Companies and investors have just 30 working days left to prepare for a No Deal Brexit

Companies across the UK and EU27 are suddenly realising there are now just 30 working days until the UK will likely abandon its 45-year trading relationship with the EU, and start to trade on WTO terms.

If this happens, every supply chain involving a movement between the UK and EU27 will change. And all those supply chains governed by EU deals outside the EU will also change. A large number of industries are already being impacted:

  • Scotch whisky exports to Korea worth £71m ($90m) a year, risk a 20% tariff after 29 March if the EU’s Free Trade Agreement is replaced by WTO rules. It is now too late to export by boat, causing some exporters to use expensive air freight to beat the deadline. But capacity is already almost full.
  • Many banks, insurance companies and asset managers have already moved staff from London into the EU27.  They cannot risk waking up on 30 March to find they can no longer serve customers from London, because they have lost the essential EU “passport”.
  • “CE Marks” issued in the UK will no longer be valid in the EU27 after No Deal  – making it difficult to sell any goods that need safety, health or environmental approval.
  • And last week, BASF’s UK MD, Richard Carter, told Ready for Brexit that for the world’s largest chemical company: “The thought of having to re-register with a UK REACH equivalent if there is no deal and if there is no recognition equivalence is a huge concern”.

THE UK REMAINS ON COURSE TO LEAVE THE EU WITH NO DEAL ON 29 MARCH
But surely, you say, “this cannot happen”.  After all the UK’s main business organisation, the Confederation of British Industry, has already warned that No Deal would create “a situation of national emergency“.

But the leading Tory Brexiters don’t believe this.  Their 111 votes, combined with the 10 votes from the Democratic Unionist Party, meant premier May’s Withdrawal Agreement was defeated by 230 votes last month.  It would have provided a Transition Agreement until the end of 2020.

However, their votes then swung behind her to defeat the motion of No Confidence in the government, which would have led to a general election.  Why did they do this, you might ask, given they had just voted against her key policy?

The answer is that the Brexiters have a completely different view of the Brexit negotiations, as I noted in The pH Report last year.

They simply don’t accept the CBI argument. Instead they believe the EU27 will be the main losers from No Deal as they argue the financial outcome will be:

“Plus £651 billion ($875bn) for the UK versus minus £507bn for the EU: it could not be more open and shut who least wants a breakdown.“

In their view, the best way to force the EU27 to offer a better deal is simply to leave on 29 March.

They also, as I noted here in December, will be quite happy to see the end of key industries such as autos, as the leading Brexiter economist Prof Patrick Minford told the Treasury Committee in October:

You are going to have to run it down … in the same way we ran down the coal industry and steel industry. These things happen.”

The alternatives to No Deal are now also extremely limited.  The Caroline Spelman/Jack Dromey resolution to block No Deal was passed last month by 8 votes. But it was only a resolution and has no legal force.

Of course, Parliament might change its mind and decide to vote for May’s Agreement.  Or the government might revoke its Article 50 notification before the UK leaves on 29 March. But both would split the Tory and Labour Parties and are unlikely to happen.

The government could also decide to hold a second referendum. But again, this would split both parties and is unlikely.

It is therefore hard to disagree with the independent Institute for Government, who concluded: “Britain’s politicians are unwilling to put jobs and the economy above party politics.

The only other option is for MPs to effectively take over the government by demanding that it stops No Deal.  It is not clear how this could happen, but presumably they could pass legislation demanding that May asks Brussels for a lengthy extension to Article 50.

But such a move by Parliament has never happened before. It would need key Ministers such as Chancellor Philip Hammond to vote against their own government. It would also need support from enough Opposition MPs to overcome Brexiter resistance.

It would also risk a constitutional crisis, as it would replace an elected government.  And in terms of practicalities, it would presumably also mean that the UK would take part in the EU Parliament elections, as it would still be a full EU member in May. The whole process would take the UK into completely uncharted water.

THERE ARE JUST 30 WORKING DAYS LEFT TO PREPARE FOR A NO DEAL BREXIT

Anticipating this risk led me to co-found Ready for Brexit last year, to help businesses navigate the challenges and opportunities created by Brexit.

It is effectively the one-stop shop requested recently by the CBI.  It provides curated links to all the areas where you may need to urgently prepare for Brexit.

The video explains what WTO rules could mean for your business. Please watch it now, and then decide if you need to start planning today for whatever may happen on 29 March.

Airbus warns of “dawning reality” there may be no Brexit deal

Suddenly, businesses across Europe are waking up to the realisation that the UK is currently on course to leave the European Union (EU) on 29 March next year, without a deal on trade and customs.  As Katherine Bennett, the UK boss of aerospace giant, Airbus, warned on Friday:

“This is not project fear, this is dawning reality.”

As the BBC reported on Friday: “Airbus has warned it could leave the UK if it exits the European Union single market and customs union without a transition deal…It also said the current planned transition period, due to end in December 2020, was too short for it to make changes to its supply chain.  As a result, it would “refrain from extending” its UK supplier base. It said it currently had more than 4,000 suppliers in the UK.”

BMW, which makes the iconic Mini and Rolls Royce, added:

“Clarity is needed by the end of the summer.”

Similarly Tom Crotty, group director at INEOS, the giant petrochemicals group, said several companies were putting investment decisions on hold because of Brexit uncertainty:

“The government is relatively paralysed … it is not good for the country.

THE RANGE OF TOPICS COVERED BY THE BREXIT NEGOTIATIONS IS VERY LARGE

This is why my IeC colleagues and I have now launched Ready for Brexit on the 2nd anniversary of the UK’s referendum to leave the EU.  We are particularly concerned that many small and medium-sized businesses (SMEs) – the backbone of the European economy – are failing to plan ahead for Brexit’s potential impact.

As our Brexit Directory above shows, Brexit creates a wide range of challenges and opportunities:

  • Customs & Tariffs:  Export/Import Registration, Labelling, Testing, VAT
  • Finance:  Payment Terms, Tax & VAT, Transfer Pricing
  • Legal:  Contracts, Free Trade Agreements, Intellectual Property
  • Services & Employment:  Banking, Insurance, Investment, Property
  • Supply Chain:  Documentation, Regulation, Transport

And yet, today, nobody knows on what terms the UK might be trading with the other EU 27 countries after 29 March.  Or indeed, all the other countries where UK trade is currently ruled by EU agreements.

The EU is a rules-based organisation, and the legal position is very clear:

  • The UK has notified the EU of its intention to leave by 29 March
  • Negotiations are underway over a possible Withdrawal Agreement, which would set new terms for UK trade with the EU 27 after this date
  • The proposed Transition Agreement, which would extend the deadline for leaving until 31 December 2020, will only apply if this Withdrawal Agreement is finalised in the next few months

Ready for Brexit will keep its subscribers updated on developments as they occur, as well as providing news and insight on key areas of business concern.

A NUMBER OF VERY DIFFERENT OPTIONS EXIST FOR FUTURE UK-EU TRADE ARRANGEMENTS

The UK has been in the EU for 45 years.  Unsurprisingly, as the slide above confirms, the negotiations are proving extremely complex.  Both sides have their own objectives and “red lines”, and compromise is proving difficult.

The negotiators not only have to deal with all the trade issues covered in the Ready for Brexit Directory, but also critical political questions such as the trading relationship between N Ireland and Ireland after Brexit.  That, in turn, is complicated by the fact that the UK government depends on Democratic Unionist Party (DUP) votes for its majority, and the DUP is opposed to any “special deal” on customs for the Irish border.

BUSINESSES NEED TO RECOGNISE THERE MAY BE “NO DEAL” AFTER 29 MARCH
I have taken part in trade negotiations, and negotiated major contracts around the world.  So I entirely understand why Brexit secretary David Davis has insisted:

“The best option is leaving with a good deal but you’ve got to be able to walk away from the table.”

Similarly, International Trade Secretary Liam Fox is right to warn that:

“The prime minister has always said no deal is better than a bad deal. It is essential as we enter the next phase of the negotiations that the EU understands that and believes it… I think our negotiating partners would not be wise if they thought our PM was bluffing.”

The issue is simply that many businesses, and particularly SMEs, have so far ignored all these warnings.

According to a poll on the Ready for Brexit website, only a quarter have so far begun to plan for Brexit.  Half are thinking about it, and almost a quarter don’t believe it is necessary.  This is why we have produced our easy-to-use Brexlist™ checklist, highlighting key areas for focus.

“NOTHING IS AGREED UNTIL EVERYTHING IS AGREED”
As the UK and EU negotiators have said many times over the past 2 years, “nothing is agreed until everything is agreed“.  These 7 words should be written above every business’s boardroom table:

  • They remind us that it may prove impossible to agree a Withdrawal Agreement between the UK and EU27
  • And without a Withdrawal Agreement, there will be no Transition Agreement

Instead, the UK would then simply leave the EU in 278 days time on World Trade Organisation terms.

If you don’t know what WTO terms would mean for your business, you might want to visit Ready for Brexit and begin to use its Brexlist checklist *.

 

 Ready for Brexit offers users a free one-month trial including access to the Brexlist. After this there is an annual fee of £195 to access the platform.  Discounts are available for companies who want to help SMEs in their supply chains to prepare for Brexit, and for trade associations who would like to offer the service to their members.

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Brexit disaster looms as UK government power struggle erupts

UK voters were never very bothered about membership of the European Union (EU) before the Brexit vote last year.  Opinion polls instead showed they shared the general feeling of voters everywhere – that their country was heading in the wrong direction, and it was time for a change.  Now, last week’s Conservative Party conference showed that the government itself, and the prime minister, have also lost all sense of direction.

The problem is that nobody has any idea of a what a post-Brexit world would look like for the UK.  The Leave campaigners famously told the voters it would be a land where the UK would no longer “give” £350m/week ($455m) to Brussels, and could instead spend this money on improving health care and other worthy objectives.  This, of course, was a lie, as the head of the National Statistics Agency has since confirmed.  But then-premier Cameron failed to call out the lie at the time – fearing it would split his Conservative Party if he did.

15 months later, this lie has again come centre stage as the Foreign Secretary, Boris Johnson, revived it before the Conference as part of his bid to replace premier May:

“Once we have settled our accounts, we will take back control of roughly £350 million per week.  It would be a fine thing, as many of us have pointed out, if a lot of that money went on the NHS.”

As a result, the splits in the Conservative Party are out in the open, with its former chairman now calling for a leadership election and claiming at least 30 law-makers already support the move.  Bookmakers now expect May to leave office this year (offering odds of just evens), and suggest the UK will have a new election next year (odds of 2/1), despite the fact that Parliament has nearly 5 years to run.

May’s problem is two-fold:

 As the photo shows, she was humiliated in her main speech to the Conference by a prankster handing her a P45 form (the UK’s legal dismissal notice), and claiming Johnson had asked him to do it
 Her previous set-piece speech in Florence on negotiations with Brussels over the UK’s exit arrangements had also rebounded, as it made clear the Cabinet was divided on the terms that should be negotiated

Voters don’t like being lied to, and they don’t like governments that are unable to govern because of internal splits – particularly when the splits are over such a critical issue as the UK’s economic future.  Unsurprisingly, therefore, the opposition Labour party are now favorites to win the next election, and their leader, Jeremy Corbyn, is favourite to become the next prime minister.  This, of course, would confirm my suggestion 2 years ago:

“My local MP, Jeremy Corbyn, won the UK Labour Party leadership election on Saturday with a 60% majority. An anti-NATO socialist, he has represented the constituency for 32 years, and has never held even a junior ministerial post. Now, he could possibly become the UK’s next Prime Minister.

“His path to power depends on two developments taking place, neither of which are impossible to imagine. First, he needs to win back the 40 seats that Labour lost to the Scottish Nationalists in May. And then he has to hope the ruling Conservative Party tears itself apart during the up-coming Europe Referendum.”

Unfortunately, Corbyn would be unlikely to resolve the mess over Brexit.  In the past, before becoming leader, he took the Trotskyist view that the EU is a capitalist club, set up to defraud the workers.  He has since refused to confirm or deny his views on the subject, but he did take very little part in the Referendum campaign last year.  Had he been more active in arguing the official Labour Party position of Remain, it is unlikely that Leave would have won.

Today, he is far more concerned over the likely result of a Labour Party win on financial markets, with his shadow Finance Minister admitting recently they were “war-gaming” in advance of an expected currency crisis.  UK interest rates are already rising, as foreign buyers wonder whether they should continue to hold their current 28% share of the UK government bond market.  Clearly, it is highly likely that a Labour government would need to return to capital controls after a 40-year break, to protect their finances.

A VERY HARD BREXIT IS BECOMING ALMOST CERTAIN
The confusion and growing chaos in the political world means that the detail of Brexit negotiations has taken a back seat.  The UK has still to make detailed proposals on the 3 critical issues that need to be settled before any trade talks can begin – rights of EU/UK citizens post-Brexit; status of the N Ireland/Ireland border; UK debts to Brussels for previously agreed spending.  And most European governments are now far more focused on domestic concerns:

  As I warned a year ago, the Populist Alternative für Deutschland did indeed “gain enough seats to make a continuation of the current “Grand Coalition” between the CDU/CSU/SDP impossible” in Germany
  Spain has to somehow resolve the Catalan crisis, following last week’s violence over the independence referendum
  Italy has autonomy referenda taking place in the wealthy Lombardy and Venice regions in 2 weeks, and then faces a difficult national election where the populist 5 Star movement leads most opinion polls. The scope for political chaos is clear, as the wealthy Northern regions want to reduce their tax payments to the south – whilst southern-based 5 Star want more money to go in their direction

President Trump has also undermined the Brexit position.  He initially promised a “very big and exciting” US-UK trade deal post Brexit.  But since then the US has supported a protectionist move by Boeing to effectively shut-down the vital Bombardier aircraft factory in Belfast, N Ireland, despite May’s personal appeals to him. And last week, it joined Australia, New Zealand, Argentina and Brazil in objecting to the EU-UK agreement on agricultural quotas post-Brexit.

I have taken part in trade talks and have also negotiated major contracts around the world.  So I know from experience the UK could never have achieved new deals within the 2 years promised by leading Brexiteers.

Today, it is also increasingly clear that May’s government doesn’t have the votes in Parliament to agree any financial deal that would be acceptable in Brussels.  So whilst large parts of UK industry still assume Brexit will mean “business as usual”, European companies are being more realistic.    In a most unusual move, the head of the Federation of German Industries spelt out the likely end result last week:

“The British government is lacking a clear concept despite talking a lot. German companies with a presence in Britain and Northern Ireland must now make provisions for the serious case of a very hard exit. Anything else would be naive…The unbundling of one of Germany’s closest allies is unavoidably connected with high economic losses. A disorderly exit by the British from the EU without any follow up controls would bring with it considerable upheaval for all participants. (German companies feel) not only that the sword of Damocles of insecurity is hovering over them, but even more so that they are exposed to the danger of massive devaluation.”

UK, European and global companies are already drawing up their budgets for 2018 – 2020. They cannot wait until Brexit day on 29 March 2019 before making their plans. And so, as it becomes increasingly obvious that the UK-EU talks are headed for stalemate, and that ideas of a lengthy transition period are simply a dream, they will make their own plans on the assumption that the UK will head over the Brexit cliff in 18 months time.

Nobody knows what will happen next.  But prudent companies, investors and individuals have to face the fact that Brexit, as I warned after the vote, is likely to be “a disaster for the UK, Europe and the world“.

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President Xi focuses on pollution, not growth, as key Party Congress nears

Beijing pollution Feb14

Imagine living in the capital city of a major country, and suffering the level of pollution shown in the above photo on a regular basis.  We used the photo in chapter 6 of Boom, Gloom and the New Normal when we highlighted how pollution was inevitably going to move up the political agenda in China. Controversial at the time, it warned:

Recent growth in China and India has come at a price: Poor air quality, chronic water shortages and deforestation.”

By February 2014, the pressure to act was becoming almost overwhelming as:

“The problems have worsened, to the point where almost everyone now agrees that they are creating a major political problem. The new leadership simply has to solve this, if it wants to remain in office. Beijing and the 6 northern provinces have now been shrouded in smog for 6 days, and on Wednesday the US embassy reported that the levels of PM2.5, the small particles that pose the greatest risk to human health, were “beyond index” at 512.

Guangdong province, close to Hong Kong, had already moved to clean up.  But other provinces did little or nothing, as officials worried about the likely impact on jobs. A major part of the problem was that the economy is the Premier’s responsibility, and Premier Li has been more worried about maintaining growth via stimulus programmes.

This year, however, Xi finally lost patience ahead of next month’s 5-yearly People’s Congress – at which he will be renominated for another 5-year term.  Having signed China up to the Paris Agreement on climate change in December 2015, he seized control of the economic agenda, as I noted in the Financial Times:

Xi knows that reducing pollution, rather than maintaining economic growth, has become key to continued Communist Party rule.  The recent rapid elevation of Beijing’s mayor, Cai Qi, to become party chief for the city is further confirmation of the high priority now being given to tackling air pollution and stabilising house prices.

“Taken together, these policies represent a paradigm shift from those put in place 40 years ago by Deng Xiaoping after Mao’s death in 1976. This shift has critically important implications, as it means growth is no longer the main priority of China’s leadership. In turn, this means that stimulus programmes of the type unleashed in 2012, and on a more limited basis by Premier Li last year, are a thing of the past.”

Since then, the Beijing area, and surrounding provinces such as Hebei and Henan, have become a centre of the battle against pollution.  One key development has been the use of thousands of drones to spot, and measure air and water pollution, and then identify and photograph the culprits. As state-controlled Xinhua reported last week:

“A total of 599 companies, mainly construction materials, furniture, chemicals, packaging and printing, were relocated out of the capital, said the Beijing municipal commission of development and reform.  Beijing also closed 2,543 firms and ordered 2,315 firms to make changes. About 73% had pollution issues.

Similarly, a senior chemical industry executive told me last week:

“I was in/near Cangzhou the other day (another city on the list) where the government have created a large National Level Economic Zone including a dedicated chemical “park” to accommodate the companies that are being cleared out of Beijing and surrounds. This was an otherwise nondescript flatland whose only previous claim to fame was a Mao era collaboration with then Czechoslovakia to make tractors.

China lend Sept17

The war on pollution has another side to it, of course, as it marks the end of the “growth at any cost” economic model.

As a result, realism is finally returning to discussion about China’s real growth potential.  As last month’s IMF Report on China noted, GDP growth had only averaged 7.3% over the 5 years to 2016 because of stimulus: without this, growth would have been just 5.3%.  As a result, the IMF also highlighted an increasing risk of “a possible sharp decline in growth in the medium term”, as well as a need to boost domestic consumption by reducing savings.

This is a welcome development. Too many companies and analysts have indulged in wishful thinking, wanting to believe China had suddenly become middle-class by Western standards.  In reality, as the second chart shows, the growth surge was due to $20tn of stimulus lending via official and shadow banking channels.

At its peak, between 2009 – 2013, this lending reached 3.2x official GDP.  And GDP itself was probably also over-stated for internal political reasons, as Communist Party officials were routinely judged for promotion on their success in generating GDP growth.  Now the pendulum has swung the other way, as the Caixin business magazine has reported:

In a document jointly released by the Ministry of Environmental Protection and nine other ministry-level bodies, if a city does not achieve 60% of the emission reduction target, the city’s vice mayor will be held responsible.  If the city achieves less than 30% of its target, the mayor will be held responsible; and if the PM2.5 level ends up increasing instead of falling over the winter, the party secretary of the city will be held responsible.

“Possible punishment includes party disciplinary or administrative punishments, the document says.”

Large economies are like super-tankers, they take a long time to change course.  As I noted nearly 2 years ago, China is now attempting to move in a radically new direction, away from export-driven growth and infrastructure spending – and towards a New Normal economy based on the mobile internet:

“The winners are developing services-led businesses focused on China’s New Normal markets – such as those aimed at boosting living standards in the poverty-stricken rural areas, or for environmental clean-up. The losers will be those who cling to the hope that more stimulus is just around the corner, and that China’s Old Normal will somehow return.”

Those who have done well under the old regime, like the Party heads focused on job-creation and the opportunities that it created for large-scale corruption, will inevitably fight hard to preserve their way of life.  Next month’s Congress will therefore be critical in assessing just how much power Xi will have to pursue his reform policies in his second term.

As I noted a year ago, this Congress will settle key questions.  Will Premier Li gain a second term, and continue to be able to obstruct reform? Will anti-corruption tsar Wang maintain his position on the all-powerful Politburo Standing Committee, despite being over the nominal age limit?

The Congress is therefore likely to the most important meeting since 1997, when Jiang Zemin gained re-appointment for his second term as President and led China out of poverty via membership of the World Trade Organisation.  Now, as set out in the China 2030 Report (published when Xi became President), Xi has to led China in a new direction.

Otherwise, he will be unable to achieve his twin goals of

□   Making China a “moderately prosperous society” by 2021 (the centenary of the Chinese Communist Party)
□   Making it a “fully developed, rich and powerful nation” by 2049 (the centenary of the People’s Republic), and returned to its historical status as the Middle Kingdom via his ‘One Belt, One Road’ project.

 

 

If “Brexit means Brexit”, what does Brexit mean?

Brexit mapThe summer is over, and the UK government now has the job of deciding its objectives for the Brexit negotiations. These, like all major negotiations, will no doubt be long and difficult.  They will also inevitably create major uncertainty for companies, investors and individuals as they progress.

I have personally led major negotiations in a wide variety of cultures, and also participated in them as a team member. So I have a reasonable idea of the challenges that the Brexit negotiations will create.  But they are unique in their complexity, and in their political nature:

□  If one takes the chemical industry as an example, tariff negotiation is only a part of the discussion – rules and regulations around environmental, health and safety issues will probably end up being far more important
□  Political developments will create further complexity – Italy has a referendum this year, whilst elections are due next year in major EU countries including Germany and France, and the USA will have a new Administration

The UK’s new premier, Theresa May, has stated that “Brexit means Brexit”.  But she is also well aware there are at least 5 major potential options for a Brexit agreement, as the authoritative Institute for Government has outlined:

□  ”Membership of the European Economic Area (EEA): the ‘Norway model’. This offers almost complete access to the Single Market in goods and services, with some restrictions on agricultural and fisheries products. In return for this access, EEA members must accept free movement of people. They make a significant contribution to the EU budget and must accept all EU laws and regulations related to the Single Market, with minimal influence over their content.
□  ”Membership of the European Free Trade Agreement (EFTA) plus bilateral deals: the ‘Swiss model’. EFTA provides access to the Single Market in all non-agricultural goods. Switzerland has added a series of bilateral agreements allowing for trade in some services, and also has a treaty accepting free movement of people. Switzerland contributes to the EU budget to cover the costs of programmes it participates in. It must adapt domestic legislation to meet EU laws in the areas of the Single Market that it participates in, and has no formal influence over those laws.
□  ”A customs union.  Members of a customs union agree to trade agreed categories of goods (for example, industrial or agricultural) between themselves without applying any tariffs. If the UK were to take this path and agree a customs union with the EU, it would not face tariffs in exporting goods to the EU, but would be obliged to adopt existing and future EU rules relating to the regulation of goods. Customs unions are bespoke, with different versions covering different types of goods… An important feature of a customs union is that members apply a common external tariff to all third parties (unlike an FTA, where members can have their own tariff policy with other countries). The EU operates an advanced form of a customs union in that the common tariff is then pooled across the EU.
□  ”A bilateral free trade agreement, such as the Canadian or Singaporean models. Both these bilateral agreements, when ratified, will offer almost complete access to the Single Market in goods, but less access to the market in services, with some sectors excluded. Neither agreement requires free movement of people. Exporters must comply with EU rules and regulations when exporting to the Single Market, and will have no influence over these rules and regulations. Before the UK could sign an FTA with the EU (or with any other entity), it will probably need to have its WTO arrangements set out – potential FTA partners need to know what terms the UK is offering the rest of the world, before they can know what ‘preferential’ terms to seek for themselves.
□  ”Membership of the World Trade Organization (WTO). This would offer the most complete break with the EU. As a WTO member, Britain would be able to negotiate free trade agreements with other members, including the EU. In the period before these agreements were put in place, the UK would have to offer equal ‘most favoured nation’ status and equal tariffs to all countries wishing to trade with it. UK exports to the EU would also face the EU’s external tariff.”

PROTECTIONISM IS RISING AROUND THE WORLD
Protectionism Sept16The government will now have to decide which of these options to pursue.  And at the same time, it is uncomfortably aware that trade deals, as such, are becoming very unpopular in many major countries, as the above chart from Global Trade Alert confirms.  Some even suggest we may be moving away from trade agreements to trade wars.

Evidence for this paradigm shift can be seen in the fact that last December’s WTO negotiations ended in failure, whilst risks are rising over ratification of the proposed TPP deal between 12 Pacific Rim countries.  Pressure to abandon the proposed TTIP deal between the EU and NAFTA is also rising.

Another critical fact is that all negotiations are about compromise – if the UK wants control over immigration, for example, this will limit its negotiating options with countries that currently have relatively open access to the UK – such as China, the USA, India and others, as well as the EU.

This “fact of life” is, after all, why recent Conservative and Labour governments never implemented major cutbacks. Reducing immigration would have important “second-order effects”, as three-quarters of immigrants move to the UK for work or study.  Universities, for example, often depend on fee income from foreign students for their finances, whilst the National Health Service relies on its 57,000 foreign workers.  As the BBC noted before the Brexit vote:

The UK isn’t bound to accept non-EU migrants by any international treaties, but nevertheless let 277,000 of them move over last year alone.

Individual industries also risk finding themselves being made part of “trade-offs” to obtain benefits for another industry. The lobbying power of the financial services industry might, for example, mean that it is allowed to keep some form of passporting rights (to sell its services into the EU after Brexit).  In exchange, the UK might have to accept greater restrictions on another industry.

The conclusion is clear.  Anyone who thinks they know what is going to happen with Brexit, simply doesn’t understand the key issues.  And anyone who thinks that Brexit has nothing to do with them or their business, may well have a surprise ahead of them.

 

Brexit debate obscures key issues as assertions replace facts

UK immigration Jun16The UK’s Brexit referendum is fast becoming a bitter battle for the Conservative Party leadership.  It is hard to believe that Boris Johnson, who leads the Leave campaign, really cares either way about the issue of leaving Europe:

  • He told Germany’s Der Spiegel only last year:  ‘We can’t leave Europe. We’re part of the European Continent. What is the English Channel? It’s a primeval river that got slightly too big … We’re always going to be a part of Europe psychologically.”
  • And he told friends earlier this year, before choosing to fight on the Leave side, that he was “Veering all over the place like a shopping trolley”

All the evidence suggests that instead, his real motive for deciding to lead the Leave campaign was that – win or lose – this would make him the likely successor to David Cameron as premier.

The problem for UK voters is that this jockeying for power means that basic principles of debate, such as “Comment is free, but facts are sacred” have been abandoned.  Instead, facts are being treated as mere opinions:

  • The core Brexit argument is “We send the EU £350 million a week – let’s fund our NHS (health service) instead
  • Yet this figure does not include the automatic rebate from the EU to the UK or other automatic flows
  • As the Head of the UK Statistics Authority warned, “Without further explanation, I consider these statements to be potentially misleading

But Johnson refused to change the slogan, saying:

“If you take out the abatement and the money that comes back via Brussels, the figure is obviously lower.  We think it’s relevant to keep people focused on the global figure, because that is the figure over which we have no control.”

Sadly, Cameron was similarly focused on internal Conservative Party politics when he called the referendum. As Martin Wolf has recently argued in the Financial Times:

This referendum is, arguably, the most irresponsible act by a British government in my lifetime….Right now one can only hope that the country does not soon learn what it means to divorce in haste and repent at leisure”

IMMIGRATION NOW A KEY ISSUE IN THE BREXIT DEBATE
Immigration is another key issue where assertion is being used to whip up anti-EU emotions.  But as the chart above shows, based on official data from the UK’s Office of National Statistics:

  • Most migrants are non-EU citizens – even with the recent rise, EU citizens have never been in the majority
  • The Conservatives could have easily reduced net migration ”below 100k”, as they promised in the 2010 election
  • EU migration in 2010 – 2012 was only around 80k/year, and there were no treaties requiring the UK to admit any non-EU migrants, as the BBC notes:

“The UK isn’t bound to accept them (non-EU migrants) by any international treaties, but nevertheless let 277,000 of them move over last year alone.

One is therefore forced to conclude that the new Conservative government, containing many of the Leave leaders, simply decided to ignore the pledge once they were in power.

This behaviour also raises doubts over the new Leave pledge to reduce EU immigration.  It is hard to see how anything will be changed by basing EU migration on the “points-based system” used for non-EU migrants, as this has failed to have a major impact on their overall numbers.

LEAVING THE EU WOULD BE A COMPLEX AND DIFFICULT PROCESS
Most of the UK population have only ever known life within the EU.  And those of us who remember the pre-1973 period, know that today’s world is very different.  Yet Leave have failed to give us any clear picture of what they would do, if the UK votes for Brexit on 23 June.  Instead, as former Conservative premier Sir John Major has warned:

“Vote Leave’s campaign is an unforgivable fraud on British people.”

Critically, the key issue of how Leave would implement Brexit has been dominated by assertion rather than fact:

  • It is easy for Leave to assert that other countries will rush to sign new trade treaties with the UK
  • But anyone who have ever bought a house knows how difficult and detailed contract negotiations can become
  • Trade deals are far more difficult and complex to negotiate, and take years rather than months to conclude

Equally important is the fact that the UK has had no direct experience of negotiating trade deals for the past 43 years.  These have all been done via the EU, with the backing of other major G7 nations such as France, Germany and Italy.  Almost inevitably, therefore, this lack of experience would lead to us being out-negotiated – particularly as we could find ourselves having to finalise 80 deals in just 2 years, to replace current EU arrangements.

If one focuses on the facts, rather than on the assertions, it therefore seems clear that a Brexit vote would mean taking a complete leap in the dark.  Nobody can know where we would end up, or the damage that would be caused.

Most importantly, as I noted last month, it would put at risk the ”peace and prosperity” that my generation have enjoyed since the EU was founded.  This is why it will be the most critical vote that many of us will ever cast.  I will be voting to Remain, and I hope that my country does too.