JUST THE FACTS MA’AM 1909 CXL

JUST THE FACTS MA’AM

What follows excludes details of Brexit’s probable effects on Ireland and the Backstop issue.

The penultimate acts in the Brexit saga are being played out. Boris Johnson is currently touting for a “new” deal around EU capitals The British Parliament reconvenes on September 3. Will Johnson, Cummings and the Brexiteers get their way and a deal, or crash out without one and go for an early election? Will the Opposition gel together sufficiently to force (and win) a vote of No Confidence and either trigger an early election or cobble together some form of national government to forestall Brexit and seek an extension to Article 50? What will be the result of any election? The bookies are giving 5 to 2 on an election before Christmas, 6 to 4 against any party securing a majority and 15 to 8 on Britain to exit the EU this year.

Stirring times and interesting odds. One way or another Britain seems on her way out of the EU, possibly as early as Halloween, barring an extraordinary political upheaval in a country apparently split down the middle on the issue. There are doom and gloom economic forecasts from the civil service and financial advisers in both Britain and Northern Ireland, most recently on August 18 the “Yellowhammer Report”, a leak from the British Cabinet Office. This detailed the likely immediate short term effects of a No Deal exit. The picture was bleak: threats to fresh food supplies and time-sensitive medicines as well as the knock on effects of disruption and logjam at the ports, with an anticipated further lurch downward in the value of sterling on top of its 15% fall since 2016. The knee-jerk reaction of the Brexiteers to this and all such forecasts has been to rubbish them and declare loudly that “it will be alright on the night.”

With the future so uncertain, predictions are virtually worthless, beyond the fact that even the most sanguine suggest that the collateral damage from any Brexit is likely to be at its worst in both parts of Ireland. Ireland’s difficulties with Britain as a major trading partner, particularly in terms of food exports, are well known. Northern Ireland’s top civil servant, ironically called Sterling, has consistently pointed out the threats to the North’s economy, and the possible potential for renewed political violence in the event of a hard border, to little or no avail. This seems not to faze Johnson and his acolytes. Indeed, recent British media reports suggest that Ireland’s difficulties are fully grasped in Whitehall and may actually be regarded by Johnson as a trump (apologies) card in pressurising the EU into a new deal.

Whatever about the Brexiteers’ assertions that the process will prove less harmful and disruptive for the UK after any initial hiccup, certain salient facts about Brexit bear repeating. Britain, the fifth largest economy in the world, is taking the counter-intuitive step of turning its back on forty five years of steady integration into the largest and most successful free trade, economic and social multinational organisation on the planet. Leaving involves parting company with its major trading partners, with the cornerstones of the EU, the Single Market and the Customs Union, as well as the other Treaty provisions. Britain will also cede its membership, and therefore influence, in the Union’s decision making processes. A massive change. From the date Britain leaves it will be on the outside looking in.

This on the basis of a narrow majority (under 4%) in the 2016 referendum which showed marked regional and class differences, with Scotland and Northern Ireland voting decisively to remain and virtually the whole of Northern England voting to leave. The Leave campaign concentrated on “taking back control” of Britain’s borders -code for keeping immigrants out – eliminating Britain’s net €9 billion contribution to the EU budget, and dangled the prospect of potentially lucrative trade deals with the rest of the world for a Britain supposedly unshackled by EU trade policy, with attendant new jobs and prosperity. Three years on the complexities of disentangling Britain from the EU have been starkly revealed, without apparently altering public attitudes in the UK, which on both sides seem more entrenched than ever.

The trade fantasy, parroted daily by British Ministers, merits scrutiny. In 2018 Britain exported $484 billion of goods and services, of which 46.6% went to other EU countries, with $140 billion going to four, Germany, Netherlands, France and Ireland, as against the $64.4 billion (13.3%) to the USA. Britain imported a colossal $673 billion, over half (52.5%) of which came from the EU, which accounted for seven of Britain’s top ten suppliers, with the same four accounting for almost $120 billion, compared to the $35 billion imported from the USA. Well might Trump hail the prospect of a trade deal with post–Brexit Britain; on those figures the USA can hardly but improve its trading position.

Granting Mark Twain’s reservation about statistics, there’s surely a lesson here for the ardent Brexiteers. Quite apart from supply chains, contracts, the introduction of a customs regime and shifts in exchange rates, such is the level of Britain’s current trade with the EU in both directions, that any and every variation or trade hiccup consequent on giving up the current preferential situation, carries implications for Britain’s economy. A No Deal exit would be very serious, with WTO rules applying; even any “deal” which interfered with the current free access would be detrimental.

Interestingly also, while the volumes of trade have greatly increased since 1988, historically the destination percentages have remained relatively stable. Thus in 1988 Britain exported 50.4% to the (much smaller) EU and 12.9% to the USA, importing 52.5% from the EU and 10.1% from the USA. And in 1960 Britain was exporting 9.3% to the USA and importing 12.5%, while trade with the infant EC/EU was running at roughly 23% both ways. Essentially trade with the countries of the EU expanded massively after Britain joined, with the EU replacing the Commonwealth as the key plank in Britain’s trade structure. This had been a major factor behind Britain joining in the first place. Britain’s only major new trading partner to emerge in the last 30 years is China, which unsurprisingly enjoys a huge trade surplus with the UK.

A massive additional trade bonanza with third countries seems unlikely. Britain currently exports worldwide partly on the basis of the EU’s economic “clout.” Could it do better alone, adding to what it already sells (only added value counts!)? To date it has agreed replacement trading arrangements with some countries covered by existing EU trade agreements, of which Switzerland and Norway alone are significant ; they already account for the bulk of Britain’s other European trade, so nothing new there. Generally trade negotiations are lengthy and difficult; they are also two-way and the other parties, like the USA, are likely to fight their corner. No easy solution there either.

Last year Martin Donnelly, Britain’s exasperated outgoing chief trade official, described hoping for a better deal with third countries as wishing for “a fairy godmother,” adding that Brexit was akin to swapping a three-course dinner for the future promise of a packet of potato chips.
Potato chips anyone?
25/8/19

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