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Post Reflections on Brexit: A "No-Deal" Scenario?
Created by John Eipper on 08/06/18 3:54 AM

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Reflections on Brexit: A "No-Deal" Scenario? (Timothy Ashby, Spain, 08/06/18 3:54 am)

I have been fascinated by fellow WAISers´ Brexit commentary. After observations, research and analysis since the Referendum of 23 June 2016, I decided to contribute my personal opinion from what I hope is an objective rather than an ideological perspective.

I was motivated because last Friday the Bank of England Governor Mark Carney said the risk of Britain leaving the European Union without a deal is "uncomfortably high," and yesterday the UK´s International Trade Secretary Liam Fox stated that a "no-deal" scenario, in which Britain would exit the EU in March 2019 without having come to a withdrawal agreement with Brussels, "looks more likely by the day."

First though, some background to provide context (and, I trust, credibility) for my opinion. Although I am not a British Subject, I have lived in the UK periodically since the early 1970s (and we live in London primarily at the present time). My daughter was born in England (Pembury, Kent, to be exact), is a graduate of St. Andrew´s University, is employed by Rolls Royce plc., and is engaged to a newly minted Scottish medical doctor who is a recent graduate of my MBA alma mater, the University of Edinburgh. Furthermore, my partner, Rosemary (a native of Aberdeen) voted Leave in the Referendum. I should add that I have been a member of the Conservative and Unionist Party since 1990, and the Chairman of my company (GloblMed) is the former Chairman of the Scottish Conservative Party, a retired senior Foreign Office official, and still an advisor to the British Government. He is a good friend who had provided some unique insights into the Brexit process.

From 1987 to 1990, I served as a senior appointed official in the US Commerce Department's International Trade administration, in a sub-unit that was called International Economic Policy (IEP). I dealt with complicated trade issues on a daily basis. I was personally asked by then Vice President George HW Bush to draft a briefing paper on the "Pros and Cons of a North American Free Trade Agreement" after we (i.e. the Administration) engineered a clandestine approach to Mexican president Carlos Salinas de Gortari to request a US-Mexico FTA. I also have a PhD in International Relations and a JD degree (I´m still a licensed attorney in Florida and the District of Columbia). I mention these personal and professional qualifications to add substance to what follows.

Like my WAIS colleagues Nigel Jones and John Heelan, I am opposed to the idea of a European super state (i.e. a political union based in Brussels) that I believe the EU has been steadily morphing into. The European Economic Community's (EEC) original official purpose to bring about economic integration, including a common market and customs union, resulted in a single market in 1993 for the free movement of goods, capital, services, and people. This was a great historical achievement. Regrettably, the Maastricht Treaty of 1993, which replaced the EEC with the EU, resulted in the policy emphasis shifting from free trade to political, social and legal homogenisation. But the UK has been able to opt out of such creeping federalism (e.g. the single currency and Schengen).

It appears probable that the UK will end up either with "no deal" or with a "hard Brexit arrangement" whereby Britain gives up full access to the Single Market and full access of the Customs Union along with the EU. I believe that either of the scenarios would be an economic disaster for the UK for the following reasons that I think the career politicians running the government only dimly perceive (or wilfully ignore):

1.  The UK relies on standards, institutions, legislation, capabilities, treaties, and privileges that it has built up over many years of EU membership. A trading nation simply can't uproot such essential parts of its own economy and start from scratch. For example, membership of the Single Market and Customs Union makes Just-In-Time (JiT) supply chains possible across multiple countries (enabling more and cheaper production of a vast range of products in the UK as well as the EU). Many UK-based manufacturers that are part of JiT supply chains could be forced to halt production.

2.  There's no plan for trade in services, which accounts for 80% of the UK economy. Last month, the UK's financial regulator said that up to £26 trillion ($34 trillion) in derivatives contracts could be in jeopardy.

3.  An open border between the Republic of Ireland and Northern Ireland was a fundamental part of the Good Friday Agreement which ended decades of violence and terrorism in Ulster. If there is no open border the Agreement will probably be nullified.

4.  The Open Skies Agreement allows planes to fly across and between European countries and the US, underwriting the essential servicing standards that are needed and safety protocols. The Irish prime minister recently warned that planes leaving the UK could be prevented from using Irish airspace, and French officials are threatening the same thing (one of the many reasons that PM Theresa May cut short her summer holiday to meet with President Macron).

5.  Lorries (trucks) passing through Dover and other ports on their way in and out of the UK can currently be passed with minimal hold-up, allowing more flow-through, thereby increasing the economic activity of the entire country. Even a two-minute increase to customs checks will cause massive queues outside Dover resulting in a 24-mile tailback on major motorways inside of an hour. The government has a contingency plan to allocate an entire lane of the M-20 motorway to stalled lorries--but that won´t solve the problem.

6.  Medical supplies are manufactured across Europe to the same standards, examined, underwritten, moved freely to where they are needed, allowing for specialisation to improve quality, research, and availability at lower cost to the needy.

7.  27% of the food consumed in the UK is imported from the EU, while the country produces 54% of its own food--not enough to feed the population. Only 4% comes from North America, with equal percentages from other continents. Yet the UK sends 70% of its food and agricultural products to the 27 other EU countries. If the "No Deal" Brexit happens, the UK will default to WTO rules, with resulting tariffs averaging around 12% for food products--a massive increase in inflation for the average British consumer. British farmers would face similar, or higher, tariffs for their exports. Even arch Brexiteer Nigel Farage recently admitted that a "No Deal" Brexit could "be bad for farmers" and could lead to a "lowering of standards of what we buy in the shops."

8.  It is absolutely a pipe dream to believe that the UK could quickly negotiate separate trade deals with the rest of the world after leaving the EU. the UK government--which hasn´t even been able to agree on a Brexit plan after over two years--will need to renegotiate deals with over 50 countries comprising the EU bloc's trading partners, including the United States. According to the Peterson Institute for International Economics (PIIE), the average (i.e. bilateral as opposed to multilateral) trade deals take one and a half years to negotiate and more than three and a half years to get to the implementation stage. NAFTA took six years despite President Bush´s efforts to "fast track" the legislative process.

I could go on with more dispiriting statistics as to why I believe that Brexit will harm Britain, but because Brexit is more about ideology than rationality, I won´t bother.

Before signing off, I must state that I am baffled as to why Mrs. May hasn't pursued a Brexit plan that would have kept British sovereignty while maintaining membership of the Single Market and most non-political EU institutions by opting for membership in the European Economic Area. The EEA is available to non-EU countries including members such as Norway, Iceland, and Liechtenstein. It requires compliance with the Single Market legislation (about 25% of the EU ‘acquis', or laws) as long as it doesn't infringe sovereignty. Some payments are made to the EU, but overall much less than the £40 billion that the UK is obligated to pay as its "Divorce Bill."

I believe that the reason that the British government hasn´t pursued EEA membership is because it requires compliance with the Four Freedoms of the Single Market: free movement of goods, services, capital, and people. The EU insists that these four freedoms are indivisible for membership of the single market. But a key plank of the Leave campaign was stopping Free Movement of people. I support strict immigration controls, and the UK could have achieved this within the EEA on a security justification because it controls its borders (the UK and Ireland legally opted out of the Schengen Agreement while remaining members of the EU).

My prediction: PM May will muddle through to some hybrid of ¨No Deal¨and "Hard" Brexit and declare victory, but it won't succeed. Her minority government only maintains power because it´s supported by the (very conservative) DUP of Northern Ireland, which is opposed to any plan that will allow an open border with the Irish government. Mrs. May will fall, there will be a leadership contest (which Boris Johnson will probably win), and another General Election will follow. The winning coalition Labour/SNP government, compounded by Brexit economic woes, could produce misery rivalling that of the Second World War.

JE comments:  Much food for thought, Tim, although in the UK that food will be pricier.  No one has a crystal ball to know what March 29th, 2019 will look like, but even slight hiccups could cascade into major economic events.  Long queues of trucks at Dover will make for dramatic photos, but interruptions in services (Tim's second item) will impact London's financial sector.  This could be the spark for a recession.

I hope Nigel Jones will address Tim's specific points.

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  • Designing a Better, More Democratic EU (Istvan Simon, USA 08/08/18 3:53 AM)
    I am much obliged to Tim Ashby (August 6th) for a comprehensive overview of the negative effects of Brexit. I have written about my personal enduring connections to the UK and that I consider myself an Anglophile, yet a defender of the EU.

    I understand the depth of feelings of Nigel Jones, John Heelan, and now Tim Ashby against a political super-state. I have often defended here the idea that such a super-state would in fact be good for the UK and Europe in general. That does not mean that its structure and reach could not be changed, to be more to the liking of the member states. Aside from the commercial aspects, which Tim has written so comprehensively about, recognizing the disaster that is Brexit without a deal, I would like to address again the other non-commercial reasons for a European Union, one perhaps very different from what currently exists, and which brings such passionate opposition from our British WAISers. So let's go over these once again.

    1. Defense. The UK defense budget has become inadequate for a long time. I hope that our British WAISer friends could comment on this point, but I believe that the Royal Navy has become much weaker than it was under Margaret Thatcher. It is not clear to me if the UK could retake the Falkland Islands (or Malvinas, as the Argentinians call it) from Argentina today, as it did under Prime Minister Thatcher.

    It is a shame and I believe very unwise that an island nation like the UK, which cannot feed itself and is as prosperous as the UK is, can let this happen.

    So what is the implication of this towards NATO and the EU? I think it points to the fact that the defense of the UK needs to be integrated with the defense of the rest of Europe, and that the UK is completely unprepared to defend itself on its own. Note that this has nothing to do with commercial interests--it is clearly a state matter, and it points to the need to have a common defense with the rest of Europe, rather than going on its own. In other words, this argues for continued Union with Europe, not Brexit, or at the very least a common defense agreement with the EU, just as well as with NATO. But as far as I know this is being completely neglected, and is not even part of the Brexit negotiations.

    2. I think that the free movement of people and goods within Europe is a good thing. Once again the isolationism of Brexit is a major mistake. The UK economy depends heavily on immigration from say Poland. Even in 1983, when I last lived in England for a whole year, much of the construction business employed workers from Eastern Europe. They would come to the UK and build better homes and do better remodeling jobs than local tradesmen. This was true then, and I suspect it is even more true now, thanks to the free movement of labor within the EU.

    3. Money. I think that the UK was wise to maintain its currency the British pound--the Euro was a major blunder of the EU.  One could envision eventually a common currency in Europe, but the Euro was introduced way prematurely, and its very bad consequences on the weaker countries of the EU has become evident over the years. In my opinion the Euro should be abandoned as a common currency, as a premature idea, and the local currencies of the member states reinstated, with floating exchange rates to the Euro. This would have allowed Greece, Italy, Spain, etc., to adapt much better to the economic problems faced by them, exacerbated by the common currency.

    I asked many months ago how Nigel Jones would set up a more democratic European Union if he were asked to design one. He never answered adequately my very pertinent question.

    So, let me suggest a possible outline to such a better European Union. as designed by me, and which I think takes into the account the anti EU sentiment expressed by many WAISers.

    1. Each country would maintain its national identity. This appears to be a major obstacle to the EU, because of the major cultural differences between the member states.

    2. Each country would maintain its national currency, with exchange rates to the dollar and the Euro floating according to the current economic conditions.

    3. The free exchange of goods, services and people within the EU would be maintained. But each country could control immigration from outside the EU as it saw fit.

    4. Nonetheless, a common response to crises like the recent refugee crisis would be negotiated between the member states. Countries that violated the common policy finally adopted, would be penalized. Thus, for example Hungary, my birth country, would have to pay major economic penalties for choosing to ignore the common policy.

    5. Common regulations would be maintained, so standards could be European rather than simply national standards. But national standards could be accepted as equivalent if they are indeed close enough to the common standards.

    6. The common defense of Europe would include all member states' armies, navies, and air forces. Each country would maintain national control of its own forces. But agreements would be pursued to integrate it within the unified defense of Europe, and within NATO.

    7. The defense budget of each country would have to be increased to at least 2% of the GDP of each country, a major requirement that predates the Trump administration's clumsy efforts to force compliance with these goals, set by NATO for a long time, and violated by many European nations. Penalties would kick in for countries that do not meet these goals within a certain relatively short time limit, say 5 years. The penalties eventually should be substantial enough so that it would be cheaper for the country to abide by the rules than to violate them. Currently countries that have been cheating on this commitment have paid no penalty at all.

    How to set up an adequate bureaucracy and European Institutions to ensure the above skeleton outline I leave to others to suggest. But I do not see major obstacles why an organization like what I suggest could not be constructed, be democratic, and yet with supra-national powers, and the current EU adapted accordingly.

    I await the comments of the EU skeptics and all WAISers more generally.

    JE comments:  Nigel Jones is vacationing in the Greek islands at present, but he has also written a response to Tim Ashby.  Stay tuned.

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  • My Prediction for March 2019: BRINO (Nigel Jones, UK 08/08/18 4:17 AM)
    Although I am on a Greek island on vacation I would like to answer Tim Ashby's sensible and deeply felt post of August 6th.

    In contrast to Tim, what I believe will emerge by next March is not a hard but the softest of Brexits amounting to BRINO (Brexit in name only), i.e., a formal exit from the EU, while remaining locked into the single market.

    This is for two reasons:

    A) The immensely powerful UK Establishment, comprising principally the Government, the Civil Service, Big Business, and High Finance, and the BBC state broadcaster, have never accepted the result of the referendum, have worked continually to undermine and finally reverse it, and--crucially--have made no preparations at all to cushion the effects of a No Deal exit.

    Mrs May's failure to do so which so baffles Tim is thus easily explained: She and the majority of her Ministers and MPs have never believed in Brexit and have no intention of carrying it out. (This will of course cost them dearly politically when their betrayal is finally exposed, but that's another story.)

    B) The EU simply cannot afford to let their second most important member state after Germany go, either economically or politically. A successful Brexit would only encourage the defection of others and the whole rotten edifice would collapse. They have, therefore, seeing the weakness of the May government, understandably refused to give an inch in the farcical exit "negotiations" and May has responded by giving way to their demands all along the line.

    A tough British Government committed to Brexit and making genuine preparations to leave would have led to a very different outcome. Instead, because Britain does not fit the EU, the issue will continue to fester and poison the whole body politic.

    My prediction of the eventual outcome is similar to Tim, with the big difference that both the UK and EU Establishments will not permit a real or "hard" Brexit.  May will fall to be replaced by Boris Johnson, and a General Election will follow.  I am not as certain as Tim that a Labour/SNP Coalition will win. Fear of a Marxist anti-Semitic hard-Left Labour is so strong that the Tories may well limp over the line again.

    Meanwhile, the discontent that brought about Brexit--above all the disaster of uncontrolled immigration--will continue to spread across Europe, producing a continued rise of populist anti-immigration parties and the eventual collapse of the Soviet-style EU.

    You cannot continue to rule over the wishes and interests of your peoples without an explosion.

    JE comments:  The central question is whether the foot-dragging on Brexit negotiations is due to intentional sabotage or to their overwhelming complexity.  Nigel Jones believes the former.  Nigel, do you think Boris Johnson will/would steer towards a more muscular Brexit?  

    And by the by Nigel, enjoy your holiday.  How are things looking at present in Greece, economically and politically?

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