Friday 30 September 2016
Despite the content-free speech from Liam Fox yesterday, reality is beginning to bite, and bite hard. This comes in the form of Renault-Nissan which says that it can't wait until the end of Brexit to know what is going to happen. If the company is to commit to further investment in its plant in Sunderland, it needs certain guarantees from the British government as to trading conditions.
Says Carlos Ghosn, CEO of Renault-Nissan, "I'm going to have to make a deal with the UK government," adding that he would be looking for compensation if his company's tax regime became less favourable or cross-border duties had to be paid once Britain left the European Union.
"If these kinds of principles are accepted we can go ahead because it will neutralise some of our concerns," says Ghosn. "We would like to stay.... We're happy, we have a good plant, which is productive but we cannot stay if the conditions do not justify that we stay".
This is the same Carlos Ghosn who, when asked in November 2013 how Nissan would react if the UK were to leave the EU, said: "If anything has to change, we [would] need to reconsider our strategy and our investments for the future".
Well, as good as his word, he's reconsidering strategy and future investments. And he will no doubt be telling the current Prime Minister that Nissan only agreed in 1982 to invest in the UK because another Prime Minister told the company that there was "no realistic prospect" of the UK leaving the (then) EEC.
But a month before Ghosn spoke in 2013, Toshiyuki Shiga - Nissan's chief operating officer - said that Britain's membership of the European Union was "very important" and that his company wanted to see the UK remain part of the Single Market. So now it seems that all those firms who were so keen on EU membership weren't after all hankering after the EU. It was continued participation in the Single Market that they actually wanted.
Now that's coming out into the open, though, it is going to be very hard for such firms to row back and say it was EU membership that they really wanted. And since its is demonstrably possible to remain in the Single Market and leave the EU, we should – in theory – have no difficulty keeping the likes of Nissan on board.
All we need is the Prime Minister to follow in her predecessor's shoes, but with a slight change in emphasis, saying that there is: "no realistic prospect" of the UK leaving the Single Market (in the immediate future).
For the time being, it is becoming more and more evident that Mrs May has little choice to adopt the EEA solution for Brexit – for at least as long as it takes to organise something better. And that, it would appear, would allay many of the fears that industry is currently articulating.
Friday 30 September 2016
Since this blog has raised the issue of invoking Article 112 of the EEA Agreement as a means of brokering a long-term resolution to the free movement of persons, the chatterati have been only too keen to knock down the idea – rarely bothering to understand the issues involved.
The way this has been done, however, has provided graphic illustrations of how the Brexit debate has been distorted and perverted. First we had Monnet professor Dougan dismissing the solution as an "armchair lawyers' argument", and then Peter Lilley and Newsnight completely misrepresenting the arguments.
Mostly, of course, the critics work behind the scenes, never coming out into the open, but simply dripping the poison into their own circles, with not even a pretence at a fair and open debate.
A further example of this dynamic came to us recently, after Anthony Scholefield's Futurus think tank briefly mentioned the Liechtenstein situation, drawing attention to the EUReferendum.com and our Monograph series.
Anthony was thus rewarded with an e-mail from David Green, the director of the Civitas think tank, stating: "I asked one of my researchers to look into the option of using article 112. He thinks it is not a realistic option and I thought you might have some counter-arguments".
Attached to the e-mail was a this three-page analysis, on which Anthony was supposed to comment, even though on his website he only refers to the issue in passing, making it clear that the work is mine. Yet Green made no attempt to contact me – and nor does his "researcher", Christian Stensrud.
Bizarrely, Stensrud uses as his one and only reference to my work, this link, which doesn't even deal with the issues in detail and in any event has been superseded, bearing a prominent warning to that effect.
Crucially, there is no reference to the first Monograph and the subject, nor of the follow-up. Stensrud shows no signs of having read them. This is quite typical of the way these people operate – dipping into my work just sufficiently to get the gist of it, without studying or understanding the arguments.
The superficiality of this approach, however, immediately becomes apparent when Stensrud complains that in the one and only article to which he refers, I state that "no less than four"’ countries invoked Article 112 in 1992 when the EEA Agreement was signed. But, he then claims that I have only named three of them: "Austria, Iceland and Switzerland".
Considering that the article is about the "Liechtenstein solution", which is indentified in the first paragraph, Stensrud might have guessed at the fourth country. Had he been truly unable to work it out, all he needed to do was read on to the next paragraph, which stated:
The Government of Liechtenstein invoked Article 112 in respect of capital inflows, concerns about access of the resident population to real estate, and "an extraordinary increase in the number of nationals from the EC Member States or the other Efta States, or in the total number of jobs in the economy, both in comparison with the number of the resident population".
For most people, that might have been a clue, but then we are talking about a Civitas "researcher".
Stensrud that tells us that, "according to North, the three countries specified "the need to protect real estate, capital and labour markets. Switzerland also ‘demanded protection from excessive immigration". The poor soul then tells us that he "looked for more information, but I have not been able to find any".
Yet, had he used the link provided in the very same paragraph which he cites, that would have taken him to the EEA "Final Act". This is a copy of the document agreed in 1992. It contains all the details needed, in 15 references.
Unable to perform such elementary tasks, however, Stensrud then makes the mistake common to lazy researchers (and those pressed for time), in relying on secondary sources to support his assertions. He thus declares that: "Articles 112 to 114 were introduced to 'complement transitionary periods in fields where some, or all, of the EEA/EFTA States experienced problems adapting to the acquis communautaire'", relying for his authority on this source.
Although prestigious, it's actually wrong - not least because Efta states don't adapt to the acquis communautaire. That is the body of law applicable to the EU, not the EEA. As to complementing transitionary periods, references in the original material – the primary sources – do not support this claim. We highlighted some in this Monograph, which Stendsrud could have usefully read.
Even a preliminary scan of this, this, this, this, and this - as original sources - would conform that "safeguard clauses" were included, "should serious problems arise on any point". They were not linked in any way to "transitionary periods" and, as a last-minute addition, they took on the tenor of "compensation" for the EEA Agreement not allowing full decision-making.
Mr Stendsrud, though, is a great believer in using secondary sources - by far the bulk of his 16 references rely on them.
Generally, one of the near-unbreakable rules in research is that, wherever possible, one should use primary sources. When I have taken short-cuts and used secondary material, that is where I most often go wrong – as indeed I did misreading this and attributing the Icelandic 2008 action to suspend capital movements to Article 112. In fact, Iceland chose to invoke Article 43.
This error does not in any way affect the overall argument, but Stensud has picked me on it, ironically relying on his earlier secondary source. I have corrected the Monograph and the blogposts, linking to the original notification.
With that, one can imagine that Stensud, having dipped his toes in the hateful North material, has recoiled in horror and rushed back to the warm embrace of his comfort zone, relying on opinionated material from a prestigious source.
This, with no evidence at all, asserts that: "… the likelihood of the UK being able to negotiate and opt-out of the free movement provisions on joining the EEA are slim" – apparently unaware that we are already in the EEA and could probably remain in it via the Efta, whence we could invoke Article 112 unilaterally.
To add no evidence to no evidence, this is bolstered by yet more assertions, and even more, the latter informing us that:
There may be a solution in Articles 112 to 114 of the EEA agreement which provide for an 'emergency break' mechanism allowing EEA EFTA countries to take safeguard measures to temporarily suspend parts of the EEA agreement, including the free movement of persons. But any such measures must be temporary…
There is absolutely no evidence to support this claim - and much to refute it. Yet this is how these people work. They barely look at the arguments, and then only enough to be able to miscast them. They eschew facts and original source material and surround themselves with "prestige" to give substance to unsupported opinion, perpetuating and reinforcing the multiple errors that taint the argument.
His shoddy work thus allows Stensud to conclude that "Article 112 is intended for emergency situations", adding that, "Whilst it might give the UK some flexibility to impose temporary migration controls if the circumstances justify it, it is not a mechanism that the UK could use to permanently curb migration".
Thus does he not only perpetuate easily refutable errors, he completely misses the point that Liechtenstein used Article 112 to broker a permanent amendment to the EEA Agreement. Despite reviews, it remains in place and would require a further treaty amendment to displace it (requiring the assent of Liechtenstein).
However, when you don't read the arguments, don't rely on original source material, don't refer to the originator of the work, and wrap yourself up in unsupported opinion, you can come to any conclusion you like. If you add lots of references which make it look as if you've done some real research, and then rely on the prestige of the institution for which you write, you can turn such work into "received wisdom".
The crucial thing though is this sort of thing survives only because the self-serving claque of (largely) London-based think-tanks and their hangers-on ruthlessly exclude dissenting views, promoting their own as the one true faith.
Ironically, Civitas has recently published a treatise on academic freedom, with no less than 44 references to freedom on speech. Yet, in its own affairs, that that is the one thing it will not allow. You are either of the faith, or you're invisible.
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.
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.
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.
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.
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 EUReferendum.com 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.
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.
Friday 23 September 2016
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.