Gunboats and free trade

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The reference in yesterday’s post to the uncertain position of the PM in relation to the proposed trade agreement with Australia may or may not have been slightly superseded by Johnson’s robust defence of free trade in the House of Commons later in the day. Whilst his words have been widely interpreted as leaning towards favouring a deal which would undermine the UK’s farming industry, with particularly deleterious effects in Wales and Scotland, the position he took yesterday in order to support an attempted put-down of Ian Blackford will not necessarily be the same as the position he takes when discussing the matter with others. He’ll probably need to write two articles, one for and the other against, before working out which one gives the most benefit to himself.

Part of what he said in defence of free trade, though, shows a very selective understanding of history. Whilst “This is a country that grew successful and prosperous on free trade on exporting around the world” is basically true, it isn’t the whole truth. It conveniently overlooks at least two very important facts: firstly that the UK was at the time at the forefront of the Industrial revolution and a world-leader in manufactured goods, and secondly that other countries were forced to accept ‘free’ trade with the UK at the point of a gun. The second, in particular, doesn’t quite fit the image of romantic imperialists who prefer to believe that the UK became rich because it was special and unique. But obliging others to accept British imports by despatching gunboats didn’t necessarily look quite so attractive to those who were being bullied into taking those goods. To take India as an example, the country’s economy went from being the world’s richest country with 27% of global GDP in 1700 to one of the poorest with 3% of global GDP by 1947, and the country was deindustrialized to suit the needs of an imperial power which wanted to import only raw materials and to sell its manufactured goods. ‘Free trade’, that romantic vision of the Brexiteers, did indeed make Britain rich, but it impoverished others in the process. It was as much about wealth transfer as wealth creation.

Things have changed since then, of course, but Johnson’s words suggest that, at the back of their minds, the Brexiteers are deluded enough to believe that negotiating between equal partners is somehow going to produce the same results as imposing free trade with gunboats did, whilst they also fail to recognise that the UK is no longer the manufacturing colossus which it was in the past. They seem to see things only from their own, hopelessly outdated, point of view, and not understand that the main attraction of a trade deal from an Australian point of view is not importing manufactured goods that the UK no longer produces and which can be more easily obtained from China anyway, but opening UK markets to food imports in a way likely to destroy large swathes of British farming. In their rush for a completely unattainable repeat of past historical glory, the government are blinding themselves to the downsides. Forty years of inexperience of negotiating trade deals doesn’t help either.

Still, when they come to sign on the dotted line, I’m sure that there will be a suitable number of large union flags in the background. That will put those pesky Welsh and Scottish independentistas in their place. They probably believe that it will.

Have Labour exposed the cunning plan behind membership of CPTPP?

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When General de Gaulle (twice) vetoed the UK’s application to join what was then the Common Market, he suggested that the UK was not ready to join the rest of Europe, and also expressed concerns that the UK might be a wrecking member rather than a constructive one. Perhaps he was perceptive after all. The Brexit project has never been just about leaving the EU – it was always the hope of the Brexiteers that the UK’s exit would start a rush to the door as other countries realised that they too could have all the benefits with none of the costs (as they fondly imagined was going to be the case). Having a successful trading bloc like the EU on our doorstep without being a member never made economic sense; the logic of Brexit was from the outset about destroying the institution rather than merely leaving it.

Their target is not just the EU; they also seem to be determined to shatter the unity of other successful trading blocs. It recently emerged that the UK has been accused of using its size to bully Ghana into signing a trade agreement which would oblige that country to break its obligations to the other 14 members of the Economic Community of West African States. Well, they did promise to be buccaneering (aka behave like pirates) and to assert the UK’s might in the world.

At first sight, therefore, the decision to apply to join the Trans-Pacific Partnership (CPTPP) seems to be at odds with this general aversion to anything other than bilateral deals with single states. Apparently, there’s nothing in the Pacific Partnership which actually requires any physical presence in the area (although as it happens part of the UK’s territory is actually in the Pacific in the shape of the Pitcairn Islands – 18 square miles and a population of 43 at the last count, so the UK could qualify anyway). Leaving a large trading bloc on our doorstep to join a smaller one on the other side of the world does not look like the most obvious way to proceed, but I wonder, though, whether the Labour Party have, albeit accidentally, hit the nail on the head in terms of a Brexiteer-style rationale for the move. Shadow Foreign Secretary Emily Thornberry has questioned whether joining the TPP will enable the UK to veto any future application for membership from China; blocking other people from membership looks like UK exceptionalism at its ‘best’. The desire to tell others with whom they may trade seems to be deeply embedded in the UK mindset, among some members on both sides of the House of Commons.

De Gaulle was probably right about perfidious Albion.

The UK leads the world yet again

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There is ample scope for debate about the likely impact of Brexit on the UK economy and the wider EU economy; the only thing which is entirely certain is that a country which deliberately places itself outside the regulatory mechanisms of a single market and opts out of agreements on standards and enforcement will inevitably find that there are more barriers to trade than there were previously. How large those barriers need to be is as yet unresolved, as is the extent to which barriers to trade in one direction are compensated for by the removal of barriers elsewhere. Most economists and experts in the field take the view that increasing barriers with our closest neighbours will do significantly more harm than the benefit gained by removing barriers elsewhere. On the other hand many Brexiteers believe (although are rarely prepared to publicly justify taking such a stance) that there is an inherent (non-economic) benefit in being able to set rules without needing to consult or agree with anyone else. The basic economic point, however, is beyond question (except to those who believe in unicorns and other fantastic creatures): opting out of the world’s largest and most successful single market will create barriers to trade with that market, and whilst it might seek to minimise those barriers by demanding exceptional treatment, pushing ahead with the creation of those barriers despite the coronavirus pandemic is the official policy of the UK government.

Which brings me to the UK’s Trade Minister, and the extraordinary letter which she has penned jointly with the trade ministers of Singapore, Australia and New Zealand. In this letter, she (a prominent Brexiteer, although probably most ‘fondly’ remembered for her condemnation of cheese imports, a position which seems rather at odds with the letter’s condemnation of protectionism) and her co-authors argue strongly against creating new trade barriers in the environment which has resulted from the pandemic, stating that “…putting in place more trade barriers would be the worst possible response to global economic uncertainty”. Well, yes, indeed – it would be a very silly response. But then demonstrating to the rest of the world how not to do things when faced with a pandemic is about the one thing at which her government is showing itself able to excel.

Blaming Varadkar is just a diversion

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In the desperate attempts by Brexiteers to personalize the failure to come to an agreement over the UK’s departure from the EU, the Taoiseach is increasingly being demonised by politicians and pro-Brexit media alike.  It is, of course, easier to attack an individual than to get to grips with the underlying problem, but attempting to bully someone into bowing down before the might of the UK is no way to solve the issue.

People seem to have lost sight of the fact that the so-called ‘backstop’ isn’t really a ‘thing’ at all; it’s merely an agreement that, unless and until a way can be found to maintain frictionless trade across a border between two different regulatory regimes, the UK will ensure that its regulations will remain aligned to those of the EU.  The PM argues that the issue should be resolved during the trade negotiations – but that is, effectively, where it was always going to be resolved.  The ‘backstop’ is merely a statement of intent that whatever trade agreement is reached will honour the commitment to maintaining an open border.

So far, so amicable.  The problem, though, is that the Brexiteers have never had the slightest intention of negotiating any agreement which meets that precondition, not because they don’t want to but because there simply is no form of possible agreement which meets both their demands for regulatory divergence and the requirement for a completely open border.  They have no real objection to continued regulatory alignment during all – or at least part – of the period during which trade negotiations take place (although they’ll huff and puff about that) but maintaining it after the end of those negotiations is an absolute no-no for them.  In that sense, their fear that the agreed precondition will bind the UK in perpetuity is entirely justified and their desire to remove the precondition completely reasonable from their perspective.  It’s important to note, though, that the problem doesn’t stem from the mutual (EU and UK) desire for an open border (let alone from Irish intransigence) but from the determination on one side (the UK) to end regulatory alignment between the UK and the EU.  They talk about wanting an open border, but they know (they’re not stupid enough not to) that it is their desire to abolish and revise current regulations which makes some form of border control inevitable. 

For all their talk about wanting ‘free trade’, they know very well that free trade with regulatory divergence will always be less ‘free’ than free trade in a single market, and that their starting point is that, for the first time in human history, they are seeking to negotiate a free trade agreement which is more restrictive than the one which currently operates.  That is not a wholly unreasonable position to take; it’s certainly not unreasonable to believe that having total freedom to make all our own rules and regulations is worth the cost of imposing restrictions on trade and introducing border controls.  (I'd disagree, but I accept that the balance between the two is ultimately a matter of opinion.)  Their problem is that people might not have voted for that, so in order to persuade people to vote for Brexit, they claimed that there was no such trade-off and that the UK could indeed both have its cake and eat it.  And they were believed.  As PM, Johnson is now trying to say that the mess we are in is all the fault of the evil Europeans.  But it really is not – it’s the fault of those who told a lie in an attempt to sway votes never expecting that they would have to deliver, and who now prefer to double down on the lie rather than admit the truth.  The problem for the rest of us is that they might just be believed again.

Failing to understand

Tweet From the outset, Brexiteers like David Davis have consoled themselves with the belief that the EU would roll over at the last moment and give the UK whatever it wants.  It’s a belief to which they are still clinging, alongside the fiction that no deal would hurt the EU more than it would hurt us.  The idea that the EU ‘always’ compromises at the last moment is a pervasive one, and not without some truth.  The reality, however, is that this generally applies only in internal negotiations between the member states, when compromise is required to get everyone on board.  And that’s natural enough – the interests of member states all need to be considered and allowed for as far as possible.  However, when it comes to dealing with ‘third parties’ – which is what the UK voted to become – the negotiating stance is much tougher, and the EU is quite willing to walk away without agreement.  The assumption that the Brexit negotiations fall into the former category rather than the latter is just another example of ‘cakeism’ – the idea that the UK can have the advantages of being treated as a member whilst avoiding any of the obligations.

It is, as a result, a serious mistake.  The Taoiseach, Leo Varadkar, has made it clear that anyone expecting that the EU27 is simply going to blink and change the withdrawal agreement is in for a nasty surprise.  That’s the ERG and half the cabinet then.  The assumption that it could be otherwise owes more to the Anglo-British not-nationalists-at-all sense of exceptionalism than to a hard analysis of where the EU sees its best interests.  And that latter point is key.  Perhaps it’s understandable after 45 years of membership during which the UK has become accustomed to trade-offs between fellow members, and has had no real negotiating capacity or responsibility of its own, but there has been a complete failure on behalf of the UK government to do something which is absolutely fundamental to any negotiation – understand the motivations and concerns of the ‘other side’.

May and her team – let alone the lunatic fringe of her party – have managed to give the impression (probably because it’s true) that they are completely deaf to what is being said to them, and lack all empathy with the EU27.  They hear what they want to hear and see what they want to see as though there is no possibility of any objective reality outside their own perceptions.  Even this week, we have May still saying that the talks are going well whilst the EU27 have stonewalled her and repeatedly stated that there is no possibility of giving her what she’s asking for (not least because she doesn’t really know anyway).  There’s a complacent assumption that they will budge eventually – the UK just needs to play a waiting game and hold its nerve.  The PM herself continues to pretend that it’s possible both to sign an agreement containing an open-ended backstop and at the same time find a form of words which says it isn’t open-ended.

The ERG members are unlikely to accept anything that doesn’t get rid of the legal commitment to the backstop, and I can understand why.  Any backstop is only intended by all involved to be only temporary, and it doesn’t really matter how many ways that is stated; the point is that getting out of it, no matter how determined all concerned are to do so, is contingent on getting a trade agreement which does not require the backstop.  The ERG and their friends have no intention – ever, in any circumstances – of agreeing to the sort of trade deal implied by that.  And it is that – the intransigence of those determined to seek a trade deal of a very different nature – which turns the backstop into a potentially long-term arrangement.  It’s not the Irish or the EU causing the problem; it’s the determination of Brexiteers to exit, completely and permanently, from the single market and customs union, interpreting the referendum result in a very specific way.

They claim that it is about free trade; that freed of the EU, the UK can negotiate its own bilateral trade deals across the world.  There has always been something very strange about the idea that the way to get more free trade in the world is to leave the world’s largest free trade area (an area which expands further as the EU pursues its goal of negotiating ever more agreements) and sign less favourable bilateral deals.  Whatever that is about, it isn’t global free trade.  I’ve suspected from the beginning that it’s more about ideology than trade.  At the heart of the EU’s approach is co-operation and agreement amongst the members to gradually expand the envelope of free trade across the globe.  At the heart of the Brexiteers’ position is the demand that countries should compete aggressively with each other by offering different terms of trade.  They believe (wrongly in my view) that the UK can do better by competing than by co-operating.  And that isn’t just about having a distorted view of the UK’s place in the world, it is also about an ideological commitment to competition.  Sadly, it’s a commitment shared by the leadership of the Labour Party.

Direct and indirect causes

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Different people have reacted differently to the announcement by Honda that it is to cease production and close its plant in Swindon, depending largely on their views over Brexit.  Opponents of Brexit have been quick to claim that Brexit is clearly a factor, whilst Brexiteers have, quite rightly, pointed out that Honda’s statement placed no blame on Brexit; indeed, it specifically stated that it was not a Brexit-related issue.  That statement may not be quite as definitive as it sounds, though.

It’s certainly true that there have been major changes in the industry, and that the move away from diesel cars is happening faster than many would have predicted.  And it would be surprising if Honda, like other manufacturers, wasn’t looking more to a future which depended more on electric vehicles.  In that situation, ending production of a vehicle whose life-span is nearing its end anyway is an entirely normal, non-Brexit-related business decision.

More interesting, though, is the question which is not being asked as a follow-up.  As far as I can see, the company is not planning to produce fewer cars in total, merely changing the emphasis away from one type of vehicle to another.  And those new cars need to be produced somewhere – the company has decided to do that in Japan.  So, the question which hasn’t been widely asked is this: given that you already have a factory capable of producing vehicles with a trained and experienced workforce, why close that and invest in new capacity elsewhere instead of repurposing the existing facility?

The company’s own statement gives us the answer to that when it says that it is due to the relative size of the market in different locations.  Now we know that the original investment in the UK was part of a strategy to target the EU market from the inside rather than across tariff barriers; and we know that the new EU-Japan trade agreement facilitates trading with the EU directly, without needing a base within the EU.  We also know that the terms of trade between the UK and EU post-Brexit are a complete unknown at the moment, but there is no conceivable Brexit scenario (other than cancelling it completely) which will not make trade between the UK and the EU more difficult than it is at present – and potentially significantly more difficult than simply supplying the market directly from Japan.

So, in taking the short-term decision to stop production of the current model, I can well believe that Brexit was not a significant factor.  But in making the longer-term decision as to where to put future investment, not only can I not believe that the changes which Brexit is leading to are not a factor, but I also believe that if they weren’t, then the directors of the company would be guilty of a grave dereliction of duty.  And this matters; it matters a lot.  We are going to see a lot of changes happening, and in many cases it is going to be extremely difficult for anyone to say, with absolute certainty, that this decision or that decision was a direct result of Brexit. 

At the level of individual decisions, the Brexiteers will have a degree of what Nixon once called “credible deniability”, and they will attempt to use that to deny any causal link between their project and the economic damage which it does.  But we shouldn’t lose sight of the fact that whilst the changes resulting from Brexit may not be the direct cause in many individual decisions, they will undoubtedly be part of the context considered when those decisions are being made.  The influence of a deliberate decision to place the UK outside the world’s largest free trade area will not always be direct and obvious, but it will be extremely pervasive overall.

Back to where we were

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Few things could better underline the real impact on trade of Brexit than the fanfare greeting the agreement between the UK and SACU (the Southern Africa Customs Union), announced during the PM’s visit to South Africa.  This is not a new trade deal and has not been ‘negotiated’ in any meaningful sense of the word; it is, rather, an agreement by SACU to continue to apply the terms of its current agreement with the EU to the UK, and an agreement by the UK to apply the terms previously negotiated by the EU to future trade with SACU.  The ‘negotiation’ underpinning the terms of the deal was all carried in the past out by the EU.

One of the interesting aspects of the agreement is that it underlines the extent to which trade agreements worldwide are increasingly being negotiated not between individual countries but between trade blocs which first establish their own ‘internal’ rules and then negotiate collectively with other blocs.  This is, of course, precisely what the UK government is saying that it does not want to do in future; it wants, instead, to negotiate its own individual agreements, because that is, apparently, ‘taking back control’.  In this case, ‘taking back control’ means signing as an individual state an identical agreement to that which had already been signed by the EU collectively.

The chances of getting ‘better’ agreements are, in most cases, slim, as this specific example demonstrates.  It’s very much easier to simply piggyback onto work already done than to start from scratch.  That’s not to knock the approach; replicating all the EU’s current agreements has to be better than simply walking away from them all and spending the next ten years trying to negotiate something essentially very similar in the hope that, just occasionally, freedom from the constraints of trying to meet the requirements of 28 member states might bring a small improvement.

It does mean, though, that ‘setting an independent trade policy’ will mean, in most cases and for the foreseeable future, simply accepting the terms previously and painstakingly negotiated by ‘Brussels’.  It’s a lot of time and effort just to get back to where we started.

Defying gravity

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There was a story in yesterday’s Western Mail about discussions between Liam Fox and Japan, which reported that Japan has promised to back the UK’s bid for membership of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) after Brexit.  (I haven’t been able to trace an online version of the story in the Western Mail itself, but it appears to be a syndicated story from an agency, because the same story with the same wording also appeared in the Daily Express.) 

It’s clear that Fox, like most of the Brexiteers, believes that it is better to have an agreement with countries a long way away than one with those nearest to us, as though that can somehow make up for the loss of opting out of the more local agreement.  It completely ignores the gravity model of trade, but that should not surprise us given that Fox’s own cabinet career has itself been remarkably resistant to the normal rules of gravity.

As the New Zealand Trade Minister explained in this report, one of the drivers for the agreement is that “CPTPP has become more important because of the growing threats to the effective operation of the World Trade Organization rules”, although I’m sure that isn’t quite what Fox and the rest of the Brexiteers have been telling us about the WTO option.

However, it was the final paragraph of the Western Mail/ Daily Express report which really struck me:

“Eliminating tariffs and quotas between members and involving mutual recognition of regulations and rules on cross-border investment, CPTPP is seen as a swifter and more effective alternative to forging separate trade deals with individual member states.”

Now there’s a vision.  A free trade area encompassing some of the world’s biggest economies coming together to agree a common set of regulations and rules, which will apply to an increasing range of goods and services over time instead of a patchwork of individual bilateral agreements.  It’s such a brilliant idea, I can’t think why no one has thought of it before.  It’s a pity that there’s nothing similar closer to home, in Europe say, that we could join instead of going half way round the world and pretending to be on the Pacific Coast.  Oh, hold on a minute…

The chasm is still growing

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The reactions to the suggestion by Airbus that they will need to rethink their investments in the UK if the future trading relationship between the UK and the EU is not sufficiently smooth to support their manufacturing model did more to highlight the way in which existing perceptions colour people’s judgements than to shed light on the economic implications of Brexit. 

Airbus’ statement seemed to me to be little more than a statement of the blindingly obvious – a multi-national manufacturing operation depending on ‘just-in-time’ deliveries is going to be nervous about any changes which threaten delays in the supply chain; the company’s executives wouldn’t be doing their job if they did not highlight the problems likely to be caused.  Relocation isn’t the only answer, however; they could change their model to ensure that deliveries happened ahead of time so that materials and components are ‘in stock’ on site.  That was, after all, the way that most manufacturers worked in the distant past.  It has implications though; it ties up more capital, and requires more storage space, especially for larger components.  It’s an over-simplification I know, but ultimately, if the outcome is, as seems increasingly likely, a situation where the delivery of goods is prone to delay and disruption, then the management of companies like Airbus will need to decide which is the best investment to make: the space and facilities to allow a change in their production model, or to relocate.  The underlying point, at its simplest, is that existing locations owe a great deal to the fact that movement of goods within a single trading bloc is comparatively easy; had that not been the case, other locations would have been selected.

To the Brexiteers, the statement was just another part of Project Fear, a threat aimed at reversing the decision taken by referendum two years’ ago, and a decision which had nothing to do with the needs of the business.  Of course, for anyone who really believes (as the Brexiteers still seem to do) that it is possible to leave the Customs Union and the Single Market, negotiate different trade deals with other outside countries, and still maintain the same freedom of trade with the EU27, it’s easy to see how this will look like an idle threat, not to say an unwarranted interference by business in politics.  And because, from that perspective, the businesses are worrying unduly, they can be ignored (although whether it was wise to put that in such graphic terms as those apparently used by the Foreign Secretary is another matter).  Two years on, and nothing has convinced them that the UK is not so important, unique and special that it will be able to get whatever it wants, and that anything said by anyone else is just a ‘negotiating position’.

And that brings me to what I thought was the most worrying aspect of all in the story, the reaction of a spokesperson for the UK government, who said “We have made significant progress towards agreeing a deep and special partnership with the EU…”.  The spokesperson might just be spinning (or lying, as others might call it), but what if he or she (and the government) really believe that they have indeed made ‘significant progress’?  Airbus, BMW et al are getting jittery precisely because it’s obvious that not only is there not significant progress, but the UK government is still negotiating with itself about what it wants.  This ‘significant progress’ hasn’t only escaped their attention, it’s also escaped the attention of the EU27 and all the media reporting on events.  As a work colleague once said to the manager in the middle of a highly-fraught project, “If you can keep your head when everyone around you is losing theirs, you haven’t got a (expletive deleted) clue what’s going on”.  There is not so much a gap as a yawning chasm between the perspective of the Brexiteers and that of everyone else as to the current state of play, and despite two years of reality checks, the chasm seems to be growing, not shrinking.

The EU is not alone

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According to the Brexiteers, the ability of the UK to sign new ‘free trade’ agreements with other countries across the world is one of the great prizes open to us following Brexit.  Unburdened by the need to act collectively with the other 27 members of the EU, the UK will be able to negotiate directly with a host of other states.  And having what they now admit will necessarily be ‘less free’ trade with the EU27 is, in their view, a price worth paying to get to that position.  (I understand, and have considerable sympathy with, the argument put forward by some of the so-called ‘left-wing’ Brexiteers that the UK could negotiate fairer deals with developing countries, who can at times be subject to exploitative deals by large blocs like the EU.  I somehow doubt, however, that concern for the exploited poor is uppermost in the minds of the Tories who are actually driving Brexit.)

One of the little-discussed flaws in this picture of the world is that the EU is not as unique as is often claimed.  It may be the most developed and integrated free trade area, but it is far from being the only one.  Other common markets and customs unions exist elsewhere.  There are many countries which have recognised the benefit of acting collectively on a regional basis to boost trade amongst themselves and to negotiate collectively with the rest of the world; and they see the EU as an example and are working towards a similar level of economic integration.  It’s also one of the ways in which developing countries can respond more powerfully and collectively to any attempt to impose exploitative deals upon them.  But here’s the thing – when negotiating a trade agreement with any country in relation to products which are covered by the provisions of another customs union or common market, the UK will need to talk to the relevant bloc collectively rather than discuss the deal with the individual states.

It raises a simple enough question.  In a world increasingly coalescing into distinct regional trading blocs, which is the best route to increasing free trade between them rather than purely within them?  (That is, is it not, a key part of what the Brexiteers say that they want?)  Is it, as the Brexiteers claim, for individual states to break free from their existing collective agreements and negotiate directly with each other on a bilateral basis creating a multiplicity of different and unique agreements, or is it for the regional blocs to talk directly to each other leading to a smaller number of more comprehensive deals? 

The answer to that question was blindingly obvious even before it became as clear as it now is that leaving an existing trade bloc introduces more trade barriers than it removes.  That in turn raises a supplementary question – if the Brexiteers know that their approach is going to lead to less free trade overall and a much more complicated set of agreements, why do they persist in arguing that ‘free trade’ is their prime objective?

Different rules inevitably incur costs

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There was one sentence in the statement by EU Council President, Donald Tusk, this week which seemed to me to sum up the essence of the fantasy world in which the UK government is living.  He said that “This will be the first FTA [Free Trade Agreement] in history that loosens economic ties instead of strengthening them”.  There are two key aspects to current agreements stemming from EU membership, one of which is the removal of all tariffs, and the other is the harmonisation of rules and regulations.  Either of those types of barriers can lead to a requirement for borders and checks; only the removal of both types of barriers can secure ‘frictionless’ trade.  The UK’s position, repeatedly spelt out by the Prime Minister and her colleagues, is that there will not be a common set of rules and regulations (unless, presumably, the EU agrees to copy UK rules, a possibility which I think we can discount).  In those circumstances, there is no way to avoid Tusk’s conclusion that the negotiation is about securing a new agreement which loosens rather than strengthens current ties.

It’s easy to see how, in principle, it will be possible to reach an agreement which does not require the re-imposition of tariffs between the EU and the UK, but the UK’s aspiration to be able to change its regulations at will necessarily requires more border controls than currently exist.  There is potentially a not insignificant problem relating to the term ‘most-favoured nation status’ which is found in many trade agreements, under which if the EU offers the UK a ‘no-tariff’ agreement, it could be obliged to offer the same to a number of other countries with which it has existing trade agreements, and which would also condition any agreements which the UK subsequently reached with other parties.  But with time (if we had it), I suspect that such an agreement could be reached, and Donald Tusk has himself indicated that the EU27 are ready and willing to work towards that.

It is a lot harder to see how the problem of non-tariff barriers can be overcome, as long as the UK continues to insist on its right to set different rules and regulations, unique to its own markets.  In her latest speech, the Prime Minister seemed to be tacitly acknowledging this, whilst still clinging to the meaningless rhetoric about creating the absolute bestest free trade agreement ever in the whole history of mankind, in an attempt to paper over the inevitable.  As long as the term ‘free trade’ refers only to the issue of tariffs, she might even get something close to that; but pretending that it can in any way be other than worse than the current agreement is delusional.  And the only way that it can obviate the need for a hard border is if we redefine the term ‘no hard border’ to mean a border controlled by armed police through which smart technology is used to minimise delays, just like the one between the US and Canada to which the PM herself referred.  Getting the Irish government to agree to that redefinition strikes me as falling, at the very least, into the category labelled ‘challenging’.

Of course, not being bound by rules and regulations which have to be painstakingly negotiated with 27 other countries and then applied uniformly is something which has a value of sorts in its own right.  It’s not a financial value, though; in financial terms it carries a cost, not just in terms of restricting trade and travel between neighbouring countries, but also in terms of duplicating the standards and enforcement mechanisms.  I think that at least some of the Brexiteers understand that, and have decided that it’s a price worth paying.  It would be more honest, though, for them to say that and explain why, rather than to continue to try and argue that there is no cost at all involved.

Were her fingers still crossed?

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If the main audience for the PM’s much-heralded speech last Friday was her own party, and if its main purpose was to reunite that party, then success was at best limited, with the former deputy Prime Minister firing another salvo over the weekend.  I can understand why any party leader would prefer to have a party united behind her on policy and direction rather than with the simple intent of inserting a knife between her shoulder blades, but given the depth of the disagreement on Europe within her party, and the fact that it’s been a running sore for three decades, I suspect that her attempts are doomed from the start.  Time to recognise that one of the world’s most electorally successful parties is no longer fit for purpose.

Paradoxically, if the main audience was anyone but her own party, then the speech could probably be considered marginally more successful.  It’s still peppered with ridiculous fantasies and contradictions – what can anyone make of her claim that she wants the “broadest and deepest possible agreement – covering more sectors and co-operating more fully than any free trade agreement anywhere in the world today” whilst also admitting that any deal on her terms will mean less free trade than at present.  There already is a ‘most ambitious free trade deal’ in existence.  It’s called the EU and she’s leading the UK out of it, so what she’s actually calling for is the ‘second broadest and deepest’ deal.

Her talk of the deal being a ‘win-win’ is equally silly if confined solely to economics.  There can be little doubt that it’s actually ‘lose-lose’, and the purpose of any negotiation is to mitigate the losses, not maximise the non-existent gains.  The only way that anyone can interpret any aspect of this as a ‘win’ is by treating non-economic considerations as being more important than economic ones.  That is, ultimately, the position held by Brexiteers, and it would be an entirely honourable one if they were to be honest about it.  Some of us would still disagree, of course, but at least we’d be debating on an honest basis.

At one point in her speech she actually said “I want to be straight with people”.  But if that’s what she wants to do, why not do it?  It’s the sort of political rhetoric that always makes me certain that what’s about to follow is going to be the exact opposite. Still, even if at a detailed level she’s still asking for what she knows to be impossible, at a headline level it’s easy to see why the EU negotiators have welcomed what looks like the start of a realisation that the UK’s red lines are going to have to be rubbed out one by one.

In fairness to the Prime Minister, I thought that she did a pretty good job, in most of the speech, in setting out why membership of the EU is such a good idea for the UK, and why we will lose out unless we retain membership of various agencies and keep most of the EU’s rules and regulations.  At least, that’s what I thought she was saying, and that’s what the EU negotiators seem to think she was saying as well.  On the other hand, both they and I thought that she had committed, last December, to keeping Northern Ireland in the same customs and regulatory regime as the rest of Ireland.  It turned out that she had her fingers crossed behind her back all the time, invalidating all promises made.  The question now is whether they were still crossed last Friday.  The Brexiteers who praised her speech certainly seem to think so.

Trade deals and fantasies

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The reason quoted most frequently for not staying in the European Customs Union – or indeed, any customs union – is that it would prevent the UK negotiating its own trade deals.  And that much is true; what they’re not so good at explaining is why exactly the UK needs or wants to be able to negotiate its own trade deals.  They just present it as an inherently good thing and are rarely challenged for clarification.

The EU already has trade deals with many non-EU countries, and the UK benefits from those.  The plan, insofar as there is one, seems to be that the UK will negotiate with all of those countries to ‘roll over’ those trade deals, so that the UK expends a certain amount of effort to keep exactly the same terms which exist today.  It’s a sensible approach, given the amount of time available and the even greater amount of effort which would be required to do anything different.  It does, though, take us not even the tiniest step forward from today (and if any of those countries were to decline to play ball, there is the possibility of taking a step backwards).  It merely 'rebadges' existing EU deals as independent UK ones.

Then there are the countries with which the EU does not have trade agreements currently.  With some of those, the EU is already in negotiations lasting many years to achieve an agreement.  For it to be worthwhile for the UK to seek to negotiate separate deals with those countries, there has to be a belief that the UK market of 60 million can get a better or faster deal than the EU market of 500 million.  On what basis could that be?

Well, one advantage which the UK’s negotiators would have is that the EU is trying to meet the requirements of 28 states (soon to be 27), all of which potentially have different interests; ensuring that those are all met is time-consuming and complex.  Direct negotiations with only one state could conceivably be quicker and easier (although whether a state in a rush to reach a quick deal would take into account the needs of all its parts rather than just those of the south eastern corner is a danger which we in Wales might like to consider very carefully).  Of course, avoiding one part of a customs union seeking a deal which gives it a relative advantage over another part of the same union is one of the reasons for the EU rule preventing such individual trade deals by its members.  The alternative would be customs and border posts across the EU.

A second route to a quicker deal would be to concede more to the ‘other’ side in any negotiation; indeed, given the much smaller market that we’re talking about here, that might even be essential.  Whether making concessions to Trump’s America for a quick deal would turn out to be a good thing or not is rather a different question, but I can certainly see how an independent UK trade policy might lead to a series of different deals over a (still longer than the Brexiteers are willing to admit) period.  

The underlying question which remains is whether those deals make up for the inevitable loss of trade with our biggest trading partner.  In the fantasy scenario of those leading the UK, this question doesn’t even need to be asked; we’re going to keep ‘frictionless’ trade with the EU alongside the exciting new deals, so it’s not a problem.  It only becomes a problem when they have to face up to the fact that negotiating formal generic trade deals (as opposed to individual sales) and retention of that ‘frictionless’ access are mutually incompatible, for the reasons noted above.  Fox and friends are absolutely right to argue that if the UK wants to do its own separate deals, it has to be outside the customs union; the fantasy is believing that being outside the customs union does not disadvantage trade with the rest of the EU.

Delusion and reality

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One of the problems from which the delusional often suffer is that the real world has a tendency to intervene, and can’t always simply be imagined away. For Brexiteers, the hard reality that they are not going to persuade anyone to give them any new concessions by threatening to simply renege on existing financial obligations has been a long time coming, but there does seem to be an inkling of progress towards a more realistic position.  It’s not agreed yet, of course, and we don’t yet know the final figure.  It will almost certainly be higher than the headline figure being quoted, but a bit of skilful negotiation on both sides might be enough to hide the final total in a plethora of rebates, discounts and conditional payments.

There has also been talk for a while about progress on protecting the rights of EU citizens.  If it weren’t for the innate dislike that some people seem to have of all foreigners, this should have been the easiest of all to resolve.  All they ever had to do was to extend the rights of UK citizens to match those of EU citizens.  Again, progress has been hindered by an unwillingness to give the citizens of the UK more rights.  I think it’s called ‘taking back control’.

That leaves the one that the UK imperialists always thought was going to be the easiest of all to settle, and that’s the question of the border with the Republic of Ireland.  There was never any rational basis for assuming that it would be easy, but a failure to understand that the republic is an independent state, with full membership rights of the EU, rather than some sort of vassal state of the UK has blinded them to the fact that the EU 27 were always going to be more likely to unite behind a loyal continuing member than to abandon that member's interests in pursuit of a deal with a troublesome departing member.  The treatment being meted out to Ireland by some sections of the press well displays the lingering imperialism and exceptionalism which has dogged the UK for generations.

In purely logical terms, I have some sympathy with the position adopted by Liam Fox, which is that the nature of the border required depends on the nature of the trade deal between the EU and the UK, and might therefore be better dealt with in phase 2.  Or rather, I would have more sympathy if the UK government had not, during phase 1, removed from the table all the practical options which would allow an open border to continue, demanding instead that the EU come up with a proposal to avoid the logical consequences of Brexit for the border.

The key word there is practical, and how it is interpreted.  It has long been clear that the real objective of the Brexiteer ideologues isn’t simply to remove the UK from the EU, it is to abolish the EU and replace it with a purely economic relationship based entirely on trade.  How else can anyone interpret the demand for a trade agreement as good – or better – that the one we have, but without membership of the single market or the customs union?  Now if somebody believes – as I suspect that Fox does – that Brexit is just the first step towards that goal, and that the UK crashing out with no agreement on a future relationship will help to bring that about, then the position being adopted actually makes some sort of sense.  But to repeat the opening line, one of the problems from which the delusional often suffer is that the real world has a tendency to intervene, and can’t always simply be imagined away.

Punishment and excuses

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The Brexit Secretary came up with a new formulation of ‘no deal is better than a bad deal’ this week when he said that no deal would be better than a ‘punishment deal’.  It has a nice ring to it in terms of rhetoric, but it’s every bit as silly as the previous formulation.  And it glosses over the fact that there will be two agreements, not one. 

As far as the second deal, the trade deal, is concerned, we already know that the worst possible outcome is to revert to WTO rules, and that outcome is the inevitable result of no deal.  There is simply no means by which the EU27 can offer worse terms than that; so there is no way of ‘punishing’ anyone.  And we already know that no deal which leaves the UK outside the single market (an inevitable consequence of rejecting freedom of movement and the jurisdiction of the ECJ) can never be as good as membership of the EU.  So any agreement will be better than WTO terms but worse than current terms; ‘no deal’ cannot be better than even the worst negotiated deal.

But prior to that trade deal, the first deal – and the one that has to be largely agreed as a precursor to any trade deal – is about the terms of exit.  There will be many elements to this, but the only one that offers any scope for meting out anything resembling ‘punishment’ is the agreement over the amount to be paid by the UK to the EU.  This has regularly – and wrongly – been presented as though it were some sort of ‘exit bill’.  It is not; it is a calculation of the amount of money which is required to be paid to meet the UK’s obligations under agreements to which it is already party. 

There is certainly plenty of scope for a difference of opinion over which elements should be included and the number of pounds to be attached to each element, and if the EU27 really wanted to punish the UK for daring to leave, this is where they have the most scope for doing so.  The Institute of Economic Affairs has suggested that the total could be as low as £26billion; rumours from within the EU suggest a number anywhere up to £100billion. 

Whether it would be in the EU’s interests to demand an excessive sum is another question entirely; getting something from the UK is obviously better than seeing the UK walk away without paying anything.  And it’s ‘true’ that the UK could simply walk away and pay nothing; but it isn’t the cost-free option as which some seem to see it.  In the first place, seeking a trade deal on better terms than the WTO terms with the EU immediately after walking away from previously agreed commitments isn’t exactly the best way to get them in the right frame of mind for the negotiation.  And in the second place, it would seriously harm the UK’s reputation and ability to make agreements with anyone else.  Who, after all, would want to negotiate a deal on anything with a country which thinks it can tear up a contract at will and walk away with no consequences?  Who would trust such a country?

So, on the specific issue of the amount to be paid, both sides have a clear interest in coming to an agreement  Threats to the contrary by one side will be more of an obstacle than an aid in reaching that agreement.  I can’t believe that David Davis doesn’t understand all this; his abject capitulation over his previous suggestion that the scheduling of talks would be the ‘row of the summer’ certainly suggests that he has a better grasp of reality than his rhetoric indicates.  So why go to so much trouble, repeatedly, to make things harder for himself by trying to raise the stakes?  I wonder if he really wants a deal at the end of the day or not; perhaps he’s just setting the scene to be able to blame those nasty foreigners for the outcome that he really wants – an excuse to walk away.

Free trade and not so free trade

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Yet again yesterday, the UK Prime Minister told us that she wants a “good free trade deal” with what’s left of the EU after Brexit.  It isn’t just her, of course; the refrain about free trade has come from most if not all of her ministers repeatedly over recent months.  But when this message comes from the mouths of people who are deliberately placing obstacles in the way of free trade, it is reasonable to ask whether they are simply being disingenuous, or whether they really don’t understand what “free trade” means.

There are two types of obstacle to free trade – tariff barriers and non-tariff barriers.  But much of the discussion revolves only around the first of those; to hear them talking, one might believe that, if only we can come to an agreement on tariffs, the problem is solved.  But in reality, tariff barriers are the easiest part to overcome, and I am entirely willing to believe that, given an adequate timescale (which is almost certainly longer than the 2 years allocated for Brexit talks) and goodwill on all sides, a deal on tariffs will be possible.

It is the non-tariff barriers where the real obstacles will arise.  Free trade, as we know it at the moment within the EU, is based on the idea either of a common set of regulations across the whole free trade area, or as a minimum, a broad acceptance that regulations set by different countries can be regarded as equivalent.  This part of the agreement is the part which actually does most to facilitate the movement of goods and services across the national frontiers without checking or verification.  But the abolition of rules made “by Brussels” (in reality through negotiation between the 28 partners in a long drawn-out process which eventually reaches a position acceptable to all) is central to the aim of the Brexiteers.  They don’t want to follow the same rules as everyone else; they are seeking to gain an advantage by not having to follow those rules. 

Whilst I can see a prospect of a deal on tariffs, I see little prospect of a deal on the non-tariff barriers as long as one side is determined to  have a single set of rules and the other is even more determined to work to a different set of rules to give itself an advantage.  Yet for reasons which escape me, most Brexiteers seem to seriously believe that they will get their way on this.  The likeliest outcome is that a deal of some sort on tariffs will end up being spun as a free trade deal in order to claim a “success”.  But it is unlikely to look that way to those companies and employers who find themselves having to negotiate their way through different sets of regulations after decades of being faced with a single set.

An immigrant from another galaxy?

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Somewhere, in a galaxy a long, long way from Earth, there may be a planet on which the pronouncements of Liam Fox make sense to someone other than himself.  Maybe he even came from there and is merely struggling to escape the linguistic and political norms of his home world.  As explanations go, it may sound incredible, but it’s probably less incredible than trying to square his words with the norms of this planet.

Take this gem from his speech in Cardiff: “We want to realise a new relationship with Europe, based on free trade and prosperity."  Obviously, that is a relationship which is different to the one we currently have, which is based on working together to ensure … er … free trade and prosperity.  A relationship which he and others told us we should opt out of.

Or this one: "We know that when we leave the EU, we will not have an EU commissioner, MEPs or a seat at the European Council.  That is a political decision that we have consciously taken following the instruction from the British people at the referendum.  It is a political response to a political decision.  But it would surely be wholly inappropriate if our political decision was to be met with an economic response…”.  Only on another planet could taking a deliberate decision not to be involved in setting the rules governing the operation of a free trade area be seen as a solely political decision, and nothing to do with economics at all.

But perhaps the best bit of all is his claim that if “…barriers to trade and investment were introduced across Europe, that would damage the economic potential of all European citizens and those well beyond Europe too [and] would ultimately be self-defeating ...”.  At least, on this one, I can agree with him, in principle at least.  After all, the idea that introducing barriers to trade and investment might just possibly be economically damaging was, as I recall, fairly central to the arguments of those campaigning against Brexit.  But just remind me a moment – whose decision was it to opt out of membership of the organisation which was trying to guarantee that there would be no such barriers?  To read his words, once could almost believe that it was those 27 wicked European states which had conspired together to expel the UK rather than the UK taking a conscious (albeit misinformed) decision to opt out.  (Although I’m not sure that I’d really blame them if they had considered an expulsion…)

Like so much which comes from the Brexiteers, much of what he says is ultimately a demand for more British exceptionalism; for the right to enjoy more of the privileges of club membership than the members themselves whilst rejecting the club’s rules and declining to pay a membership fee.  And it’s all done without a touch of irony or self-awareness, and an assumption that everyone else will fall into line.  I’m not normally one for repatriating immigrants, but in his case, I am wondering if his home planet would consider taking him back?

Free - or Fair?

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One of the mantras of the Brexiteers since the vote has been that we should negotiate ‘free trade’ deals with lots of other countries rather than restricting ourselves solely to those in the EU.  And one of their great hopes has been that there will be an early deal with the USA.  During his long and meandering ramble last week, Trump had something interesting to say about his approach to trade deals.  In his own (inimitable) words, he said this:

“Now look, fair trade.  Not free, fair.  If a country is taking advantage of us, not going to let that happen anymore.  Every country takes advantage of us almost.  I may be able to find a couple that don’t.  But for the most part, that would be a very tough job for me to do.”

It’s perfectly clear – well as clear as anything Trump says.  Whilst the UK government think they’re going to negotiate a free trade deal with the US, he is interested only in ‘fair’ trade.  He didn’t actually define what that means, but we can be sure that it isn’t what most of us mean when we think of the ‘FairTrade’ campaign.  I suspect that he means trade which has a favourable, or at least neutral, balance for the US.  On that criterion, the UK’s current trade surplus with the US amounts to “taking advantage” and his objective will be to end that.  I can certainly see why that would be in the interest of the US, but why would anyone think that it’s in the interest of the UK?

But then, I don’t think that the UK government has ever been concerned about the detail; they just want a deal, any deal, to show what ‘global Britain’ can achieve.  From that perspective, the existence of a deal with the US is more important than its content, however harmful the latter may be.

It's all about trust

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The buffoon and his nemesis have both recently returned from their pilgrimages to the great man and his team in New York, although only the nemesis actually got to talk to him, and then only by pretending to be a reporter rather than the full-time politician as which we pay him handsomely.  Both bring similar glad tidings from the mountain, although not only is this particular message not written in tablets of stone, it doesn’t appear to be actually written on anything. 

Still, they’ve heard the message and we just have to trust them to have both understood the mind of the great man and interpreted it correctly.  And we must believe that the great man has a settled opinion, uniquely, on this one particular issue, despite having reversed or revised his opinion on almost everything else. 

He wants to do a deal on free trade with the UK, we’re told, and he wants to do it quickly.  They also want us to believe that there’s no scintilla of inconsistency between his desire to rip up the US’s existing free trade deals and his intention to negotiate a new one specifically with the UK.  In fairness to both the buffoon and his nemesis, I can see that that would make eminent sense to them.  After all, they see no inconsistency between ripping up the UK’s free trade deal with its 27 neighbours and starting again with everyone else; why should the US be any different?

The detail of the proposed new detail is conspicuous by its absence.  But again, for people who can tell us little more than that Brexit means Brexit, why would the mere absence of detail be any sort of problem?  We can trust Trump and the US more than we can trust those pesky Europeans that we’ve been trying to deal with for the last four decades, because the US is special (although not quite as special as ‘us’, obviously), and according to the Prime Minister last week they even share our values (do try and keep up – those are the uniquely British values that she was talking about the previous week).

The future is safe as long as we trust Boris, Gove and Trump.  No problem there, then.

Trading freely

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The UK Government’s approach to Brexit is at last slowly being spelled out.  The objective is for the UK to once again take its rightful place ruling the waves at the heart of the world’s trade network, in free trade arrangements with all countries across the whole globe and being subject only to rules made in the sovereign parliament of these islands, and not to any other jurisdiction, especially if there are any foreigners involved. 

The strategy for achieving this is firstly to remove the UK from the world’s largest and most successful free trade area sitting on our doorstep, with which we conduct around half our trade, and subsequently negotiate free trade arrangements on a bilateral basis with a host of other countries further away. 

It’s certainly an ‘interesting’ approach, but it’s being driven by an absolute determination to do something called ‘controlling our borders’ which apparently means that foreigners will not be allowed in, unless they’re doctors, nurses, bankers, plumbers, builders, fruit pickers, or in any other way essential for the UK economy.  But ‘we’ will have control.  Honest.

In other news, the minister for exiting the EU, David Davis, writing in the Sunday Times, has said that “It is absolutely in our interest that the EU succeeds”.  It turns out that the EU is a damned fine idea after all for those European chappies; just not for we British.  And we don’t want it to fail at all. 

It’s funny though – I must have imagined all those stories before and since the referendum when the Brexiteers told us that the EU was a failing project which was going to fall apart anyway, let alone those stories which had Brexiteers rubbing their hands with glee at the thought that other countries would follow the UK’s example and hold their own exit referendums.  Like this one for instance by someone called David Davis who described the EU as “a crumbling relic from a gloomy past”.  I wonder what became of him?