Monday, September 24, 2018

'No-deal' Brexit now the only likely outcome

The Shadow chancellor, John McDonnell, says he would back second referendum; but only if it is a 'vote on the deal itself' and not if it includes a remain option [Guardian].

But such a proposal may be moot as the chance of a deal may well be unlikely. Indeed it seems, after Salzberg, that the most likely position Britain will find itself come March 2019 is one of crashing out of the EU and falling back on WTO rules.

Even before May arrived in Austria there were already suggestions that Theresa May's Chequers proposal would be rejected and a no-deal Brexit was on the cards [Guardian / FT]. 

Only ever three options

When Article 50 was invoked there many people thought that the two year period up to the point where Britain left was a 'negotiation' whereby Britain and the EU made a deal upon which both could agree and sign.

But this is not quite the case. As was said, and should have been understood by UK 'negotiators' from the outset, at the beginning of talks there would be no 'cherry-picking' and the 'four freedoms' - freedom of movement of goods, capital, services, and labour - were inseparable.

Thus to be a part of the single market all four freedoms would have to be accepted.

Outside of the single market, one would have to negotiate a separate trade deal with the EU as other third countries have done.

Similarly there is the issue of the customs union, another important element of the EU Single Market. Under its rules, the EU operates as a trade bloc, operating common external tariffs and customs barriers, and negotiating trade deals as one. As a member of the Customs Union, the UK is not allowed to negotiate other bilateral trade deals, but it does benefit from having the same access to many other counties on an equal basis as the other EU member states [Institute for Government]. 

So there were only ever three deals on the table. That Britain remained as is; that Britain became a member of the EEA - thus not being a member of the EU but retaining access to the Single Market and Customs Union, or leaving 'without a deal' and falling back on WTO rules.

In summary those that think that they were in a negotiation with the EU were just plain wrong. They were not [Huffington Post]. 

Britain is essentially in a position where it tells the EU what of the acquis communautaire Britain is happy to sign up to, and the EU tells the UK what it can have in return.

[The Acquis Communautaire is the accumulated body of European Union (EU) law and obligations from 1958 to the present day. It comprises all the EU's treaties and laws (directives, regulations, decisions), declarations and resolutions, international agreements and the judgements of the Court of Justice.]

What the UK can have in return cannot be different from what other countries have in return for the same commitment to the EU's rules and regulations. This is partly because in some cases it would break WTO rules, but also because it would not be in the EU's interests and would be unfair to other member states.

Slogans & unworkable deals

The likes of David Davis had said early into the so-called 'negotiations' that he would like the UK to secure a free-trade deal with no tariffs when it leaves the EU in what he described as "Canada plus plus plus" - a reference to the free trade deal struck between Canada and the EU [BBC]

But such a proposal was obviously wishful thinking since Britain would have to be a third country before the EU could even begin to negotiate such a deal. Furthermore, Davis also seemed to overlook the fact that the Canada/EU trade deal took many years to finalise and does not cover all the sectors Britain might want access to.

Theresa May's red lines and almost immediate rejection of remaining in either the Single Market or Customs Union ruled out Britain becoming an EEA member.

She was also adamant in her position that she would 'respect the vote', declaring that "Brexit Means Brexit".

This could only ever mean one thing. Britain would leave without a deal and fall back on WTO rules.

Her other slogans reinforced this. In December 2016 she declared she would be seeking a "Red, White and Blue" Brexit [Guardian / Independent].

And in May 2017 she declared "No deal is better than a bad deal" and even incorporated this into the Tory Manifesto [Independent].

By proclaiming she sought a "Red, White and Blue" or bespoke Brexit, it was clear any offer would be rejected by the remaining 27 EU members since it would be seen as cherry-picking.

Kicking the can towards the cliff

Her proclamation that no deal was better that a bad deal was, for anyone that was awake, a clear sign that all the UK government was doing was kicking the can down the road, going through the motions, until such point that Britain left without a deal and fell back on WTO rules.

This seems to have been the plan from day one. Indeed it seems clear that Britain had no intention of signing up to any deal that the EU might have presented to the UK, not that it was ever the EU that needed to present an offer.

Indeed it has never been, under the auspices of Article 50, a requirement for the EU to present a deal. It remains entirely incumbent on Britain to present a plan and the EU to either ratify or reject it.

Theresa May's speech last week that inferred the EU had not treated Britain with respect was rather disingenuous.

She said for EU leaders to reject her plan with no alternative at this "late stage of negotiations" was "not acceptable". But she must known that her Chequers plan would have been rejected as it simply amounted to another cherry-picking exercise. But it appears she is clueless [Guardian].

"At this late stage in the negotiations, it is not acceptable to simply reject the other side's proposals without a detailed explanation and counter proposals," she tersely said during a statement on Friday after returning from Salzburg.

But she should know full well that it is not the EU's mandate, under Article 50, to offer "counter proposals". The EU27 merely have to say yes or no.

Much of Britain's right-wing press suggested the EU had humiliated Theresa May. But the simple truth is that the PM brought it upon herself by putting forward a plan that was clearly going to be rejected.

While the European Council President Donald Tusk had earlier made a joke about cherry-picking when he posted a picture on Instagram he later suggested a "compromise" was possible but the UK proposals had to be "reworked" [BBC].

Meanwhile the pound fell against the dollar and the euro following May's statement, an indication of the hurt that will result when Britain does crash out in March.

Clear statement needed

If Britain is going to remain in the EU or EEA, thus the Single Market and Customs Union, the government need to put on the brakes and make clear to business that Britain's future is certain. If not the government have to make that clear also, even if that is an uncomfortable thing to hear.

With less than 6 months to go and it seeming all too certain that a hard, no-deal Brexit is on the cards, businesses may have to make some hard decisions now. To make decisions in March next year could prove too late and very costly for companies that remain and have to operate under WTO tariffs.

In January 2017 Theresa May walked into the Long Gallery, where Churchill threw his Coronation banquet in 1953, and announced her Brexit plan dressed in a suit which could only be described as pyjamas [Daily Mail].

Should her plan be rejected by the EU, she suggested she was to turn Britain into a low-tax Singapore of the west, essentially sleepwalking Britain back into the past. According to Adam Posen, an American economist and President of the Peterson Institute for International Economics, who spent three years as a policy maker at the Bank of England, this is a fantasy. "It won't make Britain like Hong Kong in the '70s. It will make Britain like Britain was in the '70s. That is a step backward, a step away from freedom and a step away from prosperity." [FT / tvnewswatch].

Labour's plan is no better

Jeremy Corbyn's plans to transform Britain's economy, should Labour win the next general election, by re-nationalising large sectors such as water, the post office and railways. But his plans are raising eyebrows and damaging the UK in the eyes of international investors who are already worried about the impact of Brexit on company profits and economic growth.

"Corbyn and McDonnell are viscerally anti-Europe; Corbyn voted against the European Union back in '74 and consistently since," says Posen. "If the Labour leadership were different you could have a remain vote, come back. But as long as the Labour leadership is these two nut jobs and it will remain these two nut jobs for the foreseeable future - run by the unions - you will not see a turnaround. So the UK is going to have to cope with the economic aspect."

With the prospect of another financial crash on the way, compounded by the US/China trade war and rising global debt, the future for Britain is far from bright.

tvnewswatch, London, UK

Friday, September 14, 2018

Prepping for a no-deal Brexit

Prominent Brexiter Liam Fox recently said he now believed the risk of a no-deal scenario had increased and there was now a 60/40 chance of Britain essentially crashing out of the European Union and falling back on WTO rules [Guardian].

This comes from a man who in July 2017 proclaimed that a post-Brexit free trade deal with the EU should be the "easiest in human history" [Guardian].

Fox has blamed the "intransigence" of the Brussels machine, but has seemingly failed to understand that Europe's so-called intransigence is essentially written into the immovable pillars or four freedoms, that of the free movement of goods, capital, services, and labour.

In a post-Brexit statement, the heads of state said, "Access to the single market requires acceptance of all four freedoms." It was also clearly stated from the outset that there would be no cherry picking. And that position has not changed.

And so after more that two years since the EU referendum there has been no sign of any deal that can be signed off.

Indeed it has become clearer in the last few weeks that no deal will be struck.

Mixed messages

Whilst there have been mixed messages coming from Brussels there is the general consensus that Theresa May's so-called Chequers Plan still amounts to cherry-picking and as such will be rejected.

And even within her own ranks May has seen dozens of Tory gathering to discuss the possibility of ousting over the plan which they themselves oppose.

This week saw May meeting with cabinet members to discuss the possibility of a no deal Brexit and what strategies the government might need to implement.

It seems that only now after more than two years since the referendum, do even the most ardent Brexiters realise that extricating Britain from the EU is not perhaps the easy job they had all proclaimed.

If only those that voted for Brexit had listened to some of those so-called experts and economists instead of dismissing them as being a part of a so-called project fear.

Economic warnings

Adam Posen, an American economist and President of the Peterson Institute for International Economics, spent three years as a policy maker at the Bank of England and has described Brexit as stupid or at the very least misguided [YouTube].

Being part of the EU was a safety in numbers issue, Posen says. "People wanted to be in the UK because it acted as a platform to an important trading block, that being Europe."

"I think it's the wrong decision for the UK but they are entitled to it," Posen said back in July 2017. But slowly the country and its people will find themselves being "Mugged by reality".

The UK had a long standing ambivalence with the EU. But it nonetheless had the best deal it was ever going to get, given it was not a part of Schengen, it hadn't adopted the Euro, and for the most part it set its own rules concerning finance.

Negative Supply Shock

By withdrawing into itself the UK is going to suffer a negative supply shock and is already doing so, Posen claims.

"A Negative Supply Shock means you are reducing the productive capacity of your economy or the ability of your economy to purchase things for the same amount of money as you used to."

"Putting up trade barriers is bad for your economy," the economist says, and "the withdrawal from the EU is a form of putting up trade barriers, full stop."

"Now you can debate how much, how big, which industries, what happens in the end. But it is a withdrawal."

"Moreover you are ruining your competitiveness specifically with your largest trading partner. It is a fact of life that you trade with countries that you are continuous with and the countries that you are historically interactive with than with countries that are far away. That is true for countries like the US with NAFTA and it is true for the UK."

"No matter how much there's been a 'special relationship', no matter how much the UK tries to be a global exporter, the fact is you've got twice as much trade with the EU, more than twice as much investment with the EU, than with the US or the rest of the world."

"As David Cameron pointed out while I was at the Bank of England, the UK does more trade with Ireland than all of the BRIC countries combined; Brazil, Russia, India and China. So this is negative full stop."

No economic upside

Posen like many other economists clearly sees the pulling out of the Single Market as a bad move, and feels that many people fail to see its importance.

"There is a distinction that gets made … which is important, it is the distinction between a trade deal and access to the single market. The single market covers all sorts of things that aren't simply the price of goods off the boat. It's whether your auto parts meet safety standards, whether your chemicals or your food additives have been recognised, whether you fit standard sizes of various objects, it's whether accountants are accredited, it's whether your university degree is recognised in other countries' universities."

"Now there's a large body of research … that say many of these things are a restraint from trade. In reality they are partially restraints on trade and partially beneficial because they set standards and make it easier to have large markets."

"But since the UK is primarily an exporter of high end products and services; financial services, business services, media services, cultural services, educational services, how much do they lose by not being in the single market even if you have a trade deal? And the answer is a lot."

"Most of the financial regulation that affected the UK was set in the UK and not set by Brussels, and while the UK was in the EU they had a prominent voice of setting those regulations in Brussels."

So, Posen sums up, "There is no economic upside to this."

No return

There are many remainers who hope the whole Brexit debacle will be stopped. But Posen is far from optimistic on this front.

"The [2017] election was not about Brexit…  It's perhaps ironic for people to understand, the real reason the election was not about Brexit and there's no turn around on Brexit, is not because of anything to do with the Tory government, it's to do with the fact that the current extreme left wing leadership of Labour Party is horribly entire."

"Corbyn and McDonnell are viscerally anti-Europe; Corbyn voted against the European Union back in '74 and consistently since. Again, that's his right."

"If the Labour leadership were different you could have a remain vote, come back. But as long as the Labour leadership is these two nut jobs and it will remain these two nut jobs for the foreseeable future - run by the unions - you will not see a turnaround. So the UK is going to have to cope with the economic aspect."

Economic impact

And what of that economic impact. Posen, back in 2017 said the UK would see higher inflation, lower purchasing power, and a weaker pound. And the pound too would have a way to go as it adjusted further with Europe.

"The UK has very large budget deficits, large trade deficits, that means going beyond their savings they're going to have to pay it back. But since the Brexit vote we've seen a boost in consumer borrowing, while corporate investment has gone negative and trade has gone the wrong way."

"So in other words the household balance sheets are getting worse, the government balance sheet is getting worse, the trade balance sheet is getting worse, at the same time they are going to be pulling themselves out of economies of scale in their biggest markets. And at the same time there is inflation which means the real purchasing power and ability to pay off those debts is going to go down."

"Not good."

Britain in the '70s

"Do the mental exercise. If this were 1974 Britain and you were on a fixed exchange rate and you had this set of macroeconomic indicators you would be predicting a pound crash.

"Thankfully Britain is Great Britain UK is not part of the Euro area and does not have a fixed exchange rate. But if you do that exercise it just reminds you of just how unsustainable the current British path is."

"The Theresa May government has indicated they might try to become Singapore on the Thames. There are a dozen problems with this but I will highlight one in particular."

"May's plan to dictate which employers get permits for foreign workers in order to control Britain's borders, essentially this is the industrial policy of the pre-Thatcher Labour party of the '70s and the '60s."

"But this is a fantasy. It won't make Britain like Hong Kong in the '70s. It will make Britain like Britain was in the '70s. That is a step backward, a step away from freedom and a step away from prosperity."

Self-interests

As for the they need us more than we need them and the idea that Germany and other will roll over to help Britain get a cherry-picked deal which ignores the four freedoms is once again fanciful.

In 1992 when Britain dropped out of the ERM, Helmut Kohl, Chancellor of Germany from 1982 to 1998, simply turned around and shrugged - "it's up to them" he is reported to have said.

"Germany might lose some of its auto industry. But if one realises that 18,000 employees is 120th of 1% of the German workforce and there's already huge overcapacity in the German auto industry," Posen suggests.

Repeated warnings

Of course Posen is just one economist, but his views have been repeated by many others. One only has to pick up a copy of the FT and read articles by its editor Martin Wolf, or watch a few hours of Bloomberg TV to realise the economic hit Britain is going to experience.

The same story is repeated concerning the type of Brexit that Britain embarks upon. Any form of withdrawal from the EU is seen as bad, economically speaking. But a so called hard Brexit may cause untold damage.

And it is becoming clearer to many that a no-deal hard Brexit where Britain falls back onto WTO rules is on the cards.

Effects of a no-deal Brexit

But what will happen should Britain crash out without a deal. Even leaked and officially released government reports paint a grim picture which suggest a whole range of things may result [Guardian]. 

For those heading into Europe there is a distinct possibility British drivers will require an International Driving Permit [Guardian]. An International Driving Permit or IDP is currently sold at just 90 Post Offices across the UK, are only valid for 12 months and cost £5.50. Reportedly there are plans to increase the number of Post Offices selling them to 2,500 from 1st February 2019. But there are other issues concerning IDPs with suggestions that more than one IDP might be required. Edmund King, President of the AA, said, "In some circumstances, such as driving into France and then Spain, drivers will need two separate IDPs as Spain, Eire, Malta and Cyprus have not ratified the 1968 Vienna Convention." [Autoexpress]

Currently all UK vehicle insurance companies provide the minimum third party cover to drive in other EU countries. However after leaving the EU they will not be bound to these obligations and drivers may have to take out separate insurance cover and obtain a so-called Green Card. Similarly, roam free mobile phone tariffs that were wiped away by EU legislation could return since companies would no longer be obliged to adhere to such rules. Of course insurance companies may continue to provide basic cover as standard and mobile service providers may continue to offer roam-free contracts, but they won't be obliged by law or statute.

Travellers might also face further problems should they have less than six months on their passports. And all British passports might also need to obtain a visa. Under current EU rules countries outside the block need to apply for a permit to travel and have more than 6 months on their passport.

The additional cost to drivers heading to the EU could run into several hundred pound if extra insurance and passport renewals are required. IDPs are perhaps only a nominal cost but the extra paperwork and inconvenience will anger many people heading to Europe.

It is the extra bureaucracy that is perhaps the biggest headache should Britain crash out. As many economists and those involved in imports and exports have made clear, paperwork and testing of products might increase substantially, which could create major problems at ports. Some estimate indicate the workload for port authorities and customs could increase by more than 500%.

Supply chain chaos

Indeed it is just these sorts of delays as well as increased tariffs and prices which may well lead to a breakdown in supply chains which in turn could lead to shortages in factories and in shops.

It is these scenarios that could result in big problems across the country. A sharp decline in the pound would in itself increase the price of food and other items in the shops. But there could well be a supply and demand issue if ports become clogged and deliveries don't get through. Furthermore if the correct paperwork is not presented or accepted, then everything from food to medicines, even fuel and car parts, could be delayed.

Even the hint that such events could unfold could lead to panic buying. And this in itself could create major headaches for retailers.

In the year 2000 and 2001 fuel protests and blockades virtually brought Britain to a situation where fuel almost ran out at forecourts up and down the country. Hints of possible blockades have created the same scenes of panic buying. Cold weather snaps too have seen supermarkets emptied of bread, milk and other everyday items.

Even the fear of a no-deal Brexit could result in similar problems. And price hikes could exacerbate the problem and might even lead to civil unrest, especially if such price increases are seen as deliberate profiteering.

In such scenarios the army may even be called upon to assist the police, according to a leaked report last week [GuardianDaily Mail].

It is unclear how long such events might continue. It could be weeks or months depending how badly supply chains become disrupted.

Inflation and recession risks

As for the medium to long term the future is no less bleak. Moody's the ratings agency, says the risk of a no-deal Brexit has risen materially that a sharp fall in pound, a spending squeeze and recession are all possible consequences [FT / Guardian

"The immediate impact would likely be seen first in a sharp fall in the value of the British pound, leading to temporarily higher inflation and a squeeze on real wages over the two or three years following Brexit. This in turn would weigh on consumer spending and depress growth, with a risk of the UK entering recession," Moody's said.

Mark Carney, the Bank of England's governor, brought little optimism as he warned the cabinet that a chaotic no-deal Brexit could crash house prices and send another financial shock through the economy.

During a cabinet meeting Carney painted a bleak economic picture of unemployment reaching double figures in percentage terms, house prices falling by 25-35% over three years, and transport links with the EU, including air travel and the Eurostar, stalling [BBC / Guardian].

As the country hurtles towards Brexit, the warnings of a possible shortage of medicines and blood, and even cheese, there are some who are planning for the worst.

In July it was reported that the head of AmazonUK, Doug Gurr, had warned the Brexit secretary, Dominic Raab, that Britain could face "civil unrest" in the event of a no-deal Brexit. Soon after EVAQ8, an online retailer selling survival supplies, saw sales rise by 52%.

A day later, and after weeks of speculation, Raab confirmed the government was planning to stockpile food in the event of a no-deal – and accordingly, EVAQ8 sales went up 103%.

Medical concerns

One major concern is that hospitals and pharmacies might see a shortfall in the supply of medicine.

For those with medical conditions such as diabetes, there is a particular concern since nearly all insulin available in the UK is made overseas [Channel 4 News / Independent].  

Sir Michael Rawlins, chair of the Medicines and Healthcare products Regulatory Agency, told the Pharmaceutical Journal earlier this year.

"We make no insulin in the UK. We import every drop of it. You can't transport insulin around ordinarily because it must be temperature-controlled.

"And there are 3.5 million people [with diabetes, some of whom] rely on insulin, not least the Prime Minister."

There is one company, Wockhardt UK, that produces animal-based insulin at its site in Wrexham, Wales. They estimate that their products are used by about 1,500 to 2,000 patients a year.

But that's less than half of one percent of the 421,000 people who rely on insulin in the UK according to an estimate from the Clinical Practice Research Datalink in 2010.

There has been no clear message from the government concerning this particular issue. However, Sanofi, a large producer of insulin and vaccines, is building up stocks of a wide range of medicines in British warehouses, creating a 14-week supply starting from April 2019 [Guardian].

Prepping for Brexit

It might seem crazy to begin prepping as Americans call the act of preparing for disaster scenarios. But stocking up on essentials is exactly what some individuals are beginning to do.

On a medium to long term there is perhaps little one can do to mitigate price hikes. But on the short term it might in fact be sensible to have at least a few back-up supplies for the eventuality of supermarkets running out of essentials.

It is a distinct possibility Britain could see fuel, food and medicine shortages if ports become gridlocked. And even if one is proved wrong those supplies will get used after all, unless you've stocked up on hundreds of tins of Spam.

There is much advice out there as to what to stock up on. But essential one should only buy food one like, and that has a long shelf life.

Other often overlooked essentials are of course household items such as toilet paper.

Water and electricity supplies are unlikely to be hit but a good stock of bottled water, candles and a camping gas stove with a good supply of canisters might be worth keeping in stock.

It has to be stressed that storing gas canisters and fuel can pose a major fire risk so one has to be careful [Huffington Post / EVQ8 / Guardian / Guardian / Reddit / Economist / Express].

After a long summer break away in Europe it feels like I've arrived back in crazy town. But perhaps not quite as crazy as it might get in a little over six months time.


tvnewswatch, London, UK

Thursday, July 05, 2018

Has the Brexodus begun as Doomsday Brexit nears?

With a little under nine months to go before Britain is set to leave the EU, and no clear vision as to what deal Britain might secure, many UK firms that trade with the bloc are setting up European bases or even mulling the shifting of their entire operations to mainland Europe.

One such company is Polydron, a UK-based maker of educational toys. It manufactures in India and China and sells to customers worldwide, including 105 in the 27 other EU countries.

The bloc's toy safety regime makes Polydron, as the importer into the bloc, responsible for checking that its products meet European standards. "It is our phone number on the goods, and if there is a problem it is us who gets called up," says managing director Richard Hardstaff. However if Britain leaves the EU's single market, each of Polydron's EU customers would become an importer instead he fears that relations with customers could suffer.

Given the potential complications, the Cirencester company is opening a branch and hiring staff in Germany to be the EU importer, handling 30% of the company's operations. "We would never have done this without Brexit," Hardstaff says [FT].

Polydron is far from an isolated case. In February 2017 it was reported that around one third of manufacturing firms wanted to move some operations out of UK after Brexit [Independent].

By the end of 2017 the warnings had turned into reality as both financial firms and manufacturers began to make the shift [Verdict].

A gradual Brexodus

Diageo moved its vodka production out of Scotland because of Brexit, shifting its production of Smirnoff and Circo vodka to Italy and US leading to the loss of 105 roles at its plants in Fife and Glasgow.

Barclays was one of the first banks to begin shifting operations, making a move to the Irish capital Dublin for its post-Brexit European hub. But many other financial institutions followed through. Nonetheless by July 2018 some institutions were still dragging their feet with many having failed to apply for appropriate licenses by mid-2018 [Bloomberg].  

Whilst the exodus has been more of a trickle than a mad rush for the borders, the signs are nonetheless worrying.

Almost every week there are reports of companies moving parts or all their operations abroad, though much often gets buried underneath other stories.

In January 2018 reports emerged suggesting many UK chemical companies were shifting operations to other EU jurisdictions ahead of Brexit [ICIS].

It wasn't just companies however. Figures released the same month showed the number of Britons seeking French citizenship had rocketed eightfold in the previous three years [Independent]. 

February meanwhile saw Goldman Sachs mulling the sale of its London HQ as it weighed up the risks of remaining in London post-Brexit [Bloomberg

Store closures

As Britain's high streets saw further declines and the closure of Maplin and Toys R Us, Unilever announced it was upping sticks and moving its HQ to Holland [Reuters].

April saw more closures on the high street with House of Fraser and M&S axing many of its stores as figures showed retailers were suffering the sharpest sales drop for 22 years [BBC / Guardian / Guardian].

May brought more bad news for the high street with Carphone Warehouse announcing the shutting of 92 outlets after a profits warning [BBC].

By June there was little if no respite from the gloom and doom with Rolls Royce announcing it was to cut nearly 5000 jobs at its Derby plant [BBC]. And there were reports that a no-deal Brexit could result in the UK  running short of medicines, food and fuel within two weeks of leaving the EU [Sky News].

Slow growth, weak pound & poor sales

Of course there will be some who might insist the slow growth, a sharp decline in high street sales and the shuttering of retail outlets have nothing to do with Brexit. It could certainly be argued that there are other factors involved. M&S, for example, have had problems attracting customers and creating a model that works. Other retailers have of course been hit by increased spending online.

But the pound has remained consistently weak since the EU referendum and it has resulted in higher prices across the board. Coupled with the uncertainty Britain faces in the run up to March 2019 many consumers are undoubtedly more cautious with their spending.

And whilst it might be easy to dismiss business concerns about a possible hard-Brexit and uncertainty over future trading relationships and customs procedures, one can hardly blame companies making contingency plans.

Airbus and BMW have already warned of the consequences for their multinational, just-in-time operations of leaving the bloc's customs union because of the risk of tariffs and customs hold-ups. But there has been little response from May and her government other than vague promises that it will be OK.

But business cannot plan future investments and deals on vague promises. They need certainties and definite and clear regulations. One cannot plan with the hope that just-in-time deliveries continue. One needs to know that deliveries WILL continue and arrive ON TIME.

If a supply chain fails, so too does the production line. And if the product does not get made it can't be sold and profits are lost.

The recent reports of a possible 'Doomsday Brexit' have been dismissed by many as scaremongering and a repeat of 'project fear'. But small disruptions can quickly result in very serious supply chain problems.

Fragile supply chains

In 2000 and 2001 there were a number of fuel protests and blockades with pickets stopping fuel deliveries to forecourts up and down the UK. Within days some 3000 petrol stations were out of fuel and the government was on the verge of introducing emergency measures and even considered bringing in the army to deliver fuel.

More recently something as simple as a shortage of food-grade CO2 has resulted in lager and cider running out in some pubs. Meat supplies have also been affected as CO2 is used in the slaughter process and also in prepackaged meat to preserve it longer [Bloomberg]. Interestingly the UK is one of the countries which has been the hardest hit as it imports the majority of the CO2 it uses. It is not clear how future customs arrangements might affect such things as CO2 imports but the recent problems only highlight the obstacles Britain might well face come Brexit day.

"It's like water — it's everywhere but no one knows how important it is until it suddenly stops being there," says Tim Lang, professor of food policy at City university.

For Richard Griffiths, chief executive of the British Poultry Council, the CO2 shortage has highlighted broader issues of supply chains and food security.  "Nothing like this has happened in this part of the supply chain, so no one has focused on it. This does illustrate the vulnerability of these, usually robust, integrated supply chains when something so fundamental is affected," he said.

With Brexit looming, Professor Lang, co-author of a 2017 report on the implications to the UK's food system on leaving the EU without adequate planning, says, "The CO2 shortage is a useful reminder of the enormous implications of disrupting the efficiency of the food system." [FT]

This week concern within the car industry grew  as Jaguar Land Rover warned that a "bad" Brexit deal would threaten £80 billion worth of investment plans for the UK and may force it to close factories.

The UK's biggest car maker, owned by India's Tata Motors, said while its "heart and soul is in the UK", a hard Brexit would cost £1.2 billion a year in trade tariffs and make it unprofitable to remain in the UK.

The warning came as Downing Street set out details of a possible post-Brexit customs arrangement and only days after Airbus and BMW voiced their concerns over the direction Britain is taking, that of not only leaving the EU, but also the customs union and the single market [BBC / FT]. 

There may well be some interesting if rather painful days ahead should Britain pursue its current course.

tvnewswatch, London, UK


Monday, June 04, 2018

Doomsday Brexit or just not the success promised?

A recently leaked government report has suggested that Britain would see fuel, food and medicine shortages should no deal be reached with the EU.

It is very easy to dismiss such dystopian projections as alarmist and a part of a project fear agenda. But a hard Brexit will result in some significant changes in the way everything is done when dealing with other countries.

Brexiteers are perhaps right to say that new deals and procedures can be put in place. But it is all a matter whether such things are implemented and readied by the time Britain leaves the EU.

Given that nearly two years after the EU referendum there is still no clear vision for Brexit laid out by Theresa May and her government. There have been few concrete plans put in place to deal with the potential fallout that might result in any number of possible Brexit scenarios.

Cliff edges and hard borders

A so called hard Brexit and a crashing out of the EU without a deal is seen by many as being the worst possible outcome, although there are many advocates within the Tory party such as the likes of Jacob Rees Mogg.

Few if any contingency plans have been put into place for a so-called hard Brexit which in the first instance would hit ports, such as Dover, airports and docks - indeed anywhere where imports from Europe and beyond arrive.

As it stands there is relatively little paperwork needed to import into the UK from the EU since it is part of the Customs Union. People and goods can move across the EU without problems. But unless Britain can remain in the Single Market or quickly work out a trade agreement once the UK leaves the EU, small businesses could see any potential benefits of international trade eaten up by a tangle of red tape.

Any extra tariffs imposed by the EU on imports from the UK could push up the sale price of those goods, devouring any competitive advantages Britain might have.

While a member of the European Union, Britain is part of what is called the Customs Union, meaning it enjoys the benefits of trade liberalisation – namely, the easy transit of goods across national borders. If the UK leaves the Customs Union – an outcome looking more likely as the idea of a "hard" or "no-deal" Brexit takes hold – then it will lose the benefits of free trade and it will instantly become much more difficult for goods to travel.

Trading will likely involve a great deal more paperwork. This is a particularly nasty outcome for SMEs [Small and Medium-sized Enterprises] with complex supply chains, for whom business could become almost impossible. Indeed many businesses have planned for a possible move from the UK if this happens, whilst others have already shifted some or all of their operations to mainland Europe [The Week]. Indeed financial services have already seen the strongest shift to the continent [Ev Standard].

There are also issues concerning VAT and tax rules which could add to the headache for many small exporters as well as increased prices for UK consumers [Guardian], though a recent FT article suggests Britain may try to be negotiating a deal on VAT rules. However, if Britain seeks to remain inside the EU VAT area, it will continue to be bound by rules set in Brussels.

Rewriting the existing deals after Brexit could also prove a herculean task, with the Financial Times reporting the UK could face reworking more than 750 individual global trade agreements.

Whilst there has been much talk and discussion, little, if anything, has been set in stone.

Last month it was revealed that part of the M20 on Kent would be used as a 'car park' for lorries to counter so-called Brexit traffic jams [Guardian]. This came only months after customs officials said they had no idea what reality they must start preparing for in April 2019 when Britain was set to come out of the EU [Independent].

A former civil servant Ruth Lea has dismissed the recent leaked Brexit report that suggested the port of Dover would collapse within a day as "absolutely bizarre" and suggested it was just a re-run of "project fear" [Express] .

However, if there are no clear guidelines or rules for customs officials at Britain's ports there could very well be serious problems. Currently there are few if any major checks of lorries going into or coming from mainland Europe. But even the slightest delay can result in tailbacks and heavy congestion around the ports.

Anyone who has ever used the Dartford River Crossing, which crosses the River Thames via the M25 from Essex into Kent, will perhaps remember the huge tailbacks resultant from the tolls where every vehicle had to stop and hand over money - even the DART prepaid scheme made little difference as vehicles still needed to slow down at the allocated tolls before the barrier was raised. Since the implementation of ANPR [Automatic Number Plate Recognition] cameras and online payments traffic flows pretty much unhindered.

There have certainly been problems since the implementation of the automatic charging system in particular the fact that many foreign drivers avoid payments and fines [BBC]. However, it would hard to find anyone wanting to return to the old system of toll gates and the resultant traffic jams.

But even with the fast track automatic tolls there can still be problems. A simple breakdown or accident can quickly result in long tailbacks.

The problems with the DRC highlight how simple hold-ups can quickly create traffic chaos. Should paperwork problems at Dover and other ports cause delays the speculation that the port could 'collapse' is not too far fetched.

Some have suggested the government might in effect throw open Britain's borders in the event of a no-deal Brexit. But officials fear the EU, particularly the French, would not do the same. Furthermore, 'throwing open' the borders would have many undesired effects especially in terms of thwarting people, drugs and weapons smuggling.

It is very easy to point a finger at the bureaucracy of paperwork. Brexiteers will no doubt blame the EU should it impose strict checks on traffic coming from Britain. But it has to be remembered it already applies such checks on other non-EU countries where no formal trade agreements or customs agreements are in place. 

There are some examples which highlight the difficulties in transporting goods between the EU and countries not in the Customs Union, such as Norway and Switzerland.

Carnets and other documents are often required with heavy fines imposed for incorrectly filled in submissions. There are additional costs too for the documents themselves and those transporting the items may often be required to submit to checks which could take many hours.

"I've delivered goods across the Norway border and it's not as straightforward as we are being told by the politicians," says Ciaran Donovan, the owner of a courier firm which transports exhibition materials as well as vehicle parts all around Europe.

"Due to the nature of the goods I was delivering, I was advised to get a carnet - a passport for goods. They vary in price but this one cost £750. It took my customer one week to compile the carnet, and everything had to be listed."

"I arrived in Norway, I was stopped by customs and told to park up while they check everything in my van against what was listed on the carnet, a process that took five hours." [Mirror].

This is of course just one business owner's experience, and how he sees huge problems ahead should Britain pursue its course for leaving the EU and in particular the Customs Union.

But it is surely clear that simply dropping out of the EU, and along with it the Customs Union and Single Market, without contingency plans is a recipe for chaos.

Empty supermarket shelves

On the surface it might seem an over-egged exaggeration that Britain might see empty supermarket shelves, medicines becoming unavailable and fuel shortages. But it takes very little for such crises to develop.

In the last year or so there have been scenes of empty supermarket shelves in Britain, not because of Brexit and customs checks but because of inclement weather. In March this year supermarkets saw shelves emptied of bread and tinned soup as the so-called Beast from the East snow storm disrupted deliveries and precipitated panic buying [Sun / Metro]. And in February 2017 there were vegetable shortages due to weather problems in Spain resulting in many supermarkets rationing certain items whilst others found themselves almost stripped of fresh produce altogether [BBC].

It's not hard to see how delays at the ports could result in similar issues. Indeed the problem could be further compounded should Britain's domestic farming industry suffer from labour shortages, as some have also predicted [Guardian].

One official told the Times that "supermarkets in Cornwall and Scotland will run out of food within a couple of days" of Britain's leaving the EU without a deal, and that the government would have to charter aircraft or use the RAF to ferry supplies to the furthest corners of the UK.

This would certainly not improve Britain's image around the world as a country open for business.

Medicine shortages

Most medicines distributed around Europe are certified under one umbrella, specifically by the European Medicines Agency, a European Union agency responsible for the protection of public and animal health through the scientific evaluation and supervision of medicines.

The agency has been based for some years in Canary Wharf, London, but has already finalised plans to uproot and move to Amsterdam [Guardian]. But aside the obvious snub, comes a much harsher reality. The relocation will lead to a loss of investment from pharmaceutical companies with some also relocating closer to the agency. There will also be a local economic loss particularly for the London hospitality and service sectors. The EMA reportedly generates demand for 350 hotels per night, five days a week in order to host its 40,000 visiting guest experts.

The relocation will also harm UK academia. With the EMA's departure, London loses its status as the focal point for European medical research and technology, with all the positive impact this has brought in terms of collaboration with local universities and institutes. And there is also the human impact this decision will have. Some 900 staff who have built their homes and lives in our capital are now having to choose between relocating to another country, opting for an elaborate and impractical commuting arrangement, or finding another job.

But aside the blow to the UK's economy, global standing and patient services, it may also prompt an EU-wide public health crisis due to the disruption caused to the agency's work. It has also been suggested that UK patients may soon find themselves cut off from accessing potentially life-saving drugs.

Without agreement between Britain and the EU there would be serious disruption to patients' continued access to existing and new medicines, with a recent estimate that a hard Brexit could mean UK patients end up waiting six to 12 months longer than those in EU states for new, potentially life-saving drugs.

One reason for this is that the EMA currently undertakes a significant proportion of the work required for licensing new drugs in the UK. Outside EMA membership, Britain's national body, the Medical Health Regulatory Agency [MHRA] will need to urgently find the resources to carry out 25% more licensing of new drugs come March 2019 [New Statesman].

The issues surrounding any possible deal between the UK and EMA is just one factor when it comes to medicines. Another important and much overlooked issue is that of Britain's membership to Euratom. While Euratom is not a part of the EU as such, Theresa May, on attaining office, quickly put forward her vision of Brexit as not only leaving the entities of the Single Market and the Customs Union but of Euratom too.

At the same time her government has said it wants to have close ties and to sign an agreement which would facilitate Britain maintaining provisions set out under the oversight of Euratom.

But the UK's nuclear chief has described the leaving of Euratom an "existential threat" to the industry and that the nuclear industry faces "disruption to absolutely everything".

The transport, trade and regulation of nuclear materials, components and know-how is governed by a series of nuclear safeguards that have operated in the UK for four decades through the Euratom treaty. And without a deal there could be significant problems concerning the transport of nuclear fuel [Sky News]. 

But there is also the issue concerning the supply of medical isotopes, a byproduct of the continental European nuclear industry, critical for cancer treatments.

Without a deal, such treatments could also be in jeopardy. And Britain has already missed a number of important deadlines [Guardian].

With no extra £350 million for the NHS - indeed there's been talk of increasing taxes to fund it [Sky News] - and possible shortages of medicines Brexit is going to be an extremely bitter pill to swallow.

Sorry, no fuel

Could Britain really run out of fuel because of Brexit. It might sound laughable but a short fuel strike in 2001 almost brought Britain to a halt. Petrol was rationed for drivers providing essential services and forecourts across the country ran out of fuel in days.

It's easy to see how a key disruption in a supply chain can quickly halt deliveries, but how would Brexit affect the fuel industry.

Press articles, including the Times which broke the story, have not made clear how forecourts would run out of fuel within a week because of a so-called hard Brexit. However, Britain is increasingly reliant on foreign imports and with the UK already facing significant threats to the future security of the UK energy system they are likely to be enhanced by the uncertainties of the Brexit process [Impact of Brexit on UK Energy System - Durham University].

So will there be a disaster as of midnight on 29th March 2019? Will there be 20 mile tailbacks from Dover, Harwich and other major ports with similar scenes across the channel by the morning? Can we expect to see panic buying and food shortages as shoppers begin their weekend shop? And will people grab more petrol than usual as the hysteria sets in?

No-one can really predict for certainty. It has to be said there will definitely be disruption should Britain get no deal. And that could well precipitate a domino effect. And things could get very messy indeed.

Should you feel you need to start prepping now you could save up and get your very own Doomsday kit from Costco, a snip at only $6000 [Guardian].

Or perhaps you'd prefer the calming reassurance from the government who maintain that Brexit won't mean Armageddon [The Times] even if UKIP's former learder Nigel Farage has apparently turned tail and claimed he never said Brexit would be a success [Twitter]. Well, that's a relief! It won't be Armageddon. But it won't quite be the success we were told it would be either!


Doomsday Brexit: The Times / Business Insider / Bloomberg / Sky News / Sun / Daily Mail / Mirror / Guardian / Independent / Telegraph / News.com.au


tvnewswatch, London, UK

Friday, April 06, 2018

Waking the dragon: Trump's trade war is a risky strategy

President Donald Trump has started a trade war claiming he is protecting American jobs and interests [FT / BBC / Time / CNN].

Starting with steel, to appease US workers that have seen a decline due to cheap imported steel especially from the likes of China, Trump has focused more specifically on the Middle Kingdom imposing a wide range of tariffs in retaliation to China's failure to tackle the issue of intellectual property theft.

It is true to say that China has ignored the issue of IP theft over the years. From cheap ripped off DVDs and fake Gucci handbags to reverse engineered technology covering mobile phones, cars and wind energy technology, China is awash with copied products.

But Trump's trade war will do little to persuade Xi Jinping and China to crackdown on IP theft. Indeed it will only only reinforce well established anti-western and anti-American sentiment and lead to growing nationalism.

Hostile foreign forces

In 2012 as tensions grew over territorial claims connected to the Daiwu Islands anti-Japanese protests took place in cities across China.

Thousands of people took to the streets in Shenzhen, Guangzhou and a number of other cities demanding that Japan leave the islands in the East China Sea where a Japanese flag had been symbolically raised on what the Japanese called the Senkaku islands. In Shenzhen, some demonstrators attacked Japanese restaurants and smashed Japanese-made cars [BBC / CNN / Wikipedia].

So could Trump's trade war, directed at China, trigger similar nationalistic feeling?

Since Nixon, every successive US president has toured China. Relations with China have strained under Barack Obama's Asia pivot strategy, US support for Japan in the Senkaku Islands dispute, as well as Donald Trump's threats to classify the country as a "currency manipulator" as part of a potential trade war.

Trump's latest policy however could sour relations significantly and the US has much to lose. It has been said that no-one wins in a trade war. But China could out manoeuvre the US in many ways.

Working towards self-sufficiency

Although China does much trade with the US it is not entirely reliant on the world's largest economy. And while it currently imports many products from the US and the rest of the world China has already begun initiatives to become self-sufficient by 2025 [China Daily / Trade Ready].

China has welcomed global trade with open arms. But it is clear that China does not want a gun held to its head when trading with other countries. China is already embarking on a $300-billion plan to become nearly self-sufficient by the year 2025, a move that will give Chinese companies a major edge in the push to squeeze out foreign enterprise.

And Trump's trade war with China could make the country less hospitable on a number of fronts.

Increased tariffs could make US products less attractive to Chinese consumers. Furthermore as China targets particular sectors such as soybeans could have particular marked effects.

China has hit the US with proposed tariffs on pork, beef, soybeans and cars which are mostly produced in regions mostly supportive of Trump. As exports dry up and prices slump US producers could find themselves in a world of hurt.

China's nationalism

US companies could find themselves being targeted in China should nationalistic fervour increase especially if America is seen as an aggressor. The line Western anti-China forces is never far from the lips of the nationalist propaganda machine in China. History is much ingrained and memories run very long indeed.

Just as China has never forgotten the Nanjing massacre, when Japan slaughtered thousands of Chinese as it attempted to take over China, so China remembers the humiliation it experienced from imperialist colonisation.

For much of the second half of the nineteenth century, China suffered humiliating defeats in the First and Second Opium Wars with the British, wars with the French, Portuguese, and even the Japanese.

The sense of humiliation is so deeply entrenched in the Chinese psyche, that even today while the rest of the world considers China a strong and powerful nation, many Chinese often feel they are being singled out, bullied and mistreated. As such there is a constant and watchful eye for "hostile foreign forces."

This complicates the Sino-US relationship. A simple trade dispute can be interpreted by the Chinese as a Western way to undermine China. Indeed, some extremists already regard China's holding of trillions of US foreign reserves as a conspiracy by the US government to colonise the Chinese economy. There is increasing anti-American rhetoric in Chinese social media, with posts accusing Uncle Sam of plotting to dismantle China "in the way it did to the Soviet Union." [Forbes]

China's secret weapons

As a week of tit for tat rhetoric and proposed implementation of tariffs has racked up China has declared there will be a series of comprehensive measures to follow should Trump continue with his trade war.

It is unclear what measures might be implemented, but China certainly hold many cards.  Life could become very difficult for US companies operating in China. Few see it as a possibility, but China could begin off-loading US treasuries which could have a disastrous effect on the US and world economy [CNBC].

China holds $1.17 trillion of US government debt and some economists and investors worry if there is a trade war, China could reduce its US debt holdings as a political weapon against the Trump administration tariffs proposal. Should that happen, the US dollar could fall and other countries could follow suit and sell their holdings.

There is also the virtual monopoly China has in terms of its global supply of so-called rare earths without which the technological world could grind to a halt.

China is still responsible for roughly 95% of the world's production of rare earth elements. Whilst China has found itself criticised by the World Trade Organization for imposing export quotas in the past, but that is unlikely to deter it from repeating such actions [Investing News].

Rare earths are used in TV sets, cancer treatment drugs, camera lenses, battery-electrodes, welding goggles, computer hard drives and electronic components. Indeed without rare earths even America's military could find itself up the creek without a paddle.

Napoléon Bonaparte is reported to have once said, "China is a sleeping giant. Let her sleep, for when she wakes she will move the world."

One Chinese proverb is also rather apt. "If you ignore the dragon, it will eat you. If you try to confront the dragon it will overpower you. If you ride the dragon, you will take advantage of its might and power." A metaphor perhaps that it's better to cooperate than to resort to conflict.

In this spat between the US and China it all depends who you believe represents the dragon.


tvnewswatch, London, UK

Friday, March 09, 2018

China may hold trump card in Trump trade war

On Thursday 8th March 2018 the US President Donald Trump signed an order which pushes forward a plan for 25% tariffs on imports of steel and a 10% tariff on aluminium.

Trump claims it is all about protecting American jobs and to stop cheap foreign steel imports being dumped in the US. But while his motives might be laudable his methods could well spark a trade war which could damage not only the US but slow the global economy which could in turn precipitate another global recession [Guardian].

There is no nation that is 100% self sufficient. Globalisation has made every country reliant on another. But some nations are more resilient than others. The more developed a nation is the greater its susceptibility to a disruption of imports of raw materials, agricultural products or energy supplies.

Fiery rhetoric

In a recent tweet Trump proclaimed that "trade wars are good, and easy to win". But he was immediately slapped down by European Council President Donald Tusk who said the very opposite was true.

"President Trump has recently said and I quote, 'trade wars are good and easy to win.' But the truth is quite the opposite. Trade wars are bad and easy to lose," Tusk told a press conference in Luxembourg [RTE / Guardian].

As the EU drew up a list of products which might have increased tariffs upon them Trump merely retorted that he would respond in kind.

After Trump announced he would impose tariffs on steel and aluminium the EU suggested it might impose tariffs on US imports such as Harley-Davidson motorbikes, Levi's jeans and Kentucky bourbon whiskey [Bloomberg]. Trump then responded saying tariffs could be extended to European cars. The EU's list then grew to include peanut butter, cranberry and orange juice [BBC].

Waking the dragon

But this tit for tat reaction will be nothing compared to the trade war that could break out between the US and China.

There has been much talk over China's dumping of steel on world markets. This is certainly an issue and China should arguably be taken to task. However, Trump's methodology could unleash a hornets nest. And at the very least could be described as using a sledgehammer to crack a nut.

China might not be able to bring the US down but it could seriously damage the US economy. That said there are many myths surrounding the economic relationship between the United States and China.

The fact that China has become the largest foreign holder of US government securities is often taken as indicating that the United States is heavily dependent on China to finance its budget deficits. Similarly, since China is a major source for US imports, US consumers are seen as dependent on cheap Chinese goods.

Dumping its US government securities could cause problems as much for China as it might for the US [CFR].

However while the average consumer may not be affected if cheap imports of clothes and toys were to dry up there are some imports that are far more vital to the US.

There is much interconnectedness between China and the US [Business Insider]. Some is economic and some has to do with manufacturing.

One particular concern for some in in the US is whether China could pull out the rug from the US technology industry.

Rare earth reliance

Apple and other tech firms have relocated to China and any disruption to this supply chain could hurt the US [Bloomberg]. But this is just the tip of the technological iceberg.

China supplies much of the world's so-called rare earths, elements such as lanthanum, cerium, praseodymium, gadolinium, yttrium, terbium, europium [BBC / Wikipedia]. Despite their name, most are abundant in nature but are hazardous to extract [BBC]. Thus many countries have significantly reduced their mining operations on environmental grounds leaving China as one of the few countries to corner the market.

But why are rare earths important? Rare earths are a big part of our modern world.  They are in clean energy technologies like wind turbines and solar cells and in many things we use everyday such as cars, cell phones, computers and televisions. Without dyprosiumif there might be no smartphones or MRI scans [Phys.org].  

But the biggest concern for the US is the fact that many rare earths are necessary for high-performance guidance systems. US military technologies such as guided bombs and night vision rely heavily upon rare earth elements supplied by China, and rebuilding an independent US supply chain to wean the country off foreign dependency could take up to 15 years, according to a 2010 report published by the US Government Accountability Office [GAO report PDF] [Live Science].

No instant fix

Some 7 years after that report was published and the US is still very much reliant on China to supply these resources [Investor Intel], although another GAO report skims over US reliance on China [GAO report 2016 PDF]

In December 2017 Trump signed an executive order intended to reduce the United States' reliance on other countries for rare earth supplies. But this will be no instant fix. Even Trump's intended shift to buy from other countries such as Australia where companies like Lynas Corp have been mining for nearly two decades is unlikely to fill any gaps left should Chinese rare earth supplies dry up [Bloomberg].

Indeed it could be years before the US becomes self sufficient. In 2016, the US was reliant on imports for 23 minerals including cobalt, lithium, graphite and rare-earth elements, according to a report released this last year by the Interior Department. The country was most reliant on China, which supplied the world's biggest economy with at least 20 critical minerals, the report said.

And this is where China could bite back hard should Trump make things difficult in a trade war.

Past form

It won't be the first time China has used its mining and supply of rare earths as leverage. In late 2009 and throughout 2010, at a time when China produced 97% of the world's rare earths, China tightened its grip on exports [FT / NYT / tvnewswatch - China tightens up on rare earths Oct 2010]

China has already accused Trump of risking a global trade war and says it will retaliate [Sky News]. In a statement China described Trump's decision to levy a 25% surcharge on steel and 10% on aluminium as a "serious attack on normal international trade order".

Elsewhere in Asia, Japan said the move would have a "big impact" on its close relations with the US while South Korea said it may file a complaint with the World Trade Organisation.

Beijing has not yet said how it might react, only that it would "firmly defend its legitimate rights and interests".

China has not mentioned any increased tariffs or block on exports. Indeed only commentators have even mentioned rare earths as being China's secret weapon [Reuters / CNN / ATimes].

Should a prolonged trade war break out and China block rare earth exports then the US could conceivably find itself in a very difficult position.

Recession & war

World Trade Organization Director General Roberto Azevêdo recently said that the "potential for escalation is real, as we have seen from the initial responses of others. A trade war is in no one's interests. The WTO will be watching the situation very closely."

The European Council President Donald Tusk was right to say that trade wars are bad and easy to lose. But he could also added that Trump's trade war could end with more than economic conflict.

The lesson of history is clear. Trade wars have no winners. And they are certainly not good. They can damage the economies of all countries involved, raising tensions and increasing the risk of international conflict.

Most people living today won't remember the last trade war which is blamed for worsening the pain of the Great Depression [CNN / Fortune]. That in turn helped to foster the political extremism that led to World War Two.

tvnewswatch, London, UK

Thursday, March 08, 2018

No winners for UK fishing industry post-Brexit

Both Theresa May and the Chancellor Philip Hammond have been accused of selling out the fishing industry in order to seal a Brexit deal [The NationalTelegraph].

However, the suggestions that UK fishermen might not win waters back after Brexit has been on the table for some time. Indeed a memo published in early 2017 and obtained by the Guardian says that many agreements relating to the CPA would remain in place in order to keep to commitments on sustainable fishing [Guardian]. 

Such suggestions might be difficult for many Brexiters to swallow [Channel 4 News]. Indeed Nigel Farage was screaming "betrayal" as it was suggested the UK might make concessions or apply 'reciprocal arrangements' [Express].

But there may in fact be no deal at the end of all the the wrangling given the rhetoric and and statements coming from both sides in the last few weeks.

Donald Tusk and Michel Barnier have consistently stated there will be no cherry picking or bespoke deals, whilst backed up unanimously by the EU 27. Meanwhile Theresa May [Channel 4 News], David Davis and Philip Hammond repeatedly makes speeches setting out unrealistic visions which boil down to just that; cherry picking.

The UK fishing industry and the Common Fisheries Policy became a divisive issue in the referendum campaign.

There are certainly inequalities and the CFP does need an overhaul. For example under the CFP, overseas fishing fleets can actually catch more of certain fish in areas of UK waters than British fishermen [BBC].

Whilst partially true to say the CFP has affected the British industry it is not the whole story. Indeed overfishing in general has affected the industry across the board [Full Fact].

But will Britain be any better outside the EU? 

Currently some 75% of home-caught fish is exported - and majority of fish eaten by Britons is imported, mainly from Europe [This is Money].

Britain imports big quantities of prawns and tuna from the EU, while its main fish export is mackerel which is caught primarily of the Scottish coast. But this situation could be turned upside down if tariffs were to be imposed on such trades.

As Britain heads inexorably towards a WTO Brexit the likelihood of punitive tariffs looks ever more likely.

Some 666,000 tonnes of fish was farmed and caught in the UK in 2014, of which 499,000 tonnes [75%] were exported, and 66% of those exports went to the EU. Meanwhile the UK also imported 721,000 tonnes of fish, 32% of which came from the EU.

Under WTO rules fish and crustaceans, molluscs and other aquatic invertebrates are subject to an 11% tariff, meaning the UK could lose some £92 million of the average yearly £840 million worth of exports [in 2015] sent to the EU [Source: ONS, WTO, Independent].

Figures and statistics do vary of course. The FT reported that Britain exported £921 million of fish [including £224 million salmon] to the EU in 2015, whereas total landings - the amount brought to the UK - were worth £775 million. Nonetheless, the figure is certainly substantial.

There is also an uncomfortable trend in that fish imports to the UK have increased since 2003 as exports have decreased [BBC]. In plain terms this will mean that British consumers will be paying more for their fish and chips while Britain's fishermen will be struggling to sell their fish to a market which would be put off by tariffs.

For Britain's fishermen this could prove devastating. And chances of government help are unlikely. Fishing is worth £1.3 billion to the UK economy and employs 34,600 people. However in percentage terms it is only a tiny part of the UK economy, contributing less than half a percent to annual GDP. For government any decision to help an ailing industry would be an economic rather than an emotional one. And with the noises currently coming from Westminster concerning the British car industry and financial services make clear that fishing will be last on the list of priorities.

After Brexit it was claimed Britain would be able to "take back control" of its territorial waters up to the 200 nautical miles currently allowed by the CFP.

However the English fleet traditionally catches its fish in Irish, French and Norwegian, as well as UK, waters.

Should no deal be made UK fishing boats will be hemmed in and unable to fish some of its traditional fishing grounds. Meanwhile British authorities will once again face the issue of policing Britain's waters [BBC].

As in many other aspects of the EU negotiation, Britain could refuse to do a deal and go its own way.

But the British government would need to consider the consequences of such a move. The breakdown of any agreement would probably lead to overfishing and the depletion of stocks. It would result in the imposition of tariff barriers. Above all, the British would have to ask themselves whether they could effectively patrol and defend UK waters against fishing boats from EU states. Given these constraints, Britain has little room for manoeuvre in negotiations over post-CFP arrangements. The UK fishing community may emerge from Brexit in a weaker position than it expects.

tvnewswatch, London, UK