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Brexit and free trade

by Frank Schnittger Sat Sep 17th, 2016 at 11:59:12 AM EST

For anyone still unsure of what complexities await the UK as it tries to negotiate a good Brexit agreement, Nick Clegg and Peter Sutherland, the founding Director-General of the World Trade Organisation, have produced a good outline. In summary, they find that:


  1. A free trade deal with the European Union will be impossible to agree within two years
  2. That, therefore, an interim deal will need to be agreed to avoid a dangerous and extended period of uncertainty for British companies
  3. And that a new trade deal will result in significantly more red tape for British companies exporting to the EU as British exporters will also have to comply with complex `rules of origin' which require UK exporters to obtain proof of origin certificates from their national customs authorities and are estimated to increase trade cost by four and 15 per cent.

And the above is only achievable with a great deal of good will and cooperation on the part of all 28 current members of the EU. Their 8 page report can be found here and is well worth a read in its own right.  Although primarily intended to describe the difficulties of negotiating a good Brexit deal which does as little harm as possible to the UK economy, it is also a systematic and detailed refutation of just about every claim made by the Leave campaign and by the UK Government ministers now leading the UK Brexit negotiating team.  In particular it describes the disastrous economic effects of the "hard Brexit" which will result if some sort of interim arrangements can't be agreed by the UK and all 27 remaining members of the EU on the expiration of the post A50 two year negotiating period.

Comments >> (98 comments)

Brexit Situation Report, mid-September.

by Colman Wed Sep 14th, 2016 at 09:00:13 AM EST

  1. No one in London has any real idea what they want from Brexit apart from mutually incompatible aspirations such as "stop free movement and full single market access".
  2. No one in London has a mandate for anything: they have some sort of mandate against EU membership, but it's advisory, meaningless and the vote was probably swung by an incoherent protest vote.
  3. No one in London has any idea how to deal with this.
  4. No one in London is brave enough to throw up their hands, say they've screwed it up utterly and start again.
  5. Meanwhile the London opposition have decided that internecine warfare is more fun than doing their job.
  6. No one in Brussels knows how to deal with this either, nor what outcome they'd like to see. Various countries have shopping lists of concessions they'd like to extract, many of which are as unrealistic as the UK aspirations.
  7. No one in Brussels is bothered trying to work out what can be salvaged of the UK membership: "good riddance" seems to be the prevailing view.
  8. As the UK economy slows and sinks the London government will impose more of the austerity that has increased polarisation and fed nationalism.
  9. The financial services industry is busily gearing up to leave London if/when Article 50 notification is given.
  10. The most likely outcome (at an arbitrary 40% chance) I can see is London giving Article 50 notification next year, followed by a failure to come to any useful agreement with the EU and the hardest possible Brexit two years later.
  11. The economic consequences aren't materialising yet, in part because a lot of people simply don't really believe that the government could do something that stupid.

Comments >> (37 comments)

Brussels doesn't have a clue either?

by Colman Tue Sep 13th, 2016 at 08:54:29 AM EST

This, by David Allen in the FT is fun:

To trigger the Article 50 exit process is, of course, a unilateral affair for a member state. But an exit agreement and a subsequent trade deal are bilateral matters, where both “sides” will have their own priorities and bargaining positions. There has been a great deal published about what the UK’s priorities and positions should and should not be; but that is only half a picture. In reality, Brussels currently has no strong idea what Brexit should look like either.

So looks like the EU is waiting for the UK to decide what it wants and plans to react to that. I suppose it would be presumptuous to do anything else.

Comments >> (5 comments)

Brexit means Brexit. WTF???

by Helen Tue Sep 6th, 2016 at 12:47:24 PM EST

So, Theresa May has gone to her first G20 summit in China and responded to all questions about the UK's planned leaving of the EU with the appropriately inscrutable statement that "Brexit means Brexit".

Which, as more than one commentator has noted, may be the "what", but isn't an answer to "how". The problem is that the UK Govt doesn't yet know what it wants so can hardly formulate a plan to achieve it.  Brexit covers a multitude of positions, some achievable, many closer to fantasy. Until the govt decides where the limits of the possible and desirable overlap, "brexit means brexit" is not repetition for emphasis, it's just a meaningless twice over.

Frontpaged - Frank Schnittger

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Bending the Continuum in Political Space Travel

by epochepoque Sun Sep 4th, 2016 at 03:56:09 PM EST

It's been said that the political spectrum does not look like a straight line but resembles a horseshoe. More so in these times where the middle is hollowing out. Today's state election in Merkel's home state of Mecklenburg-Vorpommern (MV) and Berlin (two weeks from now) offer curious examples of left-right crossover.

Frontpaged - Frank Schnittger

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Global tax competition and its reduction

by Frank Schnittger Fri Sep 2nd, 2016 at 12:52:52 PM EST

The Apple case has highlighted the degree to which major global corporates have been able to avoid paying any significant amount of corporate tax at all, never mind just taking advantage of relatively low headline tax rates like Ireland's 12.5% rate. In addition, even headline tax rates have been declining globally, and many countries operate complex systems of exemptions which means that the actual effective rate paid by corporates does not bear any relationship to the headline rate.

This distorts competition in a number of ways: It advantages the bigger multinational players at the expensive of smaller local businesses which cannot claim such exemptions. It encourages a race to the bottom in corporate taxation amongst countries competing for FDI. It reduces the tax take for cash strapped states seeking to maintain social services, and increases the power of wealthy corporates relative to to democratic states. It can be argued that this is the dominant engine driving the increase in global inequality more generally.

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Ireland to appeal Apple Ruling

by Frank Schnittger Tue Aug 30th, 2016 at 08:25:39 PM EST

The European Commission has made a ruling charging Ireland with giving illegal state aid to Apple and ordering Ireland to collect €13 Billion in back taxes due - a figure that represents c. 6% of Ireland's total national debt. Apple has a market valuation of $571bn, a cash pile of $230bn, and an expected $53 billion in free cash flow this year, making the ruling material but hardly terminal from a corporate point of view. Apple shares are down less than 1% on the day.

Irish Finance Minister Michael Noonan is recommending that the Irish government appeal the finding to the European Court. Yes, you read that right.  The Irish Finance Minister doesn't want the money. Apparently collecting the money would damage Ireland's ability to attract multi-nationals like Apple to Ireland in the first place.  Noonan is also concerned that the ruling might be seen to imply wrong-doing by Irish tax officials and that it represents an encroachment by the Commission of Ireland's sovereign right to determine its own tax policies.

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Sarkozy's auto-da-fe

by Migeru Wed Aug 24th, 2016 at 02:29:58 PM EST

Cross-posted on The Court Astrologer.

In his satire Candide, published in 1759, Voltaire pokes fun at the way the Portuguese Inquisition persecuted jews who had falsely converted to Catholicism:

After the earthquake had destroyed three-fourths of Lisbon, the sages of that country could think of no means more effectual to prevent utter ruin than to give the people a beautiful auto-da-fe; for it had been decided by the University of Coimbra, that the burning of a few people alive by a slow fire, and with great ceremony, is an infallible secret to hinder the earth from quaking.



In consequence hereof, they had seized on a Biscayner, convicted of having married his godmother, and on two Portuguese, for rejecting the bacon which larded a chicken they were eating[7]; after dinner, they came and secured Dr. Pangloss, and his disciple Candide, the one for speaking his mind, the other for having listened with an air of approbation.
Fast-forward to 2016, and Sarkozy's extremism is indistinguishable from Voltaire's satire.

Frontpaged - Frank Schnittger

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Stiglitz: Reform or Divorce in Europe

by Melanchthon Tue Aug 23rd, 2016 at 02:45:51 PM EST

Joseph Stiglitz just published an interesting analysis of Europe's economic and political situation: Reform or Divorce in Europe.

He points to four kinds of explanations for the current dire situation Europe is facing:

  • blame the victim (public debt, welfare state and labour-market protections)
  • bad leaders and policies (insufficent economic skills, austerity, structural reforms...)
  • blame European bureaucracy and regulations
  • an ill-designed euro

Frontpaged with minor edit - Frank Schnittger

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Arms races and obesity

by Colman Fri Aug 19th, 2016 at 01:01:02 PM EST

This is nice and clear from Chris Dillow:

There’s a nice headline in the Times today:

Make us sell healthy food, supermarkets implore May.

This invites the obvious reply: if you want to sell healthy food, why don’t you just do so?

The answer lies in competitive pressures. If any individual supermarket tries to cut salt in its products or refrains from special offers on unhealthy foods, it would lose market share to rivals.

Each individual supermarket’s rational attempts to maximize profits thus leads to an outcome which none of them really wants – the over-marketing of unhealthy food. This is an example of an arms race, a process whereby individually rational behaviour has results which are collectively undesirable. Here are some other examples:

This is the sort of thing states are meant to fix. But free markets!

Comments >> (4 comments)

Will a Brexit agreement require ratification by 28 Member states?

by Frank Schnittger Thu Aug 18th, 2016 at 02:04:41 PM EST

Luis de Sousa raises an important point. Will a Brexit agreement require ratification by 28 Member states, or can it simply be agreed, by majority vote of the EU Council as provided for in Article 50 of the Lisbon Treaty? He quotes legal opinion to the effect that all 27 remaining member states would have to ratify any trading agreement post Brexit: EU Law Analysis: Article 50 TEU: The uses and abuses of the process of withdrawing from the EU

In this context, it should be noted that (contrary to what is sometimes asserted), there's no legal obligation for the remaining EU to sign a free trade agreement with the UK. The words `future relationship' assume that there would be some treaties between the UK and the EU post-Brexit, but do not specify what their content would be.


This point is politically significant because while the withdrawal arrangement would be negotiated by a qualified majority, most of the EU's free trade agreements are in practice `mixed agreements', i.e. requiring the consent of the EU institutions and ratification by all of the Member States. That's because those agreements usually contain rules going outside the scope of the EU's trade policy.  While it seems likely that in practice the remaining EU would be willing to enter into a trade agreement with the UK (see, for instance, the `gaming' exercise conducted by Open Europe), the unanimity requirement would complicate this.

In short, this legal opinion considers a Brexit agreement to consist of mainly transitional measures to facilitate the departure of the UK from the EU, which may or may not include special arrangements for ongoing free trade. I think we are in danger of confusing the process by which an exit agreement between the UK and EU might be reached, and the content of what it might contain.

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A 2nd referendum to resolve Brexit?

by Colman Wed Aug 17th, 2016 at 09:07:18 AM EST

The often-sensible Jon Worth writes in a well-referenced post on his blog (how old-fashioned!):

The way out of this impasse might just be – and whisper this quietly – the promise of another referendum, with the deal negotiated to leave the EU as one option, and remaining in the EU as the other option. This is the line that Labour leadership contender Owen Smith is pushing. Essentially the original Leave campaign was an impossible combination of utopias – some voted Leave to restrict migration, some did so thinking there would be no economic cost to leaving (and even that so-called Norway option now seems questionable), and others thought leaving would save the NHS, but as this infographic outlines, a trade-off between these different Brexit options is necessary. Robert Peston’s Facebook note explains this further. I’m pretty sure that no negotiable Brexit option would be adequately appealing enough to make it more appealing that remaining in the European Union. And that is before taking into account all of the rest of the EU Member States’ demands towards the UK.

This matches my sense of a possible political outcome: the other possibility is running an election on the basis of competing Brexit plans, but that doesn't seem likely given the divisions within the parties. No plan for Brexit has support - the only thing clear about the referendum result is that it leaves the desired outcome unclear.

A proper referendum, with clear choices, preferably legally binding would clean this mess up.

Comments >> (30 comments)

Is Brexit without invoking Article 50 possible?

by Frank Schnittger Sat Aug 6th, 2016 at 11:49:22 AM EST

In a long an spirited discussion over The Brexit Negotiation Process, Colman made a point which has not been adequately addressed:

Colman:

Brexit without article 50 is also possible.

So is some sort of face-saving operation for the UK (which would, if it was anti-immigrant, fit nicely into the agenda of a lot of EU leaders).

Is this really the case?

A few preliminary points need to be made:

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Ireland's Post Brexit strategy

by Frank Schnittger Wed Aug 3rd, 2016 at 03:13:21 PM EST

The Brexit vote has already had an effect on consumer confidence and investor sentiment in the UK with the Governor of the Bank of England warning of the likelihood of at least a technical recession in the near term. A prolonged period of uncertainty is unlikely to improve that outlook in the medium term, but at least the UK can use Sterling devaluation, monetary policy easing, and reduced rates of corporate tax to mitigate its worst effects in the short term. That is, however, of no comfort to Irish exporters to the UK who are heavily dependent on the UK market - especially the small and medium sized indigenous sectors of the economy.

Indeed the whole Irish economy is heavily integrated with the UK economy although that dependency has reduced markedly since entry into the EU. Exports to the UK currently amount to c. 14% of total exports  with the USA, Belgium and Germany accounting for 20%, 13% and 8% respectively. An official report for the Irish Government has estimated that Brexit could result in an average 20% reduction in trade flows between Ireland and the UK and the OECD has estimated that Ireland's GDP will be reduced by 1.2% as a result.

That official report is also pessimistic that Ireland can make up the difference by increasing its share of FDI that would otherwise have gone to the UK.  Despite the proclamations of popular economists like David McWilliams that "Brand Britain is ours for the taking", it estimates that the ability of Dublin to attract business from London will be limited by Sterling devaluation, reduced UK corporate tax rates, and a shortage of suitable office space, housing and schools in the greater Dublin area. Nevertheless, the shape of the Irish government and corporate response to the Brexit crisis (or opportunity) is now becoming clear:

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Is the White House an American iconic image built by the hands of slaves?

by Democrats Ramshield Sat Jul 30th, 2016 at 12:23:59 AM EST

(Written by an American expat living in Germany)

Recently Michelle Obama touched off a firestorm when she remarked that in the White House which slave labor helped build was now the playground of her two young daughters, as a statement in her view about how far America had come.

Frontpaged with minor edit - Frank Schnittger

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The Brexit Negotiation Process

by Frank Schnittger Thu Jul 28th, 2016 at 03:56:41 PM EST

A reader who wishes to remain anonymous writes (By email):

Is it yet clear what the process for British Exit is and what is to be negotiated?" UK politicians seem to depict a different view of what is involved than the EU Commission. I think the answer is important and is not being given enough attention in the UK.

Cecila Malmstrom (EU Commissioner for Trade) has stated that the process is two stage and sequential. First UK leaves completely to third country status and WTO rules.  Then, UK can begin to negotiate its future relationship, i.e. the terms of access to the single market is what some, but not all, Tory politicians think is necessary.  [UK can either negotiate that break cleanly within two years of A50 or it happens at the end of that unless extended by unanimous agreement.]

Paragraphs 3 and 4 of the official statement following the 29th June meeting of the 27 seems to support this view though the statement is not intended to clarify that Malmstrom view.

  1. Once the [A50] notification has been received, the European Council will adopt guidelines for the negotiations of an agreement with the UK. In the further process the European Commission and the European Parliament will play their full role in accordance with the Treaties.

  2. In the future, we hope to have the UK as a close partner of the EU and we look forward to the UK stating its intentions in this respect. Any agreement, which will be concluded with the UK as a third country, will have to be based on a balance of rights and obligations. Access to the Single Market requires acceptance of all four freedoms. [My emphasis]

Again delusion sets in amongst the Tories when they think UK is going to control movement but have full access with all the existing benefits. [I am aware that Switzerland has failed to come up with such a deal and is running out of time to resolve its position following the Feb 2014 Swiss referendum].

Liam Fox [UK International Trade Secretary] has described Malmstrom's view as "bizarre, stupid, preposterous and ridiculous" according to the Guardian.

It would be interesting to find out if Juncker, Tusk and Michel Barnier take the same position as Malmstrom. But I don't think I am in a position to ask them. Perhaps you are or know someone who can?

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RIP: Finbarr Flood 1938-2016

by Frank Schnittger Mon Jul 25th, 2016 at 08:56:45 PM EST


Finbarr Flood was one of my first bosses in Guinness and taught me much of what I have learned about surviving in big business. He had joined the company as a messenger boy aged 14 and also played semi-professional soccer as a goal-keeper in both Ireland and Scotland. Having risen through the ranks to become Managing Director, he left to pursue a further career as Chairman of the Irish Labour Court, Chairman of Shelbourne Football Club, and Chair of a number of city rejuvenation projects.  Having left school at 14 he was extremely chuffed to receive an honorary Doctorate from the Dublin Institute of Technology and to become an adjunct Professor to Trinity College Dublin.

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Party and Policy in a Time of Monsters

by ChrisCook Sun Jul 24th, 2016 at 12:36:47 PM EST

The old world is dying and the new world struggles to be born. Now is the time of monsters. Gramsci

This Diary grew out of a response to AR Geezer's LQD: Labour's Civil War Is Due To A Paradigm Shift.

As I have been saying on European Tribune since I first turned up here (which is longer ago than I care to remember) I think we are seeing the emergence of Society (Paradigm) 3.0.

Society 1.0 (which still exists everywhere but most evidently in the developing world) is decentralised/local but disconnected with physical market presence and interaction based on personal trust/credit.

Society 2.0 is centralised but connected, but with presence in the market and in decision making via trusted intermediaries/middlemen, being corporates and nation states respectively.

I see the emerging Society 3.0 as being decentralised but connected, with network presence replacing both physical presence and presence through intermediaries.

The institutions and instruments necessary for such a Society 3.0 have intrigued me and been the subject of my work for well over fifteen years.

Frontpaged - Frank Schnittger

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Brexit and a United Ireland.

by Frank Schnittger Tue Jul 19th, 2016 at 02:44:45 PM EST

The 1998 Good Friday Agreement is an international Treaty between the UK and the Republic of Ireland lodged with the United Nations.  It was incorporated into the Irish Constitution by a referendum which was carried by a 94% yes vote.  It was also approved by a 71% majority vote in a referendum in Northern Ireland and sets up a number of internal Northern Ireland, North South, and British Irish institutions.

The Good Friday agreement was predicated on both Ireland and the United Kingdom being members of the European Union and the EU has played an active role in facilitating the peace process by supporting peace and reconciliation in the border regions. Peace IV has just been approved and has earmarked some €269m to this end. Any re-emergence of a "hard border" with customs and immigration controls will jeopardise the much improved community relations within Northern Ireland which are dependent, in part, on much closer North-south integration, at least as far as the Nationalist community is concerned.

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Culture Wars or Globalization for make Great Benefit Glorious Nation of ...

by epochepoque Thu Jul 14th, 2016 at 08:05:58 PM EST

Authoritarianism and the Logic of Intolerant Nationalism

My previous diary focused on the socioeconomic roots of the current populist tremors. As polling data shows, that explanation is not sufficient. Today I found an article that delineates the psychological sources of the authoritarian backlash.

When and Why Nationalism Beats Globalism - And how moral psychology can help explain and reduce tensions between the two - Jonathan Haidt - The American Interest

I'll show how globalization and rising prosperity have changed the values and behavior of the urban elite, leading them to talk and act in ways that unwittingly activate authoritarian tendencies in a subset of the nationalists. I'll show why immigration has been so central in nearly all right-wing populist movements. It's not just the spark, it's the explosive material, and those who dismiss anti-immigrant sentiment as mere racism have missed several important aspects of moral psychology related to the general human need to live in a stable and coherent moral order.
Frontpaged - Frank Schnittger

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News and Views

 19 - 25 September 2016

by Bjinse - Sep 20, 30 comments

Your take on today's news media

 12 - 18 September 2016

by Bjinse - Sep 12, 29 comments

Your take on today's news media

 Open Thread 19 - 25 September

by Bjinse - Sep 20, 8 comments

Here's another nice thread you've gotten me into

 Open Thread 12 - 18 September

by Bjinse - Sep 12, 23 comments

If you want something, go thread it

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