether to check consignments at the borders rest exclusively with Member State customs officials. The entire edifice of control rests on Article 46 of the Regulation (EU) No 952/2013 of the Union Customs Code, which defines customs controls as consisting of:
… examining goods, taking samples, verifying the accuracy and completeness of the information given in a declaration or notification and the existence, authenticity, accuracy and validity of documents, examining the accounts of economic operators and other records, inspecting means of transport, inspecting luggage and other goods carried by or on persons and carrying out official enquiries and other similar acts.
The Article goes on to say that the controls, other than random checks, "shall primarily be based on risk analysis" performed within "a common risk management framework, based upon the exchange of risk information and risk analysis results between customs administrations and establishing common risk criteria and standards, control measures and priority control areas".

The "take-home" point from this is that, if the UK is foolish enough to adopt the WTO option, it will be cutting itself off from the "common risk management framework" and all that goes with it. Member State customs authorities thereby will be entitled to take a pessimistic view when applying their risk analyses, stepping up physical checks to whatever levels they deem appropriate.

Yet, a study of US-bound container traffic indicated that if, routinely, as little as 1-2 percent of containers in a major overseas port were examined before loading, it would almost certainly overwhelm the inspection facility. Transfer that finding to, say, Calais, and only a modest increase in inspections could bring chaos.

At the UK end, we learn from the Financial Times that Treasury officials are exploring the possibility of widening customs facilities at the UK border, especially at Dover, where space is limited. This might involve recruiting hundreds, if not thousands, more customs officers to conduct border checks.

However, it is acknowledged that such "efficiency gains" would depend on EU destination countries co-operating and paying for similar upgrades of staff and capacity. France, as we know, has limited infrastructure to deal with the extra customs requirements. And European officials admit they are only just beginning to understand the scale of the Brexit challenge.

Apart from anything else, employing more customs officers would be especially costly for the UK government. The UK has a comparatively lean operation by EU standards, employing only 5,000 customs officers. Germany employs 35,218 and France 16,500, according the World Customs Organisation. An extra 5,000 officers could cost as much as £250 million every year. Additional costs could run to several billion pounds per year.

Yet still, confusion reigns. In a masterful blurring of the issues, the Financial Times asserts that senior Whitehall officials are convinced "ministers have little choice but to leave the customs union because remaining would leave Britain with little autonomy over trade".

If this bizarre analysis represents the actual thinking in Whitehall, we are in serious trouble. It would mean that those planning for Brexit haven't even touched first base.

Richard North 27/09/2016 link

Brexit: "mind boggling" complexity

Monday 26 September 2016  

It's thirty months since we published the first version of Flexcit, pointing out that a trade deal with the EU inside two years was not possible, and now the Independent considers it news that "experts" have woken up to that fact.

Further, as if we didn't know already, these self-same "experts" are arguing that civil servants preparing for negotiations to pull Britain out of the EU face a task of "mind-boggling" complexity.

That a newspaper – even if it's only the Independent should actually believe that this is even worth remarking upon tells us a great deal about the current nature of the Brexit debate, and who the media chooses to accept as "experts".

Picking on an organisation that seems to specialist in spreading ignorance, it goes to Stephen Booth, co-director of Open Europe, who draws the amazing conclusion that "it was likely that Brexit would end up being a gradual withdrawal from different aspects of the UK’s entanglements with the EU, rather than a single 'big bang' event".

You really do have to give it to Open Europe that, when all else has repeatedly failed, they eventually stumble on the right answer.

Another stunningly perspicacious source on which the Independent relies is Hannah White, of the Institute for Government. She says that officials should be working on the assumption that a new trade relationship with the EU will take more than two years, and push for an interim deal.

If we hadn't been writing that for more than three years, and if it hadn't been downloaded in Flexcit more than 110,000 times, we might even think that this was something novel. But then, for the Independent to be only three years behind the curve is about what we should expect of the legacy media.

Ms White is clearly coming to terms with that three-year-old reality, telling us that: "Every time we look at the different aspects of it (Brexit), we see a whole new degree of complexity and new things that need to be taken into account".

Well, ya don't say!

But, with the bit firmly between Ms White's teeth, there's no stopping her. "First there's the process of getting to the negotiating position, which involves a lot of consultation with different levels of government and economic sectors and working out what trade-offs and compromises you can accept", she says. Then, she adds, "there's the process of negotiating the divorce agreement, then working out the new trading and immigration arrangements we want with the EU".

Her grip on the reality though is somewhat slender, as she then reaches down to us ignorant plebs to inform us that: "Before getting a trade agreement with anyone else, we need to sort out our baseline position with the World Trade Organisation, which involves negotiations affecting all sorts of sectors and could take years".

Thereby, she marks herself down as someone who doesn't read very widely or deeply. But then, I'm sure Ms White didn't get where she is today by knowing what she's talking about.

That much is clearly evident from her comment that, "Other countries need to know what our basic offer is within the WTO before they strike a free trade deal with us", clearly not understanding that the UK can settle its position by a unilateral declaration, under cover of a WTO waiver. That will more than suffice to get the show on the road.

To conclude, though, we get the canard from Ms White, that "For the US it's a legal requirement that a country's WTO schedules are agreed before they can enter trade talks with them".

I've seen that stated before, but not with an authenticated reference which gives chapter and verse on the legal base. In fact, it strikes me as another of those urban myths, not least because the US struck a WTO bilateral market access agreement with the Russian Federation in 2006, five years before its accession to the WTO, and long before it had finalised its commitments. And then, under certain circumstances, reciprocal tariff deals can be approved by executive agreement.

But then, as we see with Robert Peston, the Brexit debate is populated with people only too keen to parade their ignorance, and confuse the issues.

Here we have a senior legacy media commentator confusing the concepts of the customs union and the Single Market, as well as seemingly lacking any knowledge of rules of origin, or even of Community law.

The point about a customs union, of course, is that members adopt a common external tariff with third countries, and allow tariff-free movement of goods within their joint borders.

This does not, therefore, preclude parties, such as Turkey – which is also a member of the EU Customs Union, empowered by the Ankara Agreement – from making their own preferential trade agreements. So far, Turkey has concluded nineteen such agreements, including an agreement with Efta.

What prevents EU member states from concluding trade agreements with other countries is the Common Commercial Policy, reliant on Article 207 of the Consolidated Treaty.

Whether we actually stay in the EU's Customs Union, therefore, remains to be seen. There may be a case for staying in for a short while, which would give us more time to revise the Union Customs Code.

The one thing for sure, though, is that we aren't going to resolve the issues listening to ignoramuses such a Robert Peston, or Hannah White for that matter. They belong in the media, not in the real world.

Richard North 26/09/2016 link

Brexit: passport to oblivion?

Sunday 25 September 2016  

Grumbling on with much heat and very little clarity is the vexed question of "passporting", the name given for the system within the Single Market where financial institutions, once authorised in any Member State are free to establish branches and to provide cross-border services throughout the Community on the basis of the fundamental principle of home country supervision.

Established in 1993, it has since been extended to cover most financial services and contributes to the creation of the largest single free market in financial services anywhere in the world, giving London a significant advantage as a global financial centre.

Crucially, the passporting system has been extended to all EEA states, so that if the UK remained in the EEA, it would continue to enjoy passporting benefits. Third countries only enjoy limited rights, under what is known as "third country passporting" or "equivalency", and then only on the basis of a guarantee of reciprocity, permitting other EEA businesses equal access to the UK market.

However, with the UK government yet to commit itself to continued EEA membership, some major US banks, such as Goldman Sachs, Morgan Stanley and BlackRock are getting nervous. Their presence in the UK is as much to do with the access afforded to the EEA market and, without that guaranteed, they are thinking about having to relocate.

That much we are getting from The Sunday Telegraph which is breaking with recent tradition by actually running a news story in its pages, telling us that the bosses of several of America's biggest banks and corporations have warned Theresa May they will pre-emptively shift operations into Europe unless she can provide early clarity on the future shape of EU-UK relations.

The ultimatum, we are told, was delivered at a round-table meeting with Mrs May in New York this week attended by a host of key US investors, including major City investors such as Goldman Sachs, Morgan Stanley and BlackRock – conveyed after Mrs May had declined to provide information about how the British government would approach the Brexit negotiations.

This, of course, is extremely damaging to the "hard Brexit" advocates, who want to pull us out of the EU without a settled deal, impaled as they are on their rhetoric on free movement of persons. Unable to cope with the idea of the Article 112 EEA mechanism which gives them a workable solution to controlling the (relatively minor) problem of EEA migration.

As Booker pointed out last week, the EU/EEA contributes the smaller part of our overall immigration, and securing controls over this particular aspect is not going to make significant inroads into the problem.

Despite this, the "lunatic fringe" is determined to throw the baby out with the bathwater, damaging our vital interests in trade in financial services, and putting at risk anything from 40,000 to 80,000 jobs over the next decade.

Even if losses are exaggerated – and no-one knows what they will be – the prospect of big-name pulling out of London piles huge pressure on Mrs May to find a solution to Brexit, which reconciles controls over free movement of persons with continued participation in the EEA.

She could do no better than look here for a solution which is all the more stronger for having been rejected by the lunatic fringe.

As least there seems to be an air of realism in some quarters of Whitehall, with Chancellor Philip Hammond now cautioning banks that the retention of "passporting" is highly unlikely if Mrs May gives in to the crazies and dumps the Single Market.

With highly-paid consultants crawling over this issues, it is now about time they stopped churning out the same derivative boiler-plate, and started exploring that which is already known to readers, that the EEA Article 112 mechanism provides a perfectly adequate solution to the current impasse.

For the want of better intelligence, they are having to make do with the likes of Anthony Browne, chief executive of the British Bankers' Association, who has been calling for "transitional arrangements" to allow banks and other financial institutions to make plans to deal with the loss of passporting rights.

However, he - like others – is beginning to realise that even this will require an immense amount of good will on the part of the "colleagues, which may not be there when we come calling.

That much is acknowledged by professor Alan Winters, director of the UK Trade Policy Observatory, who concedes that financial services is "very complicated" and asking the EU to concede transitional arrangements is fixing one key piece of the negotiation before it has even started. Winters says: "We'd be asking them to give away one of their biggest pieces of leverage".

What no one on the politico-media nexus is doing at the moment, though, is joining up the dots. Financial services are but one sector which will be adversely affected by dumping the Single Market. And even if it is making the most noise at the moment, others can't be far behind.

Sooner rather than later, Mrs May is going to have to cut through the stupidity and ignorance and concede that the only option for a "transitional arrangement" is to stay in the EEA, ignoring the noisemakers. Otherwise, it isn't a blue passport she will be looking at, but a passport to oblivion as she faces the 2020 general election with the wreckage of what was once Brexit.

Richard North 25/09/2016 link

Brexit: globalisation and control

Saturday 24 September 2016  

What is really depressing about my research on Brexit is how pathetically shallow the debate is: the media and politicians churn the same limited set of factoids, endless repeating arguments that were stale thirty years ago. This is the Dunning-Kruger effect writ large, with the players so ignorant that they don't even begin to understand how ignorant they are. 

To that extent, there is not even any point in writing for them, or attempting to educate them. All you get is the clever-dick response of the ignorati - people who do not even attempt to engage with the substantive issues.

At the heart of the darkness, so to speak, is that media-politico nexus which believes that "Brussels" is the law-maker supreme, and that Brexit will bring a new renaissance. Regulations by the thousands will be ripped up and burned in one vast metaphysical bonfire, opening the way to the vast sunlit uplands where free trade agreements hang from every tree.

At first sight, the essence of the problem is that these people don't have the first idea of how the world really works, in the context of a global system that is now so diffuse and complicated that even the specialists struggle to understand it.

The real problem, though, is that such people don't want to know about complexity. They have already fixed their narratives and they don't want them disturbed by mere facts – especially when they come from low-prestige sources.

Much of that narrative is fixed around the "deregulation" meme, so pervasive that it is taking on the character of a computer virus that blocks keyboard inputs. It renders void argument on any alternative, as shallow minds fixate on their idea of a bonfire of regulation.

Reading an essay in this book, however, one sees from authors Ronnie Lipschutz and Cathleen Fogul a different narrative, recounting how globalisation has destabilised any idea of national deregulation.

The book is: "The Emergence of Private Authority in Global Governance", edited by Rodney Bruce Hall. It has Lipschutz and Fogul telling us:
Nowadays, the greatest profits are to be found in the high-tech and information industries, in transnational finance and investment, and in flexible and niche production and accumulation. This means looking beyond national borders for ways in which to deploy capital, technology and design, and to gain access to factors of production in order to maximise returns on investment and secure entry into foreign markets.
Lipschutz and Fogul then remark:
… one obstacle to capital mobility and broader economic growth is the transaction and other costs that result from compliance with more than 100 sets of national regulations. From the perspective of global capital, it is preferable to deal with a single set of rules that apply to all countries.
Markets, they say, require rules in order to function in an orderly fashion. Thus, they add, there is a "central paradox", in that:
… while "deregulation" is the mantra repeated endlessly in virtually all capitals and by all international capitalists, it is domestic deregulation that capitals and capitalists desire, not the wholesale elimination of all rules. Selective deregulation at home may create a lower-cost environment in which to produce, but uncontrolled deregulation everywhere creates uncertainty and economic instability. Hence international regulation is relied on increasingly for keeping the global system together and working.
The great advantage of international regulation is not only that it reduces transaction costs of 190 different sets of national laws, such regulatory harmonisation also tends to "eliminate politics" from certain conflictual areas by shifting regulatory authority out of the domestic sphere and into the international one. There, "representative national and subnational institutions lack power and any ability to intervene".

In effect, the depoliticisation of regulation (inevitably stripping out democratic accountability) is a necessary function of globalisation – a feature rather than a bug, as the saying goes.

With that, one can quite understand the proponents of globalisation being less then enthusiastic about parading the anti-democratic nature of the regulatory processes. Furthermore, it should come as no surprise that the EU has served to conceal the origins of many of the regulatory products arising out of globalisation.

But now we are confronting Brexit, the extent of this deception is being exposed, and we are beginning to get some idea of what has been hiding behind the skirts of "mother Europe". It is perverse, therefore, that the anti-EU Tory Right are, in effect, working with the EU in obscuring the process of globalisation, either by ignoring it or pretending it doesn't exist.

To an extent, these people are trapped by their own rhetoric. Having cast the EU as the root of all evil – particularly in terms of "barmy rules" - they are then unable to adjust to the fact that, in many areas, their criticisms have been over-stated. If follows naturally that they cannot admit that that Brexit will barely dent the corpus of regulation to which they have so long and so noisily objected.

Given that one of the key slogans for the official Vote Leave campaign was "take back control", it is even more embarrassing for this grouping to have to concede that much of the "control" does not rest in the hands of their hated EU. Instead, it lies with a diffuse compendium of global standards-setting bodies, which will continue to operate long after the UK has left the EU.

What the Tory Right also fail to understand is that, apart from a tiny faction of the disaffected, no one cares very much who decides on the global standard for sugar in jam, or for ergot in flour. What does matter, as the Egyptians are finding out, is what happens when national governments go off the rails and get the policy wrong.

This is the territory we covered in Monograph 12, and which we explore further in our latest Monograph. But what we are basically saying is that, if we are going to manage Brexit effectively, we will have to come to terms with the role and effects of globalisation. Mrs May will then have to decide how to accommodate it in the post-Brexit environment, and work out a way of maintaining the momentum, while satisfying the aspirations of the rational Brexiteers. 

Anything else is not a serious option.

Richard North 24/09/2016 link

Brexit: Monograph 13

Friday 23 September 2016  

Monograph 13, entitled: "International quasi-legislation and the EU" has been published. The illusion of control gets a full airing.

Richard North 23/09/2016 link

Brexit: regulatory stability

Thursday 22 September 2016  

EEF, the manufacturer's organisation is telling us that regulatory stability is the key to supporting a smooth exit from the EU. This also comes to us via Bloomberg which highlights the EEF's view that the UK should maintain EU regulations covering everything from working hours to chemicals until after the government sets out its plans for Brexit.

British manufacturers, it seems, are anxious to avoid a policy vacuum and wish to safeguard access to their biggest export market. In the short term, therefore, they prefer the UK to absorb much of the existing regulatory framework as possible.

In the long term, though, they are confident that Brexit will allow some freedom to review aspects of EU law which act as a drag on global competitiveness.

"We want government to provide regulatory and policy certainty in this important arena", says Claire Jakobsson, head of energy and environment policy at the group. "But in the longer term there is clearly an opportunity to pull back from EU regulation where it does not work for the UK".

At this stage, red tape might be a price worth paying for access, the EEF says, because the EU is the destination for 52 percent of the UK's manufactured exports by value.

Less than a quarter of companies surveyed by the EEF want the UK to abandon the EU's complex regulations on waste and chemicals, even though the group describes them as "burdensome".

Approximately twice as many advocated the status quo. Any move to replace these rules with tailored UK laws in the immediate future could be "costly and highly disruptive", the EEF says, because businesses have already sunk substantial costs into dealing with regulation.

I wish I could say I'm surprised by this. The report itself is equivocal about whether we stay in the Single Market, but it does at least underline one of the key points we've been making – that manufacturers prioritise stability over reducing the burden of regulation.

This we pointed out in March last year when we discussed the "Brussels effect". This makes a complete mockery of the deregulators. Sorting out the regulatory mess can wait. First comes ensuring regulatory certainty, including addressing the interwoven legal systems, and developing regulatory cooperation with the EU.

Richard North 22/09/2016 link

THA: another workshop

Wednesday 21 September 2016  

On Saturday 1 October, we're holding another informal workshop at the Woodland Grange Conference Centre in Leamington Spa (postcode CV32 6RN), to discuss the "way ahead" for The Harrogate Agenda. The venue is available from 10 for an 11.00 am start with a finish around 5.00 pm.

We've deliberately kept numbers low, to maintain an informal, relaxed atmosphere in this high-quality venue, and had been fully booked for some time. However, we've had two late cancellations, for reasons entirely outside their control. We've thus decided to throw open the places on a first come, first served basis.

The cost for the day is £40, including endless tea and coffee and a relaxed, sit-down lunch in the good quality restaurant.

Anyone interested can contact Niall Warry by e-mail via this link. He will be happy to take your booking, or discuss any details with you. Some people are staying the night on Friday, and I gather there are still rooms available for those who want them, at about £105 a room.

For all those who are attending, I look forward to seeing you there. I will report on the meeting afterwards on this blog.

Richard North 21/09/2016 link

Brexit: no leverage on a Swiss deal

Wednesday 21 September 2016  

In what seems to be a never-ending saga, negotiations between Switzerland and the EU over immigration resumed yesterday in a further attempt to resolve the impasse created by the 2014 referendum.

Locking horns were Swiss president, Johann Schneider-Ammann and European Commission president Jean-Claude Juncker. They met in Zurich on the 70th anniversary of Winston Churchill's "Europe speech" in which he called for the creation of a United States of Europe (of which the UK was not to be a part).

For all that, the bottom line – we have been told – is that there is no deal on the table. Nevertheless, Schneider-Ammann is "very satisfied" with a "conversation" which must end one way or another by next February when the constitutional deadline set by the 2014 referendum runs out.

Talks have been made more difficult by the UK's decision to withdraw from the EU, with Switzerland hoping to complete its own deal with Brussels before the so-called "British question" has to be addressed.

Juncker agrees that Brexit has complicated the situation, but he is saying that there can be no common immigration/free movement deal for both countries. Any deal with the Alpine state must be "Swiss-specific" and separate from negotiations on Brexit.

This leaves the Swiss government trying to broker a compromise deal where it sidesteps the quotas demanded by the referendum and agrees "temporary limits" on immigration in certain regions or job sectors.

The Commission President has not displayed any wild enthusiasm over the idea, but has conceded that the Commission may not have any objections to Switzerland "gently privileging" the domestic workforce in this way.

Thus, although there is no deal in sight, Juncker claims to be "more optimistic" than he was in previous weeks, with the talks moving in "the right direction".

However, there is now an added complication as Brussels wants changes to the "institutional framework" of the Swiss-EU treaties as part of the deal. Specifically, it wants to add a "dynamic" element to the treaties, where Swiss laws change automatically as EU rules evolve.

The lack of this element has been one of the main reasons why the Swiss-EU deals have lost favour with the EU, as contrasted with the EEA, where there is a semi-automatic mechanism for updating the Agreement, each time EU laws are added to the Single Market acquis.

There is also some talk of the Swiss having to accept rulings of the European Court of Justice, although that would almost certainly require a referendum which, with almost equal certainty, the government would lose.

Bern, in any case, is fighting Brussels over the linkage, which had Schneider-Ammann putting his objections on the line to Juncker.

Anything put to the Swiss will, of course, have to get past the "ultra-conservative" Swiss People's party. And as long as this party continues to be led by "veteran nationalist" Christoph Blocher – who led the successful 1992 campaign against Swiss membership of the EEA – Schneider-Ammann will have trouble selling institutional changes.

However, even now, with the tepid concessions on offer over freedom of movement, this breaches the dam of absolutism, proving that this issue is, after all, negotiable.

The ultimate irony is that in 1992 when Blocher led the country to reject the EEA, Switzerland was already party to a deal, alongside Liechtenstein, which would have allowed it to impose exactly the quota solution that it is now trying to negotiate.

Having agreed the 1999 Treaty on the free movement of persons – without insisting on safeguard measures, the Swiss in this respect are in a worse situation than they would have been had they remained in the EEA. One wonders whether Christoph Blocher appreciates the irony, or is even aware of it – Swiss politicians largely having forgotten about this episode in their history.

But when Schneider-Ammann and Juncker meet again in October, he must be hoping they come up with something better than yesterday's plan, or there will be another crisis brewing in February in addition to Brexit.

Then, if Switzerland is tempted to impose unilateral quotas, that would bring the whole raft of 120 Swiss-EU treaties crashing down. Under the so-called guillotine provision, breach of one treaty nullifies them all. That, it is estimated, could cost the Swiss economy 32 billion francs ($33 billion) a year in potential economic output.

By comparison, Mrs May would seem to have a relatively easy time ahead of her - unless she is mad enough to think of adopting the WTO option.

Richard North 21/09/2016 link

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