Tuesday, January 17, 2017

Theresa May sets out her plan for Britain

Theresa May has set out her plan for Britain as she embarks upon leaving the EU [BBC]. But while her speech clarified some details in her Brexit plan, most notably her decision that she would not seek to retain access to the Single Market, other details were less than clear. Indeed for some the plan was more one of hopes and dreams than definite intentions.

No Single Market

In her address the British PM said the UK "cannot possibly" remain within the European single market, as staying in it would mean "not leaving the EU at all".

But the prime minister promised to push for the "freest possible trade" with European countries and to sign new deals with others around the world.

Such a plan would place the UK in a similar position as Canada which has recently signed a free-trade deal with Europe. However such a deal could take up to a decade or more to negotiate.

Customs Union

Whilst she abandoned the idea of retaining access to the single market she said she did wish to negotiate a customs agreement with the EU. Such a plan has been likened to an agreement Turkey has with the EU.

May failed to mention anything concerning the European Free Trade Association [EFTA]. A free trade area is one where there are no tariffs or taxes or quotas on goods and/or services from one country entering another.

The negotiations to establish them can take years and there are normally exceptions. So agriculture and fisheries might be exempted, certain industries protected and some goods may not be covered.

Also imported goods would have to comply with the law of the country they are being sold in. So, for example, you could have a free trade agreement with the US but still a ban on the import of GM foods or different safety standards for electrical goods.

There is a free trade zone in Europe, which the UK helped to create. EFTA, the European Free Trade Association, counts Norway, Iceland, Switzerland and Liechtenstein as members.

The EU has free trade arrangements with many other countries in Europe and beyond, including Turkey and Ukraine and countries that are applying to join the EU.

So how is a customs union different from a free trade area? The key difference is that the countries that club together agree to apply the same tariffs to goods from outside the union.

Once goods have cleared customs in one country they can be shipped to others in the union without further tariffs being imposed [BBC].

Complicated negotiations

But negotiations on such matters could be extremely complicated. Indeed such matters could well be delayed as the EU negotiating team has already stated that matters on trade might not be discussed during the two year period set aside in Article 50.

Last November Michel Barnier, the European Commission's chief Brexit negotiator, said the UK would have only 18 months to negotiate a deal and this would only cover some aspects of the 'divorce' [Guardian].

He made clear that any trade arrangement was of a "different legal nature" to a withdrawal agreement and would take longer to agree than divorce. "You cannot do everything in 15-18 months of negotiations; you have to take things in the right order," he said. The sequence of talks is significant because British ministers had hoped to complete a trade deal in short order with the EU, or at least have clarity on transition arrangements within the first year of Brexit negotiations at the latest, so that businesses have time to prepare [FT].

Thus it is still not clear what Theresa May can negotiate for in the 18 months following the triggering of Article 50, nor what she will be able to walk away with.

WTO option

Some have also raised concerns that the PM's approach could create friction with the WTO. Emma Reynolds, MP for Wolverhampton North East, tweeted, "PM's middle way on customs union could fall foul of WTO rules, customs union must cover the majority of trade between two countries."

This would not bode well for Britain especially if, as some believe, the country resorts to WTO rules, often referred to as a hard or diamond-hard Brexit.

May has already made clear that no deal, with the EU, is better than a bad deal. But should the UK fall back on WTO tariffs British industry could be hit very badly.

Speaking at the International Trade Committee Mike Hawes from the Society of Motor Manufacturers and Traders said going to WTO rules "could threaten the viability of the UK automotive sector" with some £1,500 added to the cost of each car sold.

Moreover, leaving customs union would result in additional costs because of delays to parts deliveries sourced from elsewhere in Europe. European manufacturers might see the European market as more important than UK market and thus EU manufacturers would "align with political imperative of their home country".

In addition current UK-built cars do not have enough "local content" to abide by free trade agreements, because of current level of EU made parts.

Political fallout

While the pound gained on the back of May's speech there was fallout too on the likely prospect Britain head for a hard Brexit. The Italian daily La Repubblica commented, "Out of the EU, out of common market, out of everything. It appears that Theresa May's intention through negotiations with the EU at the end of March is 'a hard Brexit' - a very hard Brexit indeed." [BBC]  

German firms were reported to scale back investment in the UK as it heads for a 'hard brexit', according to Germany's Chamber of Commerce and Industry [DIHK].

"There now will be less investment from German companies in Britain," Volker Treier, head of the DIHK's trade division, told Reuters.

He also said that a hard Brexit would impair growth both in Britain and the rest of Europe, and that the UK would probably become less important for Germany as export destination.

Meanwhile the Czech Europe Minister, Tomas Prouza, tweeted "UK's plan seems a bit ambitious" and appeared to criticise the apparent 'cake and eat it approach' espoused by May. "Trade as free as possible, full control on immigration... where is the give for all the take?" he asked.

May's plans were also criticised by Guy Verhofstadt, named as the European Parliament's lead negotiator on Brexit [Twitter].

It was an "illusion" for Theresa May to suggest "that you can go out of the single market, that you can go out of the customs union and that you can cherry-pick, that you can have still a number of advantages - I think that will not happen".

Michael Fuchs, a close conservative ally of German Chancellor Angela Merkel, also accused Theresa May of "cherry-picking".

Creating a tax haven

As for Britain's politicians they were essentially split into two camps with those in the leave camp waving flags whilst those on the other side sought to pick holes in the PM's speech.

Lib Dem leader Tim Farron was quick to criticise May's announcement that Britain would quit the single market, saying it would be bad for jobs and industry [Twitter]. Writing in the Guardian he added it amounted to "a mixture of vague fantasies, and toothless threats to our nearest neighbours."   

Meanwhile Labour leader Jeremy Corbyn said Theresa May was determined to use Brexit to strip away workers rights and turn the UK into a tax haven [Independent].

Theresa May might have a plan, but she is still stepping into a minefield with no clear path and no determinate length.

It appears clear to some however that May's vision might just be a tax haven on Europe's doorstep. In an interview with a German newspaper Welt am Sonntag, the Chancellor Philip Hammond said the UK is willing to do "whatever we have to" to bounce back after Brexit even if it meant ripping up its economic model and become the tax haven of Europe [Independent].

The Dutch daily Algemeen Dagblad called the prime minister's speech "not just a bit of Brexit but the full whack".

"Bye bye EU... the unspoken, big threat from London is creating a tax paradise in front of the gates of Europe," it said.

tvnewswatch, London

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