UK to stay in Common Transit Convention

The government announced this means “simplified cross border trade for UK businesses exporting their goods”. “It will provide cashflow benefits to traders and aid trade flow at key points of entry …….. traders will only have to make customs declarations and pay import duties when they arrive at their final destination.” How about some apologies from all those who said border friction would b e very damaging?

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The UK Treasury turns optimistic

Apparently the Treasury think we are going to be creating so many new jobs in the next few years we need to ensure we can invite in a large number of new workers without restriction. That must be a revised forecast,  based on a new optimism about Brexit.

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What does Parliament want on Brexit?

The government has now decided to delay voting on the draft Withdrawal Agreement until 14 January. It looks likely that it will still lose that vote.  The government hopes that it will extract from the EU better language about a  timetable for negotiating a trade and future partnership agreement, which is the way to avoid the Irish backstop.  They want  stronger language about avoiding use of the Irish backstop in any way that might be available. It may also play up some of the fears of No deal in the hope of persuading more MPs to vote for the Agreement. Given the 100 or so Conservative MP public pledges to vote against it is difficult to see how the government can win the vote, even allowing for a substantial number of MPs changing their minds. The DUP have said they cannot vote for the Agreement unless the text concerning the Irish backstop is amended. The EU so far has refused all attempts to re open the legal text. Instead it offers clarifications and reassurances that are not legally binding.  The DUP and others say if it is the intention of both sides to avoid the backstop, then delete it from the text as an earnest of good will on this matter.

Meanwhile the government is intensifying work on a Clean WTO Brexit. It has announced resolution of the aviation issues so it can assure us the planes will fly, and is well advanced with fixes to ensure reasonable transit times for goods  through channel ports. The EU and its member states too are busy working on this, as they now sense it is a possible outcome even though the UK government says it intends to pilot the Withdrawal Agreement through Parliament. The government has announced the UK will remain in the Common Transit Convention after departure which ensures simplified cross border trade as today.

The House of Commons has a large Remain majority, with a set of Opposition parties keen to use the issue to destabilise the government. There are several other options in play amongst Remain factions. Some favour a second referendum. Some want to cancel Brexit altogether and just tell the people they cannot negotiate a satisfactory exit. Some believe it would be possible to negotiate a better or different deal and favour a delay to attempt a different approach.

The second referendum idea cannot now be legislated in time to hold the vote before the UK  leaves on 29 March 2019. Proponents therefore have to support delay to the UK exit, which requires agreement with the EU and repeal or amendment of the EU Withdrawal Act. The EU is reluctant to allow much slippage as they have European Parliamentary elections to consider next May which could change the political direction of the EU itself. The current plan is the UK will not be contesting them.  Advocates disagree about the question to be put in a referendum. Some want a three way question, offering WTO exit, staying in or the Mrs May Withdrawal Agreement.  Were staying in to win with say 35% of the vote the other 65% would say they had been cheated of Brexit by a minority of voters. Some want a two way skewed to staying in, running Remain against Mrs May’s Withdrawal Agreement. Leave voters would say this did not offer them their choice. Some want a Leave oriented vote, running the Withdrawal Agreement against just leaving, on the grounds that Leave/Remain has been settled by the original People’s Vote. Remain of course does not like this approach. The government so far has ruled all these out comprehensively. It would require a government with a majority to draft the legislation and make the time available to try to pass it through Parliament. This all looks unlikely. Conservative MPs are mainly opponents of a second vote and would not even wish to vote for a timetable motion to help get a second Referendum Bill through, so it would require full Labour backing from the outset which Mr Corbyn would  be reluctant to offer.

It is difficult to believe this Parliament would vote to simply remain and argue the people were wrong to vote for Leave. It would need the full repeal of the EU Withdrawal Act and supporting measures. Both main parties in the Commons stood for election in 2017 on a Manifesto to implement the result of the referendum. It would require the two front benches of Labour and Conservative to join together to force it through against a major revolt on the Conservative side and a smaller revolt on the Labour side, with considerable public anger.

So that leaves us with some form of delay as the other option to the WTO Clean Brexit. The EU may well say they have set out the terms for delay. They are in the Withdrawal Agreement. The UK would just have to swallow those if it wants another 21 months or up to 45 months more to negotiate a future relationship. In the meantime the Withdrawal Agreement sets out the terms for the UK continuing in the single market and customs union. If the EU were to back down on this stance, they could presumably agree to the UK continuing with current arrangements for  a bit longer to see if anything different could emerge from new  talks. This would be quite a loss of face for the EU, but would not guarantee they would go on to concede on all the issues over the future partnership to make it palatable to the UK. It is difficult to see what new would emerge from the talks, given the lack of any progress on the future partnership in the 30 months used up so far.

There could be an agreement to delay for a few months  to tidy up remaining issues for a managed No Deal Brexit between the EU and the UK, but this would also require legislation in the UK and the consent of both the UK and EU Parliaments.

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A WTO exit Cabinet

We are told today the Cabinet meets to review and progress preparations for the UK to leave the EU next March without signing a Withdrawal Agreement. Many Ministers and officials have been working on this contingency plan ever since we voted to leave the EU. Preparations should by now be well advanced. Today the Cabinet needs to set out a programme for telling us all of their success in ensuring things work smoothly on March 30th next year, and in giving helpful guidance about how trade will be progressed and transport will continue to move.

Ministers should be  confident that the arrangements they are putting in place will work, and sensibly reassuring that in many cases things will continue just as they are the day before we leave. The Transport Secretary has set out in detail that the planes will continue to fly after March 29th, and that everyone who wishes can book their business trip or their holiday with confidence for next year after exit. Air Services Agreements are being put in place.

Work is well advanced at Calais to handle customs and any additional checks required without undue delays for trucks. Calais wishes to keep the  business and is well aware of the competitive threat from Belgian and Dutch ports if they were not capable of handling lorries with good transit times. The Republic of Ireland is  very keen Calais gets its act together, as substantial volumes of Irish goods use the roads of the UK as a land bridge to get things to and from the continent more quickly than going by a longer sea ferry route. They wish to see rapid transit times at Calais as well as us. French exporters to the UK also have a strong interest in Calais working smoothly and efficiently. We need to  be told of the various Ro Ro and container options and arrangements so trade continues to flow.

The NHS needs to continue importing pharmaceuticals from the continent under existing contracts. These drugs are all licenced and approved, and already need to come to the UK with proper reporting of how and where they were made, what the tests results were and how they conform with the standards required.  The Health Secretary needs to confirm he has ensured this will continue in good time. There should not  be a need for additional stockpiles if he has done his job properly for the NHS.

I know of no supermarket that thinks it will  be short of food in April. Ministers should spell out what if any additional checks are needed and how they have put in capacity to ensure these take place without delaying imports.

Ministers are employed by us to  make these things work. Instead of fuelling fears that things might go wrong, as some seem to do, we want to hear well based reassurance from them that they are doing their jobs properly and have plans in place to make things work. I have still not heard a scare story I believe, and do not think the EU will be able to mount some kind of self harming blockade of their trade with us after we leave. I find myself in the position of having more confidence in our Ministers’ abilities to make it work than they sometimes express in themselves. I have this confidence because most of what happens to ensure imports and exports work is nothing whatsoever to do with governments. It rests on a willing buyer and a willing seller, who will still  be there in abundance the day  we leave the EU. The day after we have left the same rules and regulations apply in the UK as the day  before we leave. There can be a gentle transition on that day as a result.

It is apparently a shock to some in government that the UK can once again run her own affairs. That is what we pay the government salaries to do, so let’s hear how they are doing it .I repeated my request yesterday to the Prime Minister that we should publish our tariff schedule now, and should remove all tariffs form imported components to be used by UK  based manufacturers. That would  be a good boost to UK manufacturing.

 

 

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A managed WTO Brexit

Jeremy Hunt has said on behalf of the government that we can handle a WTO exit next March. The whole government needs to spend the next three motnhs preparing well, sorting out the remaining issues quickly. It needs to provide an upbeat commentary about all the things it has  done to ensure a smooth transition when we leave. The government assures us it has been preparing for 2.5 years so far, and must by now have done most of the work. We know that the ports will operate well and that the planes will fly.

Still the lies flow from those who want to reverse the decision of the referendum on the media. They are now arguing all over again that we will not be able to export food once we leave the EU. If the EU does impose high tariffs on UK food exports – one of the few areas they could do so as there are some high tariffs on non EU food at the moment – the UK will clearly switch some production from export to the EU to domestic consumption. Our own  market would be better protected from EU imports by our also imposing similar tariffs. We should at the same time lower the average tariff we impose on food to encourage non EU countries to buy more of our food by encouraging  mutual reduction of tariff barriers and to make imported food from the non EU which we cannot produce for ourselves cheaper.  The scare stories usually fail to understand two crucial things. We will decide how high a  tariff if any to place on imports. The EU cannot impose a higher tariff on our exports to them than it imposes on any other WTO country. The EU currently has low average tariffs of around 3%, with no tariffs at all on half the trade. The pound has fallen by more than 3% against the Euro so overall there is no loss of competitiveness if they do impose some tariffs.

The government is over reacting to stories of friction at our borders once we leave. It is busy encouraging stockpiles of medicines for no good reason. It has confirmed there are  no continental companies cancelling contracts to supply after March 29. There are no UK plans to delay the drugs for longer at the ports. Were there to be any extra delays then the supplying companies would just have to send them a bit earlier, as they have to today if there are strikes or crashes affecting continental roads .  There is plenty of container capacity should there be Ro Ro problems ,but Calais is busy fitting out its port to handle customs to ensure it keeps the business after we leave.

The so called non tariff barriers to trade include VAT, Excise and company tax. These frictions we already handle at our borders with the rest of the EU as we have different rates and incidence of these taxes. They include inspections of food and goods quality and safety. Most of these checks are done away from the border. The exporting company tests the product at the factory and supplies the test details on the electronic record of the consignment. The importing company may check again on delivery. Customs and national safety authorities can spot check consignments to ensure it is as recorded, usually on suspicion from investigation or tip off. None of this need cause new extra delays at ports. If we can handle the complexities of VAT and Excise today why is a tariff tax more difficult?

What is so depressing is how remorselessly negative the media and many of their chosen interviewees are. It as if we were never able today to import or export anything outside the EU, and as if governments were incapable of finding an easy way of lifting more money off companies in the form of extra customs dues if we leave and some tariffs are imposed. There are strict limits to how much power the EU has over trading companies, and there are international and EU Treaty obligations on the EU itself to promote and encourage a good trade with non EU neighbouring states. Some Remain supporters seem to think that the EU is evil in intent and will be a lawbreaker just to be difficult.

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The curious case of the car industry

Day after day I hear scare stories on the media that the UK car industry may suffer  if some undefined friction were created at our ports impeding the inflow of components after we have left the EU. I have proposed no tariffs on any parts coming in, so there would be less friction on non EU parts than today, and the government may well adopt such a proposal. They have certainly not ruled it out. No-one has yet explained why we will mess up our ports in ways which delay deliveries to car plants. Just in Time systems anyway flex according to how far the components come and the journey conditions they experience in the regular course of business.

What I do not hear is analysis and concern about the very real damage being done to our car industry whilst we remain full members of the EU. The collapse in car sales since the Spring of 2017 has nothing to do with Brexit and everything to do with the high Vehicle Excise Duties, the tax and other regulatory attacks  on diesel cars, and the tough guidance to banks to cut down the car loans imposed by the UK authorities. As a result car sales have fallen by almost one quarter, and car sales by Jaguar Land Rover have been hit much harder given the high proportion of expensive cars and of diesels in their mix.

Why doesn’t the media take up these unhelpful policies, and make more of them than the silly scare stories about why might  happen if we just leave the EU?

It would also be good to have more informed comment and discussion of a real economic problem worldwide, rather than the false worries about Brexit. The rest of the world is talking about the general move to slow money and credit growth in the USA, the Eurozone and China as well as in the UK. Car sales are very dependent on  credit and get hurt early on when rates rises or when cash is restricted in banking systems. Car sales in China fell heavily last month. US car sales peaked earlier this year and are also in decline. The German car industry got hit badly this autumn. It was largely attributed to changes in EU regulations delaying certification and sales of new vehicles, but it is probably also about the turning of the credit cycle and the decline in underlying demand in the world car market.

I have often said that whilst Brexit is a very important political and democratic event for the UK, it is unlikely to have much impact on the world economy, and will have just a modest positive impact on the UK economy once we leave if the government follows sensible policies. We should try to prevent endless scare stories and the Groundhog day coverage that is the current UK media from stifling debate on the things that do have an economic impact. The media should  be expressing some alarm about what monetary tightening is now doing to the world car industry. There is no obvious inflation threat in the advanced world, and clear signs of economic slowdown.

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What should the Prime Minister do now?

The Prime Minister needs to understand that her Agreement cannot pass the Commons. All the Opposition parties oppose it. The DUP hate it. Around 100 Conservative MPs have stated in public they do not agree with it.

A substantial number of those MPs might change their vote on the Agreement if the Northern Ireland backstop were removed completely, or if there was an unambiguous and straightforward way for the UK to end it unilaterally once imposed. Whilst the vote on  the Agreement would then be narrower, there would still be a substantial group of Conservative MPs who would oppose the Agreement for wider reasons often set out here.  The Prime Minister ignores these other problems – the large sum of money committed for nothing, the indeterminate period left in the customs union, the vulnerability of our economy to new laws and regulations that could hurt us – all summed up as the opposite of the Leave we voted for.  She assumes she could get practically every DUP and Conservative MP to change their minds.

She also assumed in the Confidence Vote meeting that  the EU will offer some legally binding text which does scupper the Backstop. That looks extremely unlikely, given the stance of the EU so far. If we assume they are not bluffing when they say they will not re open the Withdrawal Agreement text it is difficult to see any reassurance or political declaration about the Backstop persuading the DUP and other critics, as what matters is the law as written rather than statements of how a future EU might behave. One of the problems with that is the imminent European Parliament elections and a new Commission, so what is the value of any promises by the current set up?

I have the following questions for the PM

What legal text have you tabled to remove the Backstop? Will you share it with us as we might agree with it?

What indications if any are there that the EU will moderate its stance and resume talks about legal change to the Backstop part of the Agreement?

If there is no new text and no prospect of talks to change this draft law, how do you envisage getting the DUP back on board to support the government?

If the DUP remain largely detached, how can the government proceed with its wider programme of work?

What action if any are you taking to deal with the other large  problems with the Agreement as around 400 MPs see it?

If there are  no good answers to these questions, then the PM should come to the Commons and announce that unf0rtunately the Agreement cannot be fixed so she is withdrawing it. She should then return to the EU and discuss the best way to proceed to exit, with accelerated work on the various agreements it would be nice to have to make it easier for both sides.  She should finally get round to tabling a Canada style free trade agreement and set out again how the Northern Ireland/Republic of Ireland border can be handled much as now. This present currency, Excise, VAT and anti terrorist border could also be a customs and regulatory border, with most of the checks done well away from the border and the information shared electronically in advance of the border crossing. Managed exit without a Withdrawal Agreement is what most Leave voters want, given the penal and one sided nature of the Withdrawal Agreement.

 

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Update on Mrs May

Since I wrote this piece it has become clear that the EU is not in the business of re-opening the Agreement at all. They have also moved away from offering more formal reassurances which seemed to be on offer in draft. Instead  more of them saying the disagreement between the Commons and the Prime Minister on the Agreement is another reason to need the backstop insurance. The Prime Minister has changed her language back to reassurances from legal  changes.

It is difficult to see the  DUP coming back on b0ard given the lack of any legal text to remove the  backstop. Were there to be a change of heart by the EU in the new year on this matter, there are still considerably  more Conservative MPs than the government  majority with the DUP  who oppose the Agreement for a wide range of reasons including sending them too much money, delaying our exit without a clear end date, and putting us under EU rules for an indeterminate period with no vote or voice on what new burdens and requirements they might impose.

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Mrs May’s position

On Wednesday Mrs May gained 63% support from Conservative MPs, or as Jacob Rees Mogg points out lost the support of around 70% of all those MPs who do not have some job granted to them by her. This assumes all those who express public loyalty to her in office voted accordingly. I imagine most of them did. Most of those who could not do so have already resigned.

Earlier in the day it appeared that her team was worried about the vote. She therefore changed her position on two important matters. She told us she no longer planned to lead the party into the next General election, assuming that is in 2022. There were various MPs prepared for her to carry on for a bit longer who were nonetheless saying they wanted a new leader for the election . She also told us she was returning again to the continent to seek legal changes to the Irish backstop arrangement. This was different from previous language, when in line with the EU she was talking about gaining clarifications and reassurances without changing the text of the Withdrawal Agreement.

She did not clarify if she would lead the Conservatives were there to be an earlier election. Nor did she clarify what kind of legal change she was seeking or how she will persuade the EU to re open the text of the Withdrawal Agreement. She also has said that any re opening could re open features of the Agreement like Gibraltar and fishing that some in the EU want to make worse from the UK point of view, so it is an option with risks.

What difference does this make? It has revealed to the  government and public that there are 117 Conservative MPs who lack confidence in the PM, which is largely related to their opposition to the Withdrawal Agreement she has made her own. It is therefore difficult to see how Mrs May can present her Agreement to the Commons and secure support for it. She says she plans to get a change to the Irish backstop. The first test of any new words forthcoming from the EU will be the reaction of the DUP. If the DUP do not accept the revisions as sufficient to banish the Irish backstop, the government will remain with no reliable majority, subject to endless alarms over trying to sustain its position in Commons votes. The DUP have always made clear the whole backstop has to go. Many Conservatives want it out or want a clear legal ability of the UK to cancel it unilaterally, which of course means it is not then the kind of backstop the EU insists on. The significance of the backstop is it would treat Northern Ireland differently from the rest of the UK, and would create a border between Northern Ireland and the rest of the UK. I and others have made clear our opposition to the backstop, but also to several other important features of the Agreement. Even if they could delete the backstop I would still oppose the Agreement.

The Prime Minister needs to rebuild her support amongst Conservative and DUP MPs as an urgent priority. Winning the confidence vote is only a first step. She now has to adopt an EU policy that can command support within her coalition, which the current Agreement lamentably fails to do. Any attempt to find a way of harnessing Labour votes to offset the large slice of Conservative and DUP votes she does not command on this issue is likely to be a fruitless quest, given Labour’s understandable wish to have a General election and unwillingness to name a particular proposal for exit that they can unite to support. Any attempt to woo Labour would also increase the numbers of Conservative MPs who oppose the Prime Minister.

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Coming soon – Union Jack and the Beanstalk a topical retake on an old tale

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  • About John Redwood


    John Redwood won a free place at Kent College, Canterbury, He graduated from Magdalen College Oxford, has a DPhil and is a fellow of All Souls College. A businessman by background, he has been a director of NM Rothschild merchant bank and chairman of a quoted industrial PLC.

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