Going round in circles?

It’s now the third round of Brexit negotiations. Last week, we were given what amounted to an aspiration list – five “position papers” following on from two the previous week which went into very little detail as to how the UK negotiating team intended to go about achieving its desired objectives. The papers also made a number of assumptions about the EU’s negotiating position which do seem at first glance rather unrealistic. In short, it doesn’t seem very clear what the UK government actually wants. By contrast, the EU has made its position clear from the very start.

The EU’s Chief Negotiator, Michel Barnier, is understandably frustrated and warned about the clock ticking. He recently told the UK to “start negotiating seriously.” We are now less than 19 months to Brexit day; 14 have already elapsed with very little achieved except a foolish agreement to submit to the EU’s negotiating schedule whereby sufficient progress must be made on the divorce settlement, the rights of EU nationals and the Irish border before issues such as trade can be discussed. A helpful summary of the full areas of disagreement can be found in this article.

As far as the UK government is concerned, there has been a recognition that a long-term trade deal cannot be negotiated before March 2019 so some sort of interim arrangement will be needed. Even this is going to be a challenge as the rather nebulous statements from the government insist that the Single Market is not on the agenda, necessitating a bespoke deal (or a change of mind). Labour, however, seems to be moving round to supporting membership of the Single Market.  It now agrees with the Government that a transitional deal is necessary but disagrees with it not only on the Single Market but on the customs union too. As Dr Richard North points out, Keir Starmer, the shadow Brexit secretary, has advocated the Single Market without offering any hint of how we would access it – in other words, no mention of the European Economic Area or EFTA.

Professor George Yarrow from Oxford University, has argued that the default position for a newly-independent UK is that we would remain within the Single Market and would not need to rejoin EFTA to retain access. Not everyone is convinced by his arguments and if he is wrong, a bespoke deal allowing the UK to remain within the Single Market or the Customs Union would require a new treaty – a very challenging prospect within this increasingly tight timetable.

Of course, there are still some voices arguing against any sort of transitional agreement and claiming that a “hard” Brexit will bring economic benefit, such as Professor Patrick Minford of Cardiff Business School.  We have also highlighted the Bruges Group’s paper What will it look like? which claims that it is possible to agree a long-term trade deal within the Article 50 timeframe.  This paper has highlighted the key areas on which an agreement will be required, but if the Government is considering this route, the Position Papers offered us not the slightest hint that this is their preferred strategy.

So it looks like this week’s talks will be little more than going round in circles. We will, no doubt, be given a very upbeat assessment of the talks by David Davis, but little real progress will be made as the Government does not seem to be offering any sort of road map to arrive in the promised land of Brexit while Labour has little idea either. Meanwhile, as M. Barnier keeps reminding us, the clock is ticking away and the cliff edge is getting closer……

Photo by Digital-Designs

Availability of goods: the latest government position paper

The third Government Brexit position paper was published on 21st August and covers the complex subject of the continuity in the availability of goods for the EU and the UK.

One of the main priorities of the Brexit negotiations is to ensure that trade between the UK and the EU continues with as little disruption as possible on Brexit day. The report identifies one particular issue which has hitherto received little attention:- what of goods that are in transit in some form or other when Independence Day dawns? To illustrate the point, suppose a customer in Germany or Poland orders an item from a UK company on 28th March 2019 and pays for it on line. On that day, we will still be an EU member state  and part of the Single Market. The UK-produced item will have been produced in compliance with EU standards. What will happen to this item if it arrives in Calais on 29th March 2019 or later? By this time, if there is no satisfactory deal, it could have to pass through an elaborate customs clearance process and if the item is to be used in the manufacture of something bigger, such as a component in a car or a washing machine, will it still be regarded as meeting the EU’s standards on compliance?

Unfortunately, having identified a very real problem, the position paper does not really go into any detail about how the government proposes to tackle it. No one could possibly argue with the first paragraph:-

Investors, businesses and citizens in the UK and across the EU need to be able to plan ahead with certainty. The UK wants to ensure a smooth and orderly exit that minimises disruption to citizens, consumers and businesses across Europe in terms of the availability of goods….

….but a first reading through of this paper left me none the wiser as to what the Government is proposing. The statistics about the volume of UK-EU trade in goods show why it is important to come to a deal on trade in goods. It is one thing to say, as per Paragraph 16 “The UK believes that all goods lawfully placed on the market before exit should continue to circulate freely, without additional requirements or restrictions, ” but quite another to explain what if anything, considering we become a Third Country as far as the EU is concerned on Brexit day,  will replace our Single Market access.

Essentially, we are faced with three options for trade with the EU in the immediate post-Brexit period:-

  • Change tack and seek to join EFTA so that the UK will remain within the European Economic Area – in other words, resurrect the Norway Option/Liechtenstein Compromise, albeit only as an interim position.
  • Revert to WTO rules, perhaps in conjunction with a zero tariff policy, as advocated recently in a paper by Professor Kevin Dowd, published by the Institute of Economic Affairs.
  • Seek a bespoke trade agreement. One paper published earlier this year by the Bruges Group has identified the main subjects on which agreement will need to be reached. The authors claim that if everything is handled competently on both sides, trade will continue to flow smoothly after Brexit.

While each of these three approaches have their supporters and detractors, the people whose opinions really matter are the Government ministers and Civil Servants who will be at the sharp end of negotiations. The biggest disappointment on reading this position paper is that it offered no clue as to which of these three options it is seeking to take. In particular, if it is the third, the EU will have to agree to a lot of things which so far it has shown little inclination towards.

New research paper by Futurus – The negotiations will fail

The title of this latest publication from Futurus may appear provocative but the prospect of concluding a jointly agreed leaving process and a future relationship so it can come into effect, possibly with a transition period, by March 2019 seems very remote.

There have been faults on both sides and the UK government’s failure to set out what exactly it wants the outcome to be has been a particular problem.

The UK government need not have agreed to the EU’s proposed sequence of events – the settlement of the Irish border issue and the exit fee – before discussing trading arrangements. Under Article 50, it need not have done so.

A mutually-agreed pause in the negotiations looks likely or else failure looks highly probable.

The full paper can be downloaded here. PLEASE NOTE: The paper has been revised since this article  was first published.

Avoiding the cliff edge?

Brexit news has come thick and fast this past week. While we don’t see the need to comment on every twist and turn, some recent developments have been quite significant.

In particular, following reports of disagreements within Mrs May’s cabinet over how “hard” Brexit should be, we are now informed that the Cabinet is united over the need for a transitional deal pending full departure from the EU.  There has been considerable pressure from business leaders worried about the relatively short timescale to prepare for departing the EU. According to the Daily Mail, Mrs May told a group of senior figures from industry that she wanted to avoid a ‘cliff-edge’ exit from the EU.

The article also said that even David Davis, one of the ministers keenest to leave the EU as soon as possible, is reconciled to a transitional Brexit period lasting until 2022.

Of course, with 2022 is now the new date for the next General Election, this puts a great deal of pressure on the Government to make sure we’re through the transition period before voters go to the polls. A recent survey by YouGov studied the main reasons given by voters for supporting the two big parties in this year’s election. Among Tory voters, Brexit came top of the list with 21% citing it as their top concern. By contrast, Brexit (either supporting or opposing it) did not feature at all in the top 10 reasons why people voted Labour.  Achieving a successful Brexit looks like being essential for the Tories if they are to stand a chance of remaining in power next time round.

One big issue in many voters’ minds was immigration and it is possible from the snippets revealed by a government source that no attempt will be made to restrict migration from the EU during the transition period, although when the BBC reported on this topic, it merely used the term “might be” no restriction. If this is the case, it would confirm Mrs May’s statement earlier this week that whatever the transitional arrangement may be, it is not going to include remaining within the Single Market. If so, what will it include? A safer transitional option, the EEA/EFTA route, would enable us, via the Liechtenstein Solution, to start imposing restrictions  far sooner.

Opposition to housing development in greenfield sites and in small towns is not going to go away either, particularly as an increasing number of people are starting to make the obvious link between housing shortages, concreting over the countryside and immigration. This will only add further pressure on the Tories.

However, if voters may be concerned that the government is kicking its migration target further down  the road, the House of Lords Economic Affairs Committee thinks otherwise, noting that Brexit will encourage firms to replace cheap labour with robots. In a sense, this is nothing more than the House of Lords playing catch-up. Almost two years ago, Andy Haldane of the Bank of England said that millions of jobs would be replaced by robots in the next twenty years. Even allowing for exaggeration and/or technology not developing as fast as suggested by the headline report, if we start to become a world leader in artificial intelligence, we will be struggling to find work for the current immigrants and with the exception of top professionals, certainly won’t want any more.

As the summer recess begins, the government will not have an easy job to  keep everyone happy, be it the many shades of opinion among leave voters, the Business community or even the Cabinet. We are still woefully thin on detail about even its transitional plans, but at least we have now been told that the important players are not only talking to one another but listening and attempting to find common ground that will keep most leave voters and business people on side. That still leaves a lot of concerns unaddressed, but for this small mercy we must be thankful.

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Cameron’s legacy of confusion

David Cameron didn’t expect to lose last year’s referendum and banned the Civil Service from devising any exit strategy. That became an excuse for a nine month gestation period by Mrs. May which delivered only repetitions of “Brexit means Brexit”. The official leave campaign, vote.leave, refused to devise an exit strategy either. The only serious research on offer before the referendum which charted a comprehensive exit strategy was Flexcit, which recommended the EEA/EFTA route as a transitional arrangement. Since the referendum, only one further independent, detailed attempt has been made to tackle the issues involved – the Bruges Group’s What will it look like? which claimed that another exit route was possible within the time limit, while recognising a number of potential obstacles.

A recent post by Sir Jeremy Heywood, the Cabinet Secretary and head of the Civil Service painted a very upbeat picture of the work being done by the newly-created Department for Exiting the EU but he didn’t go into any detail about exit strategy. This department has far more staff available than the Bruges Group so it is rather worrying that we still know so little.

As our Chairman, Edward Spalton, has pointed out, when we joined the EEC in 1973, businesses were being briefed over a year in advance about the forthcoming changes.  Recently, a number of businessmen  who  met with government ministers, including the Brexit secretary David Davis, were very concerned about the lack of  detail they had been given. Similar reservations have come from groups ranging from the chemical manufacturers and the Federation of Small Business – the latter including a number of long-standing Brexit supporters.

Mr Davis unquestionably feels very confident about the UK’s prospects outside the EU. In the long term he could well be right. To be free of control by Brussels and able to manage our own affairs will be an inestimable benefit – but only if we are able to chart a sensible course through the choppy waters of what are shaping up to be far more complex negotiations than many Brexiteers ever imagined.

The stakes could not be higher for Mrs May and the Conservative Party.  There will be no backing out of Brexit.  Even though only a minority of MPs campaigned for leave, the majority of her party’s activists are staunch leavers and would not countenance any sort of betrayal. The unexpectedly strong showing by Labour in last month’s General Election only adds to the pressure. Any failure to deliver a competent Brexit as good as guarantees Mr Corbyn the keys to No. 10 in 2022 – or perhaps earlier.

Leaving  the EU  is the biggest challenge Mrs May and her team will face. We do not know what is going on behind the scenes but  the government  needs to have sufficient known policies in view to reassure the public, to avoid disrupting  economic expectations  and to deny traction to the campaign to rejoin the EU. Advice to all industries concerning the effects of government plans needs to be given in plenty of time for them to adjust.

To put it another way, our EU membership has been like a malignant, cancerous tumour. Untreated, it would have led to certain death. That’s why we were right to vote to leave. However, the complex task of cutting it out should  be done by a team of top surgeons who not only know what they are doing but can communicate their knowledge and confidence to the people. At the moment, even though there seems to be a growing agreement that some sort of transitional deal is necessary, no details at all have emerged.

Membership of the Single Market, even as an interim arrangement, has been ruled out and significantly, it was the Chancellor Philip Hammond, one of the “doves” in government, who stated this explicitly on the Andrew Marr show last Sunday. So what will it include? Catherine McGuinness, the de facto leader of the City of London’s municipal body, says Britain and the EU must agree the outlines of any transition before the end of the year or as many as 15,000 banking jobs could leave London.

The sense of lack of concentration was not helped by a picture of Michel Barnier and his EU team turning up  for the second round of Brexit talks with  great thick folders of notes while David Davis and his associates had none.

So will some positive signal emerge to calm worried businesses  – and indeed, worried Brexit supporters? If so, the sooner the better, as the opponents of Brexit are gleefully cashing in on the  lack of direction,  communicated by default.   Most people just want to see Brexit done and dusted with reasonable assurance of that steadily performing  economy on which all our livelihoods depend.

 

E50bn EU Brexit bill request – or investing in European Democracy and liberation?

Is there a way the UK can negotiate the EU request for UK funds to help liberate Europe from the EU and boost economic growth? I believe so. What if the UK were to pay money but only in return for the restoration of democracy, self-government and prosperity in Europe?

The UK voted to leave the EU, and to end its net contribution to the budget, which hasn’t been signed off by auditors for over 15 years. Since joining the EU, the UK has contributed £130bn net to the EU and had a cumulative £400bn trade deficit with EU countries. The EU has spending plans for countries, since the people in these other countries avoid paying the taxes they are supposed to pay and then vote for corrupt and/or incompetent politicians who waste their money. These countries could easily afford the money if they had better habits – and also if there was no €uro, with  exchange rates reflecting the competitiveness of each economy and competence of each country’s politicians.

The areas the EU feels the UK owes them money

  • EU infrastructure projects, road and rail, in other countries
  • Other investment projects after Brexit, for less developed countries
  • Pensions for UK Eurocrats
  • Liabilities for loans that fail with other countries
  • Relocation costs of EU agencies to other EU countries

Firstly, adopting a fast track approach to Brexit could help, i.e. to get 70% of what the UK wants in 3 months:

  • During Brexit negotiations, switch to EFTA/Single Market from current EU/Single Market
  • Allowing the UK to freely negotiate trade deals with any country around the world
  • UK having a seat on the WTO and other world organisations and voting
  • Having a veto of any new regulations, for implementing in the UK
  • Amend and repeal any EU and EEA regulations that are unnecessary for the UK
  • Single Market regulations only affect the 9% of the economy that exports to the EU
  • Controlling agriculture, fisheries, home affairs and justice
  • No ECJ, with rulings and arbitration through the EFTA Court
  • No EAW (European Arrest Warrant)
  • Any UK aid goes to other EU countries directly, on a matched funds basis with the recipient country, i.e. no matching funds, no project
  • New Eastern European immigrants get a 1 working year visa, points system for staying longer
  • Other EU countries have free movement, unless unemployment over 7%, then only have a 1 year working visa, points system for staying longer
  • Similarity between EFTA and EU Free Trade Agreements

(For more information on this point, compare the EFTA FTAs with those negotiated by the EU.)

People may be wandering why the EU is asking for any money at all. After all, the UK has helped Europe over the last more than 200 years, saving it from the actions of French and German politicians taking away the self-government of other European countries in the areas of: political decision making, foreign policy, taxation levels, regulations, judiciary control, media control, currency control, movement of people across borders, control of military in other countries. So what has changed after each conflict? Have German – and to some extent – French politicians finally learnt to respect the self-government of other European countries? – freedoms which Britain played a lead role in restoring, paying dearly both in lives lost and also financially. And now they want the UK to pay for upgrading to a self-governing democracy? Pay for the incompetence and corruption in other countries? Pay funds to help with vote buying in corrupt countries, and give an electoral advantage to politicians in power and so distort electoral outcomes? Have they no conscience or moral compass? Clearly not. Appeasement doesn’t work.

The EU is a symptom. The problems are caused by the failure of political systems in the various countries and also the censoring media that covers up what is really happening, and side effects of policies. How about offering to pay the EU some money if they upgrade their political systems?

€5bn – each country which has the €uro to have binding referendums on switching to original currency, implemented within 3 months of a referendum result, starting with the Deutsche Mark being the currency for other countries to peg their currencies to, starting with +/- 3% band, for first 3 months, +/- 6%, next 3 months, +/- 10% next 3 months, +/- 15% next 3 months, +/- 22% next 3 months, +/- 30% next 3 months, then float freely. Worth remembering, that the currencies are indicators of how well a country is run.

€5bn – Denmark, Finland, Austria, Netherlands, Sweden, Ireland have referendums on whether to switch to EFTA/Single Market

€5bn – the Single Market/EEA (European Economic Area), now becomes  only an area for the free movement of goods, services and capital. The articles covering free movement, social policy and environment are repealed/deleted.  These  become each countries choice and also bilateral

€5bn – each EU country has a new law allowing petition/referendum for any treaty, agreement or any international laws, to do with other countries, e.g. trade in goods, services, capital and movement of people. Example 2% sign petition, binding referendum held within 2 months of petition, implemented within 3 months of result

€5bn – East Germany has a referendum to choose to become an independent sovereign nation, with own currency. Bavaria has a referendum to become an independent sovereign nation, with own currency, e.g. Bavarian Mark. Implemented within 3 months of referendum result.

€5bn – if all the above are done

Paid over 5 years. From a current £9bn net EU contribution per year.

What would the benefits of this expenditure be?

  • Re-implementing national currencies will remove the price distortion by having an overvalued or undervalued exchange rate, thus removing the misallocation of resources, and allowing for more productive investments. Currently Germany has an artificially undervalued exchange rate and is thus able to sell more to other EU countries, so denying other countries within the Eurozone the ability to grow and use funds to invest in more productive assets and improving competitiveness. A booming European economy can only help UK exports. A booming European economy is less likely to see mass immigration, as many immigrants move for economic reasons – not because of the colder northern European weather!
  • Britain’s traditional role has been in restoring self-government in European countries, after it has been taken away by other European countries. By having referendum processes in place, the root causes are being addressed – so reducing future possible problems.
  • The side effects of the EU are addressed, i.e. Eastern European countries losing huge amounts of skilled and motivated workers, who they have educated. Also the EU is about centralising power and we can see that also leads to centralising of wealth in many countries, at the expense of the low income people.

In summary, there is an opportunity to turn the EU request for funds into an opportunity to restore self-government in all European countries. If Germany, France and EU want UK money, then the UK can choose the terms, including restoring liberty and prosperity in Europe. Or no money.