Words are flying, generally pointed at UK prime minister Theresa May for forcing the UK into a “hard” Brexit.
Is that Theresa May’s doing or is it German chancellor Angela Merkel’s doing? How about the “gang of 27”? Does the question even matter?
Regardless, the search is on for a solution. Financial Times writer John Gapper, argues for a soft hard-boiled egg. Is there such a thing?
Searching for a Soft Hard-Boiled Egg
John Gapper says Quit the EU gently to Protect British Workers.
Chief executives do not usually call press conferences to confess their uncertainty, so Carlos Ghosn’s appearance at the Paris Motor Show last week made a refreshing change. “I don’t know what it means. What does it mean?” inquired the Renault and Nissan boss when asked about Brexit.
It means a shock for the car industry if Liam Fox, UK international trade secretary, has his way. Britain has entered “a ‘post-geography trading world’ where we are much less restricted in having to find partners who are physically close to us”, Dr Fox insisted in a fatuous speech on the same day. Forget the EU, which accounts for half of the UK’s exports; gaze into the distance.
Dr Fox has made little secret of his enthusiasm for the hardest of hard Brexits. He would like the UK to leave not only the EU and its single market but also the tariff-free customs union that it formed in 1968. If it abandons all three in 2019, when Brexit occurs, he will have a job negotiating trade deals with the rest of the world. Until then, he must defer to the EU’s agreements.
Liam Fox on Free Trade
Gapper is referring to a speech by UK’s international trade secretary, Liam Fox, regarding Free trade.
Let’s skip for a moment to the Telegraph article Liam Fox Signals Britain will Leave the Single Market in ‘Hard Brexit’ to pick up on statements by Fox.
Ten Liam Fox Statements Regarding Trade
- “As a newly independent WTO member outside the EU, we will continue to fight for trade liberalisation as well as potentially helping developing markets trade their way out of poverty by giving them preferential access to our markets.”
- “The UK is a full and founding member of the WTO, though we have chosen to be represented by the EU in recent years. As we establish our independent position post-Brexit, we will carry the standard of free and open trade as a badge of honour”.
- “Protectionism never helps anyone at all. Who does it harm more if we end up in a new tariff environment?”
- “It is in everyone’s interests that we have at least as free trading environment as we have today, anything else may not harm institutions but it will harm the people of Europe and it is the people of Europe who should be at the forefront of our thoughts.”
- “It is an exhilarating, empowering and liberating time yet this bright future is being darkened by the shadows of protectionism and retrenchment. History teaches us that such trends do not bode well for the future.”
- “That is the glorious joy of free trade – it is not a zero-sum game, it really can be win-win. The EU/Korea free trade agreement (FTA), which came into effect in July 2011, is just one example. In the year before the FTA was agreed, the UK sold just over 2,000 cars to South Korea. In 2014 that number reached over 13,000.”
- “In 1945, both North and South Korea began from a very similar base, but while South Korea embraced open trade and free markets, Pyongyang turned inwards with the tragic consequences for its citizens that we see to this day.”
- “Seoul is now at the heart of a thriving economy and dynamic democracy where freedom and prosperity are shared among all its people. It should come as no surprise that while over 80 per cent of South Koreans have access to the Internet, less than 0.1 per cent of North Koreans enjoy the same.”
- “More tragically, there is a greater than 10-year discrepancy in the life expectancy of those north and south of the demilitarised zone. For the prize of free trade can be measured not simply in terms of economics but in human terms too.”
- “There is a reason why those who wish to diminish political freedoms try to have closed economies because they know that, especially in the era of the technical revolution that is the Internet and social media, open markets will sweep in empowering and liberalising ideas.”
Protectionism Never Helps Anyone
Those statement by Fox make me want to stand up and salute.
Fox’s speech contained the best collective set of statements regarding free trade by any politician in history, quite an amazing performance. Fox is precisely the correct person to handle international trade for the UK.
Let’s now return to the Financial Times for a point-by-point rebuttal to Gapper’s search for a soft hard-boiled egg.
Gapper: Much rests on how seriously Theresa May, prime minister, takes Dr Fox’s quack remedies. Not very, I hope. The gospel of global free trade utopianism that his wing of the Conservative party preaches, with no evidence that it works in practice, correctly scares many companies. While politicians opine about the wonders of the post-Brexit world, they deal with the business reality.
Mish: Pray tell Gapper, when was the free trade last tried? Ironically, we have massive amounts of evidence that protectionism does not work.
Gapper: There is a near-zero chance of the EU and UK reaching a comprehensive trade agreement by 2019 so she has two options. One is a very hard Brexit: reverting to World Trade Organisation status in 2019, including the tariffs that it requires. The other is an interim deal to remain in the single market or customs union until they reach consensus.
Mish: An interim deal is theoretically possible, but the EU cannot dictate the terms. Moreover, demands are increasing. This is precisely what happens when a collection of bureaucrats from 27 nations all get a say in every treaty negotiation. Open your eyes Gapper: The Gang of 27 Hits UK with Impossible Demands: EU Seeks “Inferior” Deal for UK. Got that? The EU demands an “inferior but fair” deal for the UK. That’s impossible by definition.
Gapper: Dropping out of the EU into the WTO fallback in 2019 would not only involve companies such as Nissan paying a 10 per cent tariff to sell cars to Europe (and the other 53 markets with which the EU has trade deals) but would put supply chains at risk. Imported parts comprise £12bn of the £15bn materials in cars built annually in the UK, according to Vendigital, the consultancy.
Mish: If the EU looked the other way and so did the UK, the WTO, which settles disputes would not even be involved! That’s the bottom line. The EU could easily make a decision not to place a tariff on UK cars, and of course the UK could do the same.
Gapper: Tariffs would be only one of the barriers. Every model of vehicle would have to be approved under rules of origin before it entered the EU. As parts from component makers such as Bosch and ZF in Germany crossed into the UK, any delays at customs would imperil the just-in-time vehicle assembly lines for which they were bound.
Mish: That really highlights the stupidity of such allegedly “free trade” agreements! Doesn’t it Mr. Gapper? Moreover, the UK would actually stand a chance of changing WTO policy whereas it has no chance of doing the same within the EU as an outsider. Heck, the UK could not influence the EU from within the organization. Again, this is what happens when you put yourself at the mercy of 27 nations all demanding a say in something.
Gapper: The blithest of Brexiters insist there is no problem. The UK is the largest export market for German carmakers such as BMW and Volkswagen, and the EU will not want to put this at risk, they say. The UK should declare that it will not impose import tariffs and place the onus on the EU to follow. They ignore the fact that there is no choice: the WTO requires duties on imports from countries with no trade agreement.
Mish: Gapper repeated an argument. I repeat my reply: If the EU looked the other way and so did the UK, the WTO, which settles disputes would not even be involved! That’s the bottom line. The EU could easily make a decision not to place a tariff on UK cars, and of course the UK could do the same.
Gapper: Will Mrs May be guided by Dr Fox or by Mr Ghosn on the value of Europe’s tariff-free zone? One is a former doctor with exotic theories about trading more with Australia. The other is an international business leader who employs British workers — the people whose lives she wants to improve — in a strategic industry exporting cars to Europe. How hard should that choice be?
Mish: It should be an easy choice. No one benefits from protectionism, and no one should pay bribes. Ghosn seeks repayment of taxes by the UK, if the EU imposes them.
Are Mercedes and Volkswagen going to seek repayment of tariffs for cars headed to the UK?
You see Mr. Gapper, you cannot play this from both sides of your mouth at the same time. If WTO rules demand Goshn (Nissan) pay taxes, those same rules require 10% tariffs on …
- Mercedes-Benz (Germany)
- Volkswagen(Germany)
- BMW (Germany)
- Audi (Germany)
- Alfa Romeo (Italy)
- Ferrari (Italy)
- Fiat (Italy)
- Peugeot (France)
- Renault (France)
UK Cars: Aston Martin, Bentley, Caterham, Daimler, Jaguar, Lagonda, Land Rover, Lotus, McLaren, MG, Mini, Morgan, and Rolls-Royce.
Who gets by far the worse deal here? Luxury car buyers might not even care about tariffs.
Mike “Mish” Shedlock
Mish, if you get chance read the link below. FT is the EU mouthpiece.
Hard/soft, what does it mean?
Worth a read, especially the last 1/3rd.
http://brexitcentral.com/six-things-learnt-brexit-conservative-party-conference/
Yep – Thanks
Mish
In fact, Britain has the upper hand here…Germany would get absolutely hammered by a trade war with the UK,with whom it has a large trade imbalance in its favor, and its trade based economy, especially luxury goods, would be severely depressed. And we know that Germany is not going to let that happen….
IMF have hinted Deutsche would be bailed out if need be. It is the export vendor finance to the German machine. What they don’t need is a hit to exports. It might encourage EU to push to lift Russian sanctions, speed Turkey into EU (to offer new demand) and the Germans have sent a delegation to Iran this past week.
EU is likely to look to trade with the devil to reduce dependence on the UK. They will want the rules applied to the letter. It will become unpleasant over the next few years.
I have noticed a hardening of attitudes in the UK and a determination to be assertive. Will it hold?
May has a reputation as a ‘bloody difficult woman, and she’s happy with the label.
Various in the EU have been touting to attract UK business to move over there. It’s time for the UK to look to do likewise to the EU and offer a competitive exchange rate, taxes and a different global outlook.
How many German and French industrial companies might like a UK base to spread risk from the EU? They needn’t ship product to the EU, it could go out as a global hub based in UK to elsewhere.
The UK will also have chance to attract global engineers and scientists. Visa rules are currently painful and its easier ‘to employer a barrista from Bratislava than an engineer from Taiwan.’
How many German and French industrial companies might like a UK base to spread risk from the EU? They needn’t ship product to the EU, it could go out as a global hub based in UK to elsewhere.
Excellent Point!
That is precisely why I advocate the UK lower its corporate tax rate further.
Better still, the UK should abolish Corportation Tax from the very day we leave the EU. I would also radically reform income tax and slash this to a Flat Tax. With easy labour laws the UK would boom.
Until we know what attitudes are in the EU it would be incendiary to drop tax rates outside of the published plan. Osbourne announced he would and immediately Swedes bItched + others and Hammond back tracked.
I would hope the UK has a plan to do so if it gets nasty.
I do know the costs to business are being looked at as there is more than corporation tax that can be used to help and encourage business to have one foot in the UK.
My guess is that a Tax cut is precisely what is on the table of Brexit.
That and German exports are huge bargaining chips, not the date.
Mish
Tariffs are maybe a relatively small part of the equation. I am thinking regulatory barriers in EU and currency will be as restrictive. UK has every reason to work with developing markets, EU was designed for itself and there is not too much the British will have to add there except high end.
On the other hand the UK is both dynamic and organized, benefits from strong global connections, is generally respected and respectful abroad, and its trading position in that regard should be nurtured further. European’s work through the UK because of this, by comparison EU and continental endeavours beyond their own borders are often tentative and burdensome.
Not to say UK always gets it right, but the country ventures, and learns along the way, EU is simply too restrictive in that sense as a model and UK does not want to become absorbed by the next wave of EU bureaucratic expansion, it has seen enough of the world to understand what is going on and know where to place its effort and attention.
First mistake: listening to the bullsh!t that has become of the FT. Of course it is nonsense: the better reporters departed the FT long ago.
Only a fraudster, con-man or politician (three names for the same thing) would sit around debating a “hard” exit or a “soft” exit — the very discussion is smoke and mirrors, intended to distract from questions of real substance.
How is England going to grow its economy and expand trade to the world (not just the continent)? How is England going to make sure that all its citizens get piece of the pie commensurate with their contributions? How does England pay to educate young people? How does it continue to attract good workers willing to actually work, and good companies willing to actually pay good wages?
Notice that not one relevant question pertains to the EU. Not a single one. The EU can make things difficult for everyone (especially themselves) — but ultimately they have no say and no importance.
May’s speech was a horrible disappointment. In her effort to appease all sides, she made lots of promises she can’t keep, and fell into the trap of worrying about what unelected losers in Brussels think.
Theresa May had better wake up, grow up, and focus 100% on doing her best for England — and only England.
Worrying about Brussels is what got her predecessor fired.
The “gang of 27” was just bluffing.
Just a quick point, British cars also include Nissan, Honda and Mini (BMW); it is these that the ‘remoaners” always point to as upping sticks and moving production to the EU. Saab no longer exist.
Thanks!
In Rome several years ago my chauffeur asked me what kind of car I drove and I said, Ford–figure on repair daily. He said he was driving a Ford made in Europe and it was the best car he ever had. Said Fiat stood for Fix it again Tony.
I’m Dutch. Last time I read about it my country had low 11-figure trade with the UK. I would really despise my government if they would throw the interests of our Brittish friends AND OUR POPULATION under the bus to make a bunch of eurocrat parasites feel good about themselves.
The reality is, and always has been, that the bureaucrats are more than happy to destroy economic prosperity in order to maintain or increase political power.
Little Miss May should point out personally and privately to the CEO’s of each of the ten biggest importers from every EU country to the UK that she will impose 50% tariffs on their specific products unless they get their political filth in line.