Tuesday, 5 December 2017

Brexit: Time to Smash Heads.

In June 2016 Britain voted to exit the European Union (EU) in a public referendum. The so-called; "Brexit."

I was one of the people who voted to leave. However I am probably one of the only people in the country whose vote wasn't determined by some passionate ideological cause or deep-rooted sense of identity.

Instead I simply looked at Britain's membership of the EU and decided that the relationship wasn't working for any of the parties involved.

Britain has always been a reluctant member of the EU.

For example unlike all other EU members it does not recognise the treaties of the EU as domestic law. Instead it relies on this strange confection whereby the British Parliament passes a law which is exactly the same as the EU law at exactly the same time the EU law is passed.

Also Britain has never been a member of the EU's single currency - the Euro Dollar.

This lack of commitment by Britain has caused a high degree of tension and disruption to other EU members. For example following the 2008 financial crisis Britain was actually kicked out of meetings of EU members that do use the single currency intended to draw up an EU-wide response.

Therefore I voted for Britain to leave in the hope it would lead to a new relationship between Britain and the EU. One that would work better for all parties involved.

What I failed to factor into this decision was the just utter incompetence of British politicians.

Rather like the GCSE exams that British students sit over two years Brexit negotiations are modular. That means that negotiators work on one set module. Only when that module is complete can they move on to the next one.

As with GCSE exams these negotiations have a set time limit of two years to complete all the modules. If you fail to complete the modules within that time limit then you fail the whole thing.

The first module of negotiations was supposed to be completed at the end of September 2017. However that deadline was extended to December 4th (4/12/17) after Britain failed to complete the module.

Yesterday - December 4th (4/12/17) - it emerged that Britain has still not completed this first module.

This failure to complete the first module stems entirely from British politicians inability to grasp not only the nature of the negotiations but the issues involved.

Across all political parties there is a demand that the British Parliament is given a final vote on any agreement with the EU. This arrogance shows that British politicians simply do not understand their role within negotiations.

Britain has terminated its membership of the EU pending the expiry of a two year notice period. This means that Britain will leave the EU in March 2018.

The British Parliament vetoing any negotiated agreement on Britain's future relationship with the EU will not change that. All it will do is stop Britain having an agreed relationship with the EU after it has left. That would be utterly catastrophic.

One scenario is that a failure to agree transportation safety standards leads to all transport links between Britain and the EU are shut down. That means no trains, ships or aeroplanes travel between Britain and EU member states.

In that situation arguments over things like trade tariffs will not matter. There simply won't be any goods travelling in or out of the UK.

Any political party which makes that a reality may as well shut up shop there and then. No-one will vote for them ever again.

The first module of negotiations deal with what has been termed; "The Divorce Bill."

Back in 2015 Britain signed a contract to pay GB£90bn into the EU budget regardless of whether it remained a member of the EU or not. From that GB£90bn figure Britain is able to deduct things like money from the EU budget that would be spent in the UK and Britain's share of equity in EU buildings that it would no longer use.

This is a relatively simple aspect of negotiations that you would think it would be easy to work through.

However there is a faction within British politics - generally on the right-wing of the Conservative Party - who have declared that Britain doesn't have to pay any of that bill. Those people are so wrong that I can't even understand how they've come to thinking that position is sustainable.

Fortunately they do seem to have backed down over the course of the past week or so. This has allowed Britain to offer a figure of around GB£50bn to settle the divorce bill.

Rather than being based on set totals the EU budget is worked out on a yearly percentage of a nation's GDP. So if Britain's GDP grows above forecasts then the budget contribution increases above GB£90bn. However if GDP grows below forecasts then the budget contribution shrinks below GB£90bn.

As a result I can't give you a firm figure for Britain's budget contribution because there is no firm figure.

Also I don't have the time to work out things like Britain's share of equity on EU buildings. As a result I can't really give you a firm figure of what Britain's total deductions are.

I have to say though the offered figure of GB£50bn actually seems slightly on the low side. It will also be the last contribution Britain will make to the EU budget.

If the redundant argument over the divorce bill was not problem enough there is also another equally disruptive faction. This is generally the progressive left-wing made up of the Labour Party and the Scottish National Party (SNP).

This faction wants Britain to leave the EU but remain a member of either the Single Market or the Customs Union. I very much doubt any members of this faction know what either the Single Market or the Customs Union actually are.

The Single Market is the EU's freetrade zone. Goods and services are allowed to move around the Single Market area without customs checks or trade tariffs.

In order to be a member of the Single Market a nation must agree to abide by all of the EU's laws. This includes the free movement of people which economists term the free flow of human capital.

In order to abide by all of the EU's laws a nation must also accept the European Court of Justice (ECJ) as the supreme court able to rule on all disputes. This includes all matters of employment and human rights law.

Membership of the Single Market also prevents nations from doing unilateral trade deals with nations outside the Single Market. Regaining the ability to do unilateral trade deals with members of the UK Commonwealth is one of the main advantages of Britain leaving the EU.

The only difference between Britain remaining a member of the EU and remaining a member of the Single Market is that as a member of the Single Market only Britain will give up any say in making the rules that it will have to be governed by.

Again politicians can pursue that if they like. Voters will not reward them.

The Customs Union is an arcane trading arrangement that has almost been rendered irrelevant by the Single Market. It allows nations which are not part of the Single Market to import and export goods into the Single Market without tariffs.

Not being full members of the Single Market allows members of the Customs Union to opt out of some of the EU laws. The free movement of people being the main one.

However members of the Customs Union still have to abide by the majority of EU laws and accept the ECJ as the supreme court able to rule on all trade disputes.

Members of the Customs Union are also not allowed to do unilateral freetrade deals outside of the Customs Union/Single Market.

However they are allowed to do trade deals with outside nations where they are able to negotiate tariff levels within bands set by the EU. For example for animal products the minimum tariff can be 12% while the maximum tariff is 104%.

What members of the Customs Union cannot do is import goods from a third party nation and then export them into the Single Market. This includes components on finished products.

To ensure this doesn't happen goods from Customs Union members are subjected to extremely rigorous customs checks when they are imported into the Single Market.

For example if a Customs Union member want to export a ship load of cars into the Single Market then customs officials unload every car from the ship.

They then dismantle every car down to its smallest piece to make sure that not a single gasket or rubber seal has been imported from outside the Customs Union or made from raw materials imported from outside the Customs Union.

This is obviously extremely time consuming and the customs officials do not pay for any delays. In fact they make the seller pay for storage. Customs officials also do not pay for any damage they may have 'accidentially' done to goods during inspection.

At around 15:40 on 5/12/17 (UK date) I'll move on to the Northern Irish border after what is turning out to be a late lunch.

Edited at around 16:10 on 5/12/17 (UK date) to add;

The first negotiation module also deals with Britain's only land border with another EU member state. The border between the Northern Ireland region and the Republic of Ireland.

Anything short of Britain remaining a member of the Single Market will require some sort of border control between Northern Ireland and the Republic. This presents two key problems.

Firstly the economies of Northern Ireland and the Republic are deeply interconnected. You literally have shopping malls and industrial parks where on side is in Northern Ireland and the other is in the Republic. Breaking apart these economic links will have a catastrophic impact on the economies of both Northern Ireland and the Republic.

The second problem is the Good Friday Agreement. This brought to an end the 30 year period of violence know as; "The Troubles." It did this by acknowledging that Northern Ireland is British territory. However at the same time it acknowledged that the people living in Northern Ireland are citizens of the Republic of Ireland.

Obviously you cannot put in border controls which restricts the movement of Irish citizens around Ireland. You certainly can't put in place a militarised border made up the network of watchtowers that was in place during the Troubles.

The solution is to declare Northern Ireland to be a frontier territory. This allows for goods to be imported/exported from the frontier territory to nations directly adjacent to it. In this case the Republic of Ireland and the British mainland.

This allows for the strong interlinkages between the Irish and Northern Irish economies to continue. The prime example of this would be Guinness.

This very famous beer is brewed in Dublin in the Irish Republic. However much of the hops and barley used to brew it is grown in Northern Ireland. Once the beer is brewed in Dublin it is then transported back to Northern Ireland for canning and packaging before being transported back to Dublin for distribution.

With Northern Ireland being classed as a frontier territory this back and forth in trade can continue unhindered by tariffs or customs checks.

The problem arises when goods are transported from the nations adjacent to the frontier territory to third party nations. In the example of Guinness this isn't actually a problem at all. Exports to the EU are done as part of the Single Market while exports to the British mainland aren't exports at all. Just goods being moved around the UK.

However there is a strong possibility that sellers in the EU will try to avoid tariffs by exporting goods to the Republic and then smuggling them to the British mainland via Northern Ireland. Likewise British sellers will try to avoid tariffs by doing the journey in reverse.

To prevent this sort of leakage there will need obviously to be some sort of border control both at the British mainland/Irish Sea, Northern Ireland into the Republic and from the Republic into the rest of the EU.

However rather than being a traditional border in either the hard or soft sense it will be an intelligence-led anti-smuggling operation.

Rather than checking every vehicle, traveller and package you keep a record of the vehicles and import/export companies making frequent journeys. This can be done unobtrusively through Automatic Number Plate Recognition (ANPR) cameras and keeping records of shipping manifests on ships and aeroplanes.

If you identify a company that is moving far more goods through Northern Ireland than it could sell in either the Republic of Ireland or on the British mainland then you check the shipments belonging to those companies.

This is exactly the same as the system that's already in place to prevent the smuggling of weapons and illegal drugs. So merely expanding it to include legal contraband would not alter the status of Northern Ireland, the Republic of Ireland or the British mainland.

16:50 on 5/12/17 (UK date).

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