Another Brexit Mess: “Grandfathering” Existing Free Trade Agreements Looks Unlikely

A good default assumption with Brexit is that nothing is simple. And as we are seeing again and again, the Government is making its difficult position even worse by acting as if things are or could be simple when there is no obvious mechanism for achieving that. One we will discuss today is the UK’s questionable assumption that the parties to the EU’s free trade agreements like South Korea could simply cut and paste “the UK” in place of “the EU” in existing agreements.

We’ve discussed before in passing why these other countries might not want to be so accommodating. The UK needs a waiver and those usually come at a price of some sort. But it turns out that this is a very thorny issue, sufficiently so that we will wind up giving a superficial treatment. But for those with the appetite for more detail, we are embedding a report by Dr Michael Gasiorek and Peter Holmes of the UK Trade Policy Observatory, which discussed at length, with considerable additional detail, by Peter Ungphakorn at his trade β blog.

It is telling that the UK Trade Policy Observatory paper was released in December yet its findings haven’t gotten much notice, particularly since all of these agreements become non-opeartive as far as the UK is concerned as of the end of March, 2019. An EU transition period will not apply to third-party pacts. Ungphakorn’s conclusion goes a long way toward explaining why the British officialdom has been averting its eyes from the free trade agreement thicket:

Leaving the EU means the British government will either have to convert the EU’s free trade agreements with other countries into UK deals, or risk losing them, when Brexit is supposed to be about to allowing Britain more freedom to enjoy trade agreements with the world outside the EU.

We posted earlier this month on how the British officialdom was starting to realize it needed to Do Something in UK Asks the Rest of the World to Be Super Duper Nice and Act as Its Old Deals Are Still Valid Post Brexit.

Free trade agreements among other things commit the parties to trying to reduce trade barriers and include specific measures to do so.

Note that there is an underlying problem with Brexit even before looking at the niceties. Free trade agreements presuppose that the parties want to get closer. That implies convergence or at least closer coordination on policies and standards. The UK’s former chief negotiator Sir Ivan Rogers pointed out that a country doing trade deals, as the UK says it wants and needs to, while wanting to get further from its partners is unprecedented and will almost certainly make negotiations more difficult.

The UK has a lot of free trade agreements, to the degree that there isn’t even a crisp number as to how many due to differences in definitions. The UK Trade Policy paper says that UK is party to 37 with 60 countries while the UK has said there are over 100 countries.

Gasiorek and Holmes put the total of UK imports and exports represented by what it counts as 37 pacts as roughly 15% to 17% of total UK trade, most of it tariff free. Switzerland represents 4% of imports and 5% of exports; no other country accounts for more than 2% of either. But for some sectors, these free trade agreement countries in aggregate are important:

The study lays out three broad alternatives. One is that the other countries play nice and honor the UK request to pretend the deals are still effective. The second is “cut and paste” or grandfathering. The third is to negotiate new deals, which seems impossible given the Groundhog Day inability of the UK to move forward with the EU on the main event.

Even though either of the first two options seems a lot easier, and the only path that appears viable during the transition period, “easier” is a long way from easy. This is a partial list of the complicating factors:

Countries who feel they’ve been hurt could object to the “pretend nothing has changed” option and could go to the WTO. That could include not just other countries but some of the free trade agreement members themselves who believe Brexit has hurt their access to the EU.

It’s easier to hold up an extension or fudge of a free trade deal than take one’s chances at the WTO, so one should assume most if not all free trade agreement participants will do that. Expect them to seek compensation or other important concessions when they have the most leverage, prior to Brexit.

Some of the free trade agreements contain quotas, which makes a simple “pretend it’s all the same” or “copy and paste” unworkable. And if you still have doubts, have a look at Peter Ungphakorn’s post, where he works through some pages of the EU-South Korea free trade agreement to demonstrate that this isn’t just scrivener’s work. And that’s before you get to the fact that South Korea has been making noises that it is unhappy with its trade deficit with the UK and therefore wants better terms.

Many countries will be concerned about how Brexit could be used to undermine other trade agreements. For instance, if the UK manages to get a great post Brexit deal with the US of 0% tariffs in return for taking our chlorinated chicken, and the UK and the EU agree to a trade treaty with a similar 0% tariff, but the EU and the US have a trade agreement with 5% tariffs and no chlorinated chicken allowed, the EU is not going to want US chlorinated chicken and/or tariff-free goods sneaking into the EU via the UK. Stuff like that is the reason trade agreements run to thousands of pages.

The Gasiorek/Holmes paper describes some of the thorny features that are common in trade deals and impede the sort of handwave solutions the UK prefers. Let’s look at one, Rules of Origin, which is meant to address the problem we just mentioned. of non-UK goods slipping into a country like the EU via the UK on a preferential basis when those particularly non-UK goods aren’t entitled to it. And here is the sort of complication that results:

• Suppose the UK and the EU signed a Free Trade Agreement in which the rule was that goods needed to have a minimum of 40% domestic value added to be considered as originating. Suppose the UK exported a good to the EU which were made up of 30% UK value added, 35% intermediates from the US, and 35% intermediate inputs from Korea. That good could not enter the EU duty free because there would be insuf cient UK value added in it.

• Even if the UK grandfathered the EU-Korea agreement this would still apply – because there is still insuf cient UK value added in the good being exported to the EU. And of course the same could apply with regard to goods being exported by the EU to the UK.

Now there is a remedy of sorts, called diagonal cumulation…but it makes Brexit look like even more of a farce:

With diagonal cumulation all countries (in this example the UK, Korea and the EU) would have to agree that that intermediate inputs which could enter any of the partners duty free if exported directly, could be used by one of the other countries in their production and exports, and that the value of that input would count for originating purposes. This would mean that the UK could use Korean inputs, count the value of those inputs to see whether the good was “made in the UK”, and export to the EU duty free if there was sufficient UK (+ Korean) value added….

However, while diagonal cumulation helps, it does not mean that trade will be on the same basis as is currently the case. At present, the UK is free to export a good to the EU with no restrictions on the value of imported intermediates from third countries. Even with diagonal cumulation there will still be a limit as to how much can be imported while retaining duty free access to the EU market.

An additional problem is that it is well known that the EU can be quite demanding in agreeing to diagonal cumulation. More specifically, it typically only agrees to this if ALL the countries involved (hence in the example above the EU, the UK and Korea) have Free Trade Agreements among themselves, and all apply the EU’s Rules of Origin. The Rules of Origin the EU likes to insist on – and has done so with the EEA countries, the Balkans, and the Southern Mediterranean partner countries are the Pan- European Mediterranean preferential Rules of Origin. Hence, in order for the UK to get diagonal cumulation it will probably have to agree to apply the Pan-European Mediterranean Rules of Origin but on political grounds, if nothing else, it may not wish to do so.

Ungphakorn helpfully goes through other trade barriers like safeguards and also has more detail on those nasty rules of origin (such as what it takes to prove what came from where).

This video may help:

Grandfathering the EU's Free Trade Agreements from University of Sussex on Vimeo.

Now you have a dim appreciation of why it takes so long to negotiate trade agreements, and I suspect our commentariat will provide more gory details. Needless to say, declamations in Oxbridge cut-glass accents won’t make things go any faster.

Brexit Grandfathering
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  1. vlade

    Thanks Yves. I’ve more or less stopped looking at this. I, no expert by any means, saw this as massive problems two years ago. People who are experts confirmed my worries, and in some cases shown that even I was overly optimistic, with masses of clear facts that, to my knowledge no-one managed to refute.

    In meanwhile, the UK govt happily managed to do the fairy trick – if we believe it hard enough, it will happen, it we disbelieve it hard enough, it will go away, and the majority of the population doesn’t even know about the train wreck coming up.

    The nosedive in a 12 months time is now pretty much baked in. EU is still saying “you don’t have to jump of the cliff” (and not saying “but it will cost you”) – but unless Labour changes its tune and starts pushing hard, I don’t see any change in the outcome. And my believe is that Labour hopes the train wreck will kill Tories for good – but if they do, they run a massive bet, and I don’t believe they themselves understand how a large one it is (IMO, it’s basically a war-like bet).

    Thus I’m less and less interested in the UK, and more and more in parachutes.

    1. PlutoniumKun

      Yes, I think even the transitional agreement is likely to fall soon, I just don’t see how all the circles can be squared in the time available. The only hope for the UK is that the EU will simply decide that it can live with a bad 2 year transitional period in order to give itself time to insulate itself better from the UK’s folly.

      I think Labour have dropped the ball badly. The Tories will not own the mess entirely unless Labour stand up firmly and say what they stand for, but this is getting less and less likely. I think they are running a severe danger of creating a situation where they get as badly tarred as the Tories for what happens. They are hoping to fudge their way to power, which certainly had its merits for the last election, but I don’t think they can keep doing it.

      There was an article in yesterdays Observer saying that the Scots Nats are waiting for a chaotic Brexit to push very hard for another Indy referendum. That would obviously increase the potential for political paralysis and breakdown. One thing I’ve noticed is that the Scots don’t seem to have realised that they are particularly vulnerable to Brexit because of their dependence on direct foreign investment, especially in the IT and biopharm industries. Those companies are particularly mobile, and likely to bail out faster than ‘native’ companies.

      1. Colonel Smithers

        Thank you, Vlade and PK.

        Further to PK’s reference to IT and pharma, I have been told by parents of Cambridge university researchers that the children are being approached from abroad, EU and third country. They are also looking, as per Vlade’s reference to parachutes. Their projects are part-sponsored by overseas investors, who are looking to repatriate the projects or have them continue in the EU27. One researcher is married to a nurse. The nurse wants out of the NHS / Blighty, so emigration is likely.

        1. vlade

          I know people who are on purpose targeting biotech researchers in the UK receiving EU grants, saying that if they move, they would get the same or possibly even more in grants. Both EU and UK citizens are being targeted, with packages to move the whole family.

      2. Colonel Smithers

        Thank you, PK.

        Further to the EU’s insulation, you may have heard ECB and Bundesbank officials, in the past fortnight, urge financial institutions to get their applications for EU27 authorisation before the summer. Germany’s Andreas Dombret has been particularly vocal.

        EU regulators want as much as possible to pore through applications and allow firms to reorganise themselves.

        Last autumn, the ECB’s Sabine Lautenschlager said that any move from London to the EU27 must be of substance, not just the set-up of a post box. Her statement of expectations included control function staff being based in the EU27, presumably eligible to work in the EU27, and being able to converse with local regulators in their language and work in local languages.

        At the moment, English is an EU official language as the UK is a member and Ireland is happy to work in English rather than Gaelic. Ireland could / should say that it wants Gaelic to replace English…

        1. PlutoniumKun

          Ireland could / should say that it wants Gaelic to replace English…

          I never thought of that one, it would seriously set the cat among the pigeons if they did that! (but highly unlikely as it would prove seriously embarrassing to our largely monolingual politicians).

      3. paul

        The Observer article, while no means as bad as its headline (“Scottish nationalists are already salivating over the spoils of Brexit”) was still a mealy mouthed hit piece.
        I don’t see anyone in in the SNP salivating, but then that’s because they have their head in their hands at the mess they are confronted with.
        They have consistently said they think Brexit is a bad idea and the least worst option (including forgetting the whole deal) should be pursued which, I think, is the position you consider Labour should be promoting.
        However, they have been told it is none of their business. They can’t do much more really.
        If the Scots are unaware of the consequences, that can be only down to our wretched media. The SNP produced an impact assessment showing a 10% hit and this was gleefully dismissed as scaremongering. Turned out it was a shade more optimistic than Westminster’s reluctantly released figures.
        The only people salivating are the unionist nutters, who see the chaos as a way of neutering the devolved assembly. It’s depressing to see what feeble glimmers they imagine to navigate through this gloom.

    2. Andrew Dodds

      That’s a bit of a problem if, like me, you have a job in the UK, two kids in school, a house with a mortgage, and a set of hospital appointments, along with everything else.

      Now, in theory, having an Irish parent means that I could sell up and move to Ireland (or anywhere in the EU) fairly easily.. but that would be a massive disruption to my life, and the kid’s education, as well an being very expensive. Against that there are other possibilities; that Brexit fizzles out into a BINO meaning that any preparations would be wasted (highly possible, given the lack of preparation for anything else); or with a hard Brexit there is a severe economic crash, but I keep my job, inflation erodes most of my mortgage balance and my pension (invested outside the UK) soars in value.

      So it could work out OK for me. I do worry about anyone working in manufacturing, though, and the potential fallout when those blue-collar brexit voters realize how comprehensively they have been played.

      1. Colonel Smithers

        Thank you, AD.

        Further to “being played”, may be of interest.

        Many of the leading Brexiteers will cash in. John Redwood advises going long EU27 / Eurozone. Economics professor and Tory turned Kipper Tim Congdon, owner of 7000 acres, in Argyll, hopes a bonfire of red tape will allow him to develop the land more profitably. When I read about Congdon, I thought that a Mugabe style land grab, stuff of landowner nightmares / hysteria in Scotland, was justified in his case.

      2. vlade

        Not sure I’d bet on BINO, as for that, not only EU but a number of third parties woudl have to play ball (as the article above clearly shows).

        Can’t say re your job – don’t know what it is, but I’d be really really careful in saying any specific job would be ok. There will be some – like companies that export almost exclusively outside of EU and don’t need much in terms of certification etc. (say some SW developers, I’d guess if you work for the chaps who develop Total War games you’d be probably ok), but that’s going to be a minority.

        Even those may be hit by say NHS problems and/or social upheavals if it comes to that (as you mention). I think even those will be hit by lower-living-standards due to pound crash.

        1. Colonel Smithers

          Thank you, Vlade.

          Further to the lower living standards caused by Sterling falling, I have heard of farms (and related processing plants) in Buckinghamshire, Oxfordshire, Suffolk and Wiltshire either closing or changing from one speciality to another as they lose EU27 employees and are unable to replace them. Any loss of local production will make matters worse.

          The recent letter to the Sunday Times by agriculture, food manufacturing and retail trade associations was toned down, so Brexiteers (can) carry on saying that things will turn out better.

          1. Colonel Smithers

            I should have added that, further to BINO, many firms will still move out and won’t bother coming back. The risk of another upheaval is too great.

            A friend is a credit and political risk underwriter at Lloyd’s. He said that he never expected to be doing that much UK and US focused business. He has Irish and Ukrainian parents and is setting up a subsidiary for the EU27.

        2. Andrew Dodds

          Yes, I’m a software developer (in a global company accounting in dollars). If the pound drops, then the corporate spreadsheets show us in the UK office taking a pay cut, which encourages them to keep us.. That’s the theory, anyway. Reality may differ.

          Must admit that, even though I’ve been following Brexit quite closely, I still can’t bring myself to believe that ‘they’ will really let things collapse via a hard/no deal Brexit. Even though we really seem to be headed that way. And if I can’t believe it, those who are not paying attention won’t either.

          As far as health goes, it’s a serious issue for me. I can basically see it now: Those who are retired, being the core Tory vote, will continue to get free healthcare whilst those of working age will be forced into an insurance style system, effectively throwing those of us with long term conditions under the bus. The overall cost will balloon, and an assortment of international agreements signed to make it impossible to reverse.

          1. Colonel Smithers

            Thank you, Andrew.

            For the sake of your children, especially, please do get Irish passports for yourselves.

            I am working in Madrid and Paris this month, transferring the business from London. Hard Brexit is baked in. It’s just the pace of the migration – and the lack of MSM coverage.

    3. Colonel Smithers

      Thank you, Vlade.

      “The majority of the population doesn’t even know about the train wreck coming up.” Do they even care? As long as the MSM can / are under orders to divert attention, the failure of HMG (and HM’s Loyal Opposition) does not matter. This said, I can see Corbyn inheriting the train wreck and Labour being out for a couple of decades.

      The Tories have “clean skins” like Tom Tugendhat and Johnny Mercer, both former soldiers, biding their time. They can also whistle up one of their Obamas to blindside Labour with identity politics.

  2. visitor

    I found the references particularly interesting, and they actually left me puzzled about the whole trade arrangements.

    When a firm produces some kind of widget, and wants to export it, then somebody must look at all the details of its components, materials and processing steps to determine if the end-product fulfills the rules of origin. This seems to imply that the firm must (1) embark on a fastidious inquiry to ascertain the status of the components it purchases from its suppliers, (2) compile a report listing all the processing steps and materials it uses, and (3) submit it to some central place that verifies it and then attributes some status to the product.

    Never having dealt with international trade, I am of course naive about the whole area, but I have difficulties to fathom the kind of giant bureaucratic apparatus that is required to perform all those steps, for the myriad of trade agreements, if every relevant product must be appraised before any trade takes place.

    1. visitor

      To be complete, there is an ominous hint in the post by Peter Ungphakorn:

      Anyone who has looked at these “rules of origin” knows they can be pretty complicated, to the extent that lower tariffs are not always worth the additional red tape.

      1. PlutoniumKun

        The complexity is mind-blowing. I assume the primary reason is that negotiators start off with well meaning intentions to keep things simple and direct, but before long every widget maker in both lands shout about their particular interest, so layers of complexity keep building up. And with everyone committed to a deal it becomes too late for everyone to declare it all a waste of time. Having said that, my outsiders understanding of it is that once trade gets going there are shortcuts available to simply the process, such as certifying entire product lines.

        But it does show how this process has the potential to spin completely out of control. Even if the relevant parties sit down with the good faith intention of minimising problems for everyone by using as much ‘photocopying’ and ‘grandfathering’ as possible, once every individual widget maker starts realising it effects them and so starts calling their local politician or lobbying consultant, things are likely to get very complicated.

        I think this is particularly so on the EU side. Getting unanimity will be very difficult – all it will take for some small obscure set of producers to see themselves as being disadvantaged by the perception of the UK getting a favourable deal and everything will unravel once national governments start talking about using their veto to protect their local businesses.

        1. Jim A.

          Another factor is companies will work hard to figure out how to “game the system” If imports have tariffs, but are cheaper than domestic manufacture; companies will import almost completed goods and claim that they are domestically made.
          Or if there is a tariff on cargo vans, but not passenger vans, they’ll import vans with seats in them and then remove them before sale. So the rules become complicated

    2. Clive

      A vast and obscure subject! It’s, briefly, governed and documented in the Hamburg Rules

      I had the misfortune to get peripherally embroiled in some of the issues while having a role in plastic card (debit/credit) manufacturing. One of the worst aspects was caused by the US insisting that certain security features constituted the “export of munitions”. I won’t detain readers with all the details, suffice to say that Uncle Sam can be a right pain in the arse sometimes, especially when it comes to military matters where they touch on civilian activities.

      Anyhow, in terms of inheritance, the class of agreements generally referred to as “trade treaties” sit atop of and are reliant on the provisions of the U.N. Convention on the Carriage of Goods (usually by sea but there are other similar arrangements to land-based transit).

        1. Synoia

          Yes, when we installed ATM’s in South Africa, encryption (munitions) was an issue.

          The solution was interesting.

          Not to mention instructions to install ATM’s on the N side of bank branches, which was not a good objective for the Southern Hemisphere.

      1. andy blatchford

        Rules of Origin have nothing to do with the Hamburg convention or if by air the same is covered by the Montreal convention, these are mostly about liability issues on transport.

        Goods could go via multiple countries even outside of agreements but still be ok for origin rules if you can prove it.

        I feel your pain on the ‘export of munitions’ what we & the EU call in the case you are using ‘dual use’ goods and it is a bit of a mare as it isn’t simply just what the goods are, end user, availibility etc comes into it as well. The US unlike others also insists on licences just on military goods in transit. Loses US airlines & FedEx freight business as we have to avoid.

      2. ChrisPacific

        Oh yes, the stupid strong encryption thing. Nobody outside the US may have fully secure electronic communications because it would compromise the ability of the CIA/NSA to spy on them. I think they would have liked to make it illegal inside the US as well but they never got that far.

        In most cases it didn’t matter – it’s not like strong encryption software is hard to write – but if you wanted secure cross-border communication you’d need to either publish a strong public key or move a private key out of the country either electronically or physically, both of which could expose you to liability. I have no doubt this was a big headache for banks.

        1. Synoia

          With the responsible encryption movement by government, where they have a key with which they can decrypt whatever they want, it is effectivly the same as the government having a copy of all private keys.

          With copies of all private keys we can be assured that the really protected (it’s a huge target), and the government will never misuse its powers.

          However, given the propensity for leaks and bad behavior, its also a potential source of sever embarrassment for the rich and powerful. precise they are prime targets of “key leakage.”

          In addition the online market place will die instantly, on line commerce destroyed, and payments will be reliable only with paper money — and there will be a great many online payment dispute resolution jobs created.

          This combination rolls back the clock to the 1980s, damages the rich and powerful (Google & Amazon), and potentially exposes all government secrets to all and sundry.

          Because of this threefer, I’m very supportive of “responsible encryption” in my Luddite moments.

    3. andy blatchford

      With my Rules origin hat on

      1. Yes but it has to be said they should be doing that anyway, I would concede though in certain circumstances suppliers are loathe to give origin details (in case you go straight to the supplier and buy it ) but that tends to happen more with retail products (high end designers are a typical example of that problem).

      2. All manufactured goods should have back up documentation such as certs of conformity et and with modern procedures such as ISO it all is.

      3. No, that’s not what happens. Using an example of an EUR 1 preference form. In the UK when anyone apples for one they have to give a written statement that they have read the applicable public notice and the goods are in compliance (827 if you want to read it) then they will be audited later when HMRC gives you a visit where they will have to prove what you have claimed. There is no sending anything off to a central authority.

  3. Anonymous2

    Thank you Yves.

    And this all to be done by a very small number of civil servants in a country which has had no experience of negotiating these sorts of deals in 45 years.

    The UK is clearly not going to be ready by March 2019 IMO. That surely must mean that it has to accept whatever terms the EU offers to get it’s extension to end 2020 or it goes ‘over the cliff’. The disaster capitalists would doubtless love latter.

    1. Colonel Smithers

      Thank you.

      The Commission is preparing a take it or leave it transition. Unlike last December, when it suited both parties to “extend and pretend”, the EU27 won’t care to prop up May this autumn, if not this side of the August get-away.

      1. PlutoniumKun

        Thanks CS, I would guess you are right about that, there seems to be no more patience in Europe to deal with May’s dithering. I think the only question is whether they will insist on a separate CU deal for NI – that might well be the straw that breaks the agreements back, I can’t see May being able to capitulate on that.

    2. PlutoniumKun

      The thing is – and I must admit I wasn’t aware of it until reading through this article and the links – is that the transitional period does not include the external trade agreements. I can see that creating all sorts of havoc. What happens if, say, Danish dairy producers insist that the UK is not included in any agreed tariff free exports? Of if car component manufacturers in the Czech Republic insist that UK carmakers can’t take in previously agreed numbers of Korean components? There must be numerous ways the transitional agreement could go badly wrong.

    3. vlade

      I’m not sure whether when you wrote “extension” you meant “A50 invocation extension” or “transition period”.

      The point of the above is that even with transition, the UK will, on March 19, crash out of a number of treaties where it’s covered by EU right now. There are no (to my knowledge) negotiations with any of those – even when there can be, which is precious little.

      The UK govt hopes it will all get grandfathered, but TBH, that’s hoping against hope. There is also question whether in some cases it will be even technically possible (as in for example the terms if applied to the UK only may breach some other treaties either on the UK or the cpty side).

      So the only thing that could work is A50 extensions, which requires unanimosity, which in the EU now is a real bitch, and the Uk would have to roll over and take it for each and every of the EU states separately, as well as for the EU Comission collectively. It’d be probably easier to just stay in TBH.

      1. Anonymous2

        I was referring to the ‘transition’ proposal. But your points are very fair ones.

        As matters stand I think that the UK government will still go for this if it can (though calling it an ‘implementation period’) as the prospect of going ‘over the cliff’ will frighten many. Food shortages? Rioting? Not impossible.

  4. Matthew G. Saroff

    I am not surprised that May et. al. are so incompetent on getting a deal done, but I am surprised about how incompetent they are on the politics.

    If they were to go full Churchill to the British public, “We shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills; we shall never surrender,” not only might they do better in the next elections, but they would be in a better situation in EU negotiations.

    The possibility, no matter how vanishingly small, that the UK would go with a hard Brexit, and that the fallout would NOT be as catastrophic as is predicted should scare the crap out of Brussels.

    If the UK goes hard Brexit, and there is little more than a minor recession (and a collapse of the London housing market, but that would be a good thing), it empowers every Euroskeptic populist party in the EU.

    1. vlade

      No one has shown a scenario of over-the-cliff, no deal Brexit that would be
      a) believable (as in consistent with a real world);
      b) achiavable.
      c) not catastrophic for the UK, unless EU rolled over.

      The Churchillian “we will fight” worked more or less only because the USA bankrolled (and bankrupted) the UK. And even so it came to precisously close – not by fighting, but by starving the UK out with U-boats . TBH, if Germany went full on u-boats from 1940, ignored vain-glory projects like Tripitz, Bismarck etc, and even ignored bombing the UK, just being happy to isolate it, the UK would likely collapse before the end of 1941.

      Re minor recession – that very much depends on the point c. If on April 1 the trade with EU just simply stops (which, in the absence of any deal is the base scenario), it’s most certainly going to be more than a minor recession. Every car factory in the UK stops (and so do they UK suppliers), a large number of truck drivers stop, food imports from the EU stop (as do the exports) etc. etc. Even if that takes only a week or so, the economic impact will be certainly more than a “minor recession”.

      1. Colonel Smithers

        Thank you, Vlade.

        Further to your mention of car manufacturing, some trade unionists are piping up. The Liberals won a council seat off Labour in Sunderland last month.

        1. Anonymous2

          And of course if airplane flights are significantly disrupted the tourist industry and the UK as an international business hub will be badly affected.

          A problem with the idea of turning Brexit into a rerun of WW2 is that although some will buy into it I doubt many Remain supporters will and you run the risk of losing the support of those who voted Leave on the assumption that it would be painless and immediately improve their lives. That could be the point at which they realise they have been sold a pup.

      2. Matthew G. Saroff

        You are missing my point, it is that going full Churchill is good politics, and that they cannot even manage that.

        Any Brexit policy is complete pants.

        1. begob

          Well, at least Liam Gallagher’s stirring the pot: “The German police pulled my teeth out with pliers”. Then they stuffed him in Colditz Castle for the night and tormented him by playing in tune on piano wires.

        2. vlade

          I doubt it would be good politics, since a lot of pre-Brexit messaging was “we exit the EU, things will go rosy next day”.

          If you turn this into blood, tears and sweat and pretend nothing happened, you run significant chances of ending up on a spike (or an equivalent thereof).

          1. Synoia

            Ooh! Can I watch? There has not been a decent hung, drawn and quartered exhibition in may years.

            May May be first?

      3. begob

        food imports from the EU stop (as do the exports)

        I noticed a few food supply failure stories today. Meat processor in admin because trade halted for date labelling problems. One of that processor’s customers – chain of Jamie Oliver restaurants – also into admin. DHL messes up new delivery system for KFC, so that entire chain of restaurants closes its doors. And last week job losses at a chicken processor after food safety investigation. And of course all the stories on the crisis in seasonal agricultural labour.

        If food production is largely about logistics the UK may already be vulnerable. What if Brexit breaks one of the grocers that has already demonstrated dodgy finances? The one that handles 50% of all sales in the UK and begins with a T?

        1. Tony Wright

          Hmm….might turn around the national obesity statistics, but a tough way to put a silver lining on a very dark cloud.
          Seriously though, I can only see one logical escape from this ridiculous mess-
          “Sorry folks, I know 52% of you voted for it, but Brexit simply wont work, so lets have the vote again and please get it right this time or we are all screwed”.
          But will logic prevail?

  5. rtah100

    This is all a bit hysterical. Food riots? Please. If food is genuinely short, the price of farm labour and farm income should rise. Moreover, none of m’learned friends’ fine print prevents us from importing so there is no need to starve.

    Also, the NC take on Brexit is weirdly mercantilist! To the extent we can reduce tariffs and reduce the domestic price level, higher export tariffs are a wash – a 20% reduction in import tariffs will balance a 25% increase in export tariffs.

    1. PhilJoMar

      That sounds a bit like the proverbial economist’s set-up line “let’s assume that…” but in the real world your numerical ‘wash’ is hardly going to be as simple as balancing out two numbers plucked from…where exactly?

      1. Anonymous2

        @Rtah 100

        You need to drill down into the detail. The concern is that without any agreement between the UK and the EU then major delays at the borders will prevent deliveries of food cross -Channel. The UK is very dependent on food supplies from the rest of the EU. These are brought over by lorry on Roro ferries. The UK does not have the land to grow the food or the Lolo ports to bring in (less fresh ) food from further away. Add in the possibility that airflights could be severely disrupted if EU airspace is no longer available to UK airlines and you have scope for real problems. No measures are being taken to address these practical issues. This is why I think the UK government will probably blink eventually and come to some sort of terms with the EU.

    2. vlade

      I suggest you re-read the NC posts on Brexit. Tariffs are the last of the issues UK will have post brexit.

    3. Detlef

      Have you forgotten the “EU Withdrawal Bill” / “Great Repeal Bill”?
      EU laws are supposed to being copied across into British domestic law.

      Which means for food that Britain on Brexit day will still have the same checks and inspections as the EU. That means for example that agricultural products of animal origin can enter the country only at specific Border Inspection Posts. Have you seen or read anything that indicates that the British government is creating the infrastructure for that? Because food from the EU after Brexit will need to be inspected too. So that would mean serious delays at the border on Brexit day if the British want to uphold their own laws.

      Now the British government can use its awesome Henry VIII to simply get rid of food inspections, right?
      Sure they can. But in that case it has to get rid of those inspections for all WTO member states. Unless of course you want to violate the WTO non-discrimination clause:

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