Monday, September 05, 2016

Brexit challenges for UK as PM arrives at G20

Theresa May has insisted that she'll follow through with with a plan to extricate Britain from the EU under the banner of Brexit Means Brexit and that she'll make a success of it.

But despite the jargon and soundbites, the task may be a lot tougher than she, or even the most ardent Brexiteers had anticipated. And the challenges she faces are becoming all the more clear as she faced negative feedback from world leaders at the G20 in China.

No clear plan

Following her first cabinet meeting since the EU referendum May insisted there would be no re-entering the the EU by the back door, no second referendum and that she alone would make the decision to invoke Article 50 rather than putting it to a parliamentary vote.

But aside of the bold statements of intent, no clear plan was put forward and few clues as to what Britain's negotiating position would be.

Indeed, Britain's future is no less certain than it was the day after the EU referendum result was announced.

Economy 'strong'

Pro-Brexit supporters have drawn solace from positive economic news over the last month and suggested the fear mongering of the Remain camp was unfounded.

However, while the stock market has stabilized, the pound remains low against the dollar and euro, as well as many other currencies around the world.

Some have argued this is a good thing in that Britain's exports will prove to be cheaper and that British tourism will benefit. This is undoubtedly true. But it doesn't reveal the whole truth of the issue.

British tourism has benefited. But figures have yet to be revealed as to what extent any increase in tourism has resulted from a drop in the pound.

Weak Sterling

And while a low pound has most certainly increased some exports, this may well prove to be a double edged sword. Increased and disproportionate foreign purchases may drive up prices for the British consumer simply due to a supply and demand effect. There have already been reports that pork prices may increase after the Chinese took advantage of the weak pound and bought up huge stocks of Britain's pork supplies [Guardian].

Sterling's low value has also prompted an increase in property purchases by foreign buyers [BBC]. And some of the cream of Britain's manufacturing industry is also being snapped up by foreign companies. In the last week ARM, a leading chipset maker, was bought by the Japanese company Softbank [BBC / Guardian].

The Cambridge-based firm designs microchips used in most smartphones, including Apple's and Samsung's. ARM, which was founded in 1990, employs more than 3,000 people.

On the face of it, this might sound like good news. More foreign investment in UK based industry would not be a bad thing after all. However, as the new PM Theresa May touched down in Hangzhou for the G20, the Japanese have revealed that any UK based assets may likely move to continental Europe should the current status quo - specifically with relation free movement and open access to the free market.

Threats to trade

Japan had raised its concerns prior to the EU referendum, but in a clear and unambiguous document published by the Japanese government it stated that "Japanese businesses with their European headquarters in the UK may decide to transfer their head-office function to Continental Europe if EU laws cease to be applicable in the UK after its withdrawal." [BBC]

Japanese firms employ an estimated 140,000 workers in the UK, with Nomura bank, manufacturing giant Hitachi and carmakers Honda, Nissan and Toyota all having major bases in the country. It's not only a direct effect on these UK based operations. Any shift to continental Europe will have a knock-on effect for any businesses dealing directly and indirectly with these firms.

But it's not just the Japanese that have raised the stakes. President Obama has also reiterated his leaning towards a united Europe when it comes to trade rather than a detached Britain when it comes to trade.

There are those that consider Japan's 'threats' as somewhat fanciful [Guardian]. But Japan may be just the first of many shots fired across Britain's bow. And such shots may not be easy to ignore [Guardian].

Of course, Theresa May could call their bluff and continue forth with her plan to drag Britain out of the EU, curb immigration and block freedom of movement "whatever the cost", but those costs could be very high indeed.

Business losses

If Britain did lose these manufacturing bases it would likely be permanent. Even if there were a reversal of policy by May or any future government confidence in Britain may already be lost. In fact Britain has already lost some of its stand in its financial sector. The FT this week reported that London had lost its grip on Forex as the Chinese RMB strengthened and that it would be unlikely to recoup lost ground because of Brexit and the weakening pound [FT]. Others have already expressed the opinion that the pound will further diminish [FT].

Meanwhile the British government cannot possibly accede to Japan's demands if May's mantra that Brexit means Brexit is to mean anything. Yet the Japanese requests – set out in a 15-page memo – are likely to become the benchmark by which many countries with strong economic ties to the UK will judge the outcome of the talks. Thus she and her government will increasingly find itself between a rock and a hard place.

May has insisted that the UK can prosper outside the EU and become a "global leader in free trade". But from the rhetoric coming from the top economies it feels that they can do quite well without the UK and continue their relationship with the EU quite happily as Britain flounders.

US threats

While President Obama maintained that the US would still have a "special relationship" with Britain he reasserted his opinion, which he aired during the EU referendum debate, that the US would prioritise trade negotiations with the EU and Pacific nations over a UK deal [BBC].

Brexiteers will no doubt point to the fact that Obama is soon to leave office and that Britain will soon be dealing with a new US president. However, neither of the two contenders will be plain sailing for Brexit Britain. Trump leans towards a more protectionist and self-sufficient America while Clinton is more likely to follow in Obama's footsteps and strengthen trade deals with Europe through the much lauded TTIP and NAFTA.

TTIP talks have run into problems with Europe and there has been some talk that the US might try to kick Europe into action by attempting to seek stronger bilateral ties with the UK [Guardian].

No time scale

However, the UK cannot formally sign any trade deals with other countries or trading blocs until it has left the EU. This issue will also prove to be a headache for May. While DExEU, the Department to Exit the EU, may be conducting unofficial talks with the prospect of signing future trade deals, nothing can be signed until any Brexit negotiations are finalised.

And no-one is clear when that will be. Indeed no-one it seems is clear on anything when it comes to May's planned Brexit. And May is hardly clear about what she means with her Brexit means Brexit slogan [BBC]. Indeed it's more like some advertising slogan from a popular brand of baked beans - Beans Means Heinz. Indeed just as Heinz is known for its 57 varieties, Brexit could have any number of possible outcomes.

As Chris Patten points out in an article published in the Gulf News last week 'Brexit Means Brexit' could mean anything. "Imagine if someone told you, 'Breakfast means breakfast,' and then headed off to prepare your meal. You would have little idea what you were actually going to eat. A Northern Irish 'Ulster fry-up' — eggs, bacon, sausage, black pudding, potato and soda bread and a fried tomato — with a cup of tea? Coffee and a pastry? Depending on your circumstances and preferences, you would probably feel very differently about the various possibilities."

"The same goes for Brexit. Some are concerned primarily with stopping EU labour from entering the United Kingdom. Others are focused on maintaining access to the single market. But, unlike a breakfast, Britain can't just demand everything on the menu." [Gulf News].

And Europe has already made it clear that Britain cannot have an à la carte menu when deciding what it wants [Guardian]. And the block itself has also expressed it is also becoming impatient over the UK's prevarication and lack of clarity [BBC / Standard].

Tough times ahead

Prior to arriving in China for her fraught conversations with the G20 leaders, Theresa May said there would be "difficult times" ahead as she implemented Brexit [BBC / Guardian / Reuters].

This is clearly an understatement. With continuing protests seen in London this weekend, planned legal challenges, calls for a second Scottish referendum, concerns in Northern Ireland and Stormont as well as possible political fights in parliament, May will certainly see difficult times [Telegraph / BBC]. There are still many amongst the Remain camp that want to turn the boat around and have a second referendum, some citing UKIP's Nigel Farage who suggested that a 48/52% in favour of Remain would be unfinished business [Metro]. As discussions begin proper and plans emerge the Brexit fallout will undoubtedly make things all the more difficult for the May government especially if trade suffers adversely and some of the concerns raised by the Remain campaign become a reality.

As well as the economic, financial and political fallout, there is also the concern over the rise in racism and attacks that have increased significantly following the Brexit vote [Guardian]. While much of the media has shied away from drawing a direct connection between Brexit and such attacks it is clear that there is a significant number of racists that have been emboldened by the vote and taken to attacking foreigners both verbally and physically.

Rising racism

In Harlow a Polish man was attacked by a gang of young teenagers as he and a friend sat to eat a pizza on a bench in the town. Two days later he died from his injuries leaving the community in shock. A week on hundreds gathered to pay their respects while the Polish ambassador to the UK Arkady Rzegocki spoke of his concern over the rise in attacks against the Polish community since the Brexit vote [BBC / Independent].

Only hours after the vigil and a silent march through the town two more Polish men were attacked in the same town in what police say was a likely 'hate crime' [BBC / EssexLive].

Bleak outlook

From which ever way one looks at it Britain's future outside the EU looks very bleak indeed. The biggest tragedy of all perhaps is the fact that many of those who voted for Brexit will suffer the most as they lose their jobs, pay more tax, or lose even their pensions [Gulf News / Independent]. Currently there is seemingly a sense that many people are positive about Britain's post-Brexit future with one poll conducted by BBC Radio 5 Live showing 62% of some 1,032 people expressing this view. However, the poll also indicated a possible brain drain and a weakening workforce as 26% of those spoken to considering leaving the UK and moving elsewhere. Amongst 18-34 year olds the figure was even higher with some 43% considering emigration. There has already been one definite move as the V&A's director Martin Roth resigned and prepared to return to his native Germany, a decision fuelled by his disillusionment at the Brexit vote [Guardian / Deutsche Welle].  in an interview with German radio broadcaster Deutschlandfunk that "the time for nice exhibitions is over. The anti-European stance is growing daily here."

There will also be a growing disappointment amongst Leave supporters as all the lies are exposed and the growing realisation that many of the warnings from "project fear" become true. The voters were told that they would "get their country back". They may well not like what it turns out to be.

tvnewswatch, London

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