Brexit: Wheels Coming Off

We’ve been quiet about Brexit because so many things have been happening on other fronts, and truth be told, because reporting has been thin. That isn’t necessarily due to a lack of newsworthy developments but that getting a good picture would involve things like interviewing haulers and farmers or at least their trade associations, and that means developing new sources, which equals work. But even adverse outcomes for the City are getting surprisingly little notice. Some of that may be Brexit fatigue. But many UK businesses are making surprisingly little noise relative to the pain they are suffering. Is that because they recognize or have been told that the Government simply is not going to petition the EU for waivers any time soon, so they are not wasting the few chips they have?

We are therefore even more than usually dependent on our Brexit brain trust and Twitter. And we will stick to very broad strokes.

The Brexit Deal Was a Triumph for the EU

I have to confess to completely misreading the EU continuing to extend negotiating deadlines. I lacked the imagination to realize that it was because the EU had already settled many issues lopsidedly in its favor, and the UK was so clueless as to what the agreed sections of the pending deal that the EU had every reason to press on, that they had very good odds of doing well on the contested points. The notion that the EU kept extending its deadlines….for what? for fear of not getting a deal? for a desire to establish for history and maybe for smaller EU states that it had been more than fair didn’t seem sufficient reasons to go past the December EU Council meeting and into the Christmas holiday period. The lack of adequate reasons for the EU to be so indulgent nagged at me, but I didn’t have an alternate theory.

And the EU also gets kudos for being totally poker faced. Barnier regularly briefed the EU ambassadors who are an extremely leaky bunch. I would very much like to know how Barnier and his team kept from letting on how much ground they had taken. Perhaps they kept their updated to high level issues, where the degree to which they EU had secured advantages was evident only in the detail….which the ambassadors would see, but only when they received the final text as part of the approval process.

As PlutoniumKun said:

Everything I’ve read over the past week or so shows the agreement is full of little tripwires for British businesses or foreign businesses operating there. I’ve no idea if this was a deliberate strategy by the Commission – it would well be simply the inevitable outcome of a negotiation in which only one side was serious about details.

I think we’ll see if it was deliberate or accidental over the next few months by how the EU reacts to UK attempts to renegotiate details to fix the problems.

David replied:

I think it’s deliberate in the sense that the EU, which has had hundreds of specialists working on the detail, without being distracted by elections, Covid and so on, did what any sensible negotiating team does, and built negotiating fat into each of its positions. The normal assumption is that the other side turns up in much the same state, and during the negotiations you trade bits of your negotiating fat for bits of the other guy’s, and you arrive at a situation you can both live with. But of course the UK was a hopeless negotiating partner, and was exclusively fixated on a small number of politically visible issues. It’s not clear to me whether the UK never read large chunks of the Commission draft, or just didn’t care. But the effect was a 19-1 victory for the EU, rather than a 10-10 draw or something similar, which is what negotiating theory would have predicted between two teams who knew what they were doing. There are, as you say, all sorts of nasty surprises which would normally have been spotted and challenged, and in some cases negotiated away or neutered.

This is not necessarily a good thing, even for the EU. There’s a situation (it’s been called the Versailles syndrome) where one side is comprehensively shafted and everybody knows it. At that point, the legitimacy of the process itself starts to be questioned, and the hunt is on for “traitors” who “betrayed” the people. My impression from today’s news is that that process is now starting.

PlutoniumKun’s response:

The Versailles Syndrome may explain the remarkable silence of European politicians on the situation. For the Irish government, it was a triumph – they got pretty much everything they wanted (only a few fishing ports complained, but even that was half hearted). Arguably, they got more than they wanted, because so far as I can work out, the application of the phytosanitary provisions will give a clear advantage to Irish dairy interests over British ones in trade. But they haven’t said anything in public, apart from the usual welcomes for the deals. I can only explain this by an informal agreement among EU leaders to expressly avoid any triumphal statements, or even anything that could be interpreted as inflammatory.

Many (Too Many) UK Businesses Unprepared

Mind you, a certain amount of failing about and initial gear-grinding would have been inevitable for many player, given how late the deal was concluded. At a minimum, exporters would/should have prepared for a “no deal, so tariffs and quotas” and “thin deal, no tariffs and quotas” outcome. The Government was unhelpful by failing to prepare much in the way of guides, particularly on documentation….but where were the industry associations? Why weren’t they stepping up?

There was very little lobbying by business about Brexit, or even much pressure in the form of comments to the press about possible damage. The noteworthy exception was the Japanese automakers, who were early to speak up and uncharacteristically blunt. It was hard to fathom the lack of self protective action. Our experts believe that whether it was actually the case, many companies believed that if they spoke out, the Government would find a way to make their lives miserable.

The City did ask for what it wanted, equivalence, and kept nattering on about that even after the EU had said “nein” very early on. The whole spectacle of the City’s lobbyists occasionally nattering to the press when they had no seat at the table (services issues weren’t part of these negotiations, and services deals are vastly more complicated than trade deals and generally take years more to conclude) was bizarre. It was awfully reminiscent of the Monty Python King Arthur sketches, where the King gallumphs around Britain only to find no one has much respect for his rule. This appears to be due to neglect. As Colonel Smithers wrote:

The support, including funding and campaigning, for the Tories from the traditional City (shorthand for banks, insurers and fund managers and firms based in the square mile) has weakened since the turn of the century, especially as foreign firms have become more prominent and the founding families cashed out.

Much of the money for the Tories now comes from investment firms, often based in Mayfair, so not the square mile, and overseas or goes to proxies / allies like the Tufton Street think tanks. In some cases, the investment firms have employed think tank employees, e.g. Matthew Elliott, for political analysis, a cover to advance their interests.

Americans by contrast, recognize that if you want politicians to stay bought, you have to keep buying them.

But the reason many businesses were caught flat-footed is that they didn’t understand what getting a deal meant. They believed in cakeism, that the UK could leave the EU yet still enjoy no/low friction trade. This is rank incompetence.

To illustrate that there is no excuse for having been caught flat-footed. Speaking of the Japanese:

By contrast:

For instance:

From a policy person:

You get the picture.

Brexit Pain Is Underreported

Mind you, there has been some bleating. But what is noteworthy is that the noise on Twitter isn’t much making it through to the press. For instance:

This is odd because journalists are all over Twitter. It’s now acceptable to integrate tweets directly into article or mine their quotes. And if you want to look like you did more in the way of reporting, you can contact the tweeter and get more detail and contacts.

Admittedly, there have been some exceptions. From the Guardian last week:

Ministers must restart trade negotiations with Brussels immediately to sort out the “baffling” array of post-Brexit rules and regulations that now threaten much of the UK’s export trade to the EU, leading business groups have said.

Amid mounting anger among UK firms at cross-border friction they were told would not exist, British manufacturing and trade organisations met Cabinet Office minister Michael Gove in an emergency session on Thursday…

The prime minister had hailed what he claimed was a “zero-tariff” and “zero-quotas” deal that would allow free and simple access to the single market. Less than a month on, however, Britain’s EU departure appears to be anything but pain-free.

One leading figure involved in the talks with Gove described the new rule book as a “complete shitshow”. Another said Gove seemed “very concerned” at hearing reports of problems…

In the first week after the UK finally left both the single market and customs union, the parcels firm DPD suspended some of its services, bookseller Waterstones halted sales to customers in the EU and UK fishermen warned they would not be able to sell their fresh produce into EU markets because of delays at borders.

And yesterday in the Independent:

Exports to the EU will plunge by more than one-third because of Boris Johnson’s hard Brexit trade deal, a new study predicts.

Total UK trade will nosedive by 13 per cent, according to the London School of Economics (LSE) analysis, making a mockery of the government’s claims of a buccaneering “Global Britain” outside the bloc.

And Britons will feel the pain in their wallets and purses, with income-per-head forecast to fall by 6 per cent – just 2 per cent less than if there had been a no-deal Brexit.

The City is taking body blows. As soon as the transition period ended, €6 billion of daily trading in European stocks moved from London to the Continent. Vlade pointed out that that’s over 50% of LSE trading volumes. Bloomberg anticipates that fund managers (who to be buzzword-compatible, are typically in Mayfair, not the City) are next in line:

Fund managers in London have already seen stock-trading upended by Brexit. Now, they worry they could be next.

As the European Union weighs tighter rules on outsourcing key functions such as stock-picking, there’s a risk that management of some assets could be forced out of London, putting another dent in the city’s status as a global financial center. Firms in the U.K. handle about 1.4 trillion pounds ($1.9 trillion) for hedge and mutual funds in the EU’s main hubs of Ireland and Luxembourg — nearly half of all fund money managed in Britain.

The trade deal reached at the end of last year largely ignored financial services, and said nothing about this kind of outsourcing, known as delegation. Curbing this practice would impact the entire fund-management industry, from U.S. giants like BlackRock Inc. to U.K. and European firms such as Schroders Plc and Allianz SE, disrupting their long-standing business model and forcing them to move teams responsible for managing EU funds into the bloc…..

The extent of the threat is still unclear. It depends on how far EU regulators go…The goal of the European Commission, the bloc’s executive arm, is to prevent the creation of so-called letterbox firms that outsource so much business that that they can’t be effectively supervised or control their own operations.

Fund managers and lobbyists interviewed for this article said they think it’s unlikely the EU will resort to what one hedge fund executive called the nuclear option — forcing portfolio managers to relocate — because the current system benefits both sides. In the EU, delegation has helped tiny Luxembourg become the world’s second-largest fund center after the U.S., and fueled a tripling of assets held in Dublin over the past decade.

Still, the industry is lobbying hard behind the scenes to prevent major changes to EU rules.

Remember fish? Remember also how fisherman said they’d go bust if they were subject to 5% tariffs? The impact of the non-trade tariff barrier of more documentation looks to have the potential to kill them stone dead. From Reuters earlier this week:

Scottish fishermen have threatened to dump rotten shellfish outside the British parliament after their deliveries to the European Union were blocked by post-Brexit red tape….

Logistics group DFDS suspended its groupage export service – which allows multiple exporters to ship products in a single consignment – on Jan. 8.

It aims to resume the service on Jan. 18 after it clears a backlog, but it will take longer than before Britain left the EU.

To get fresh produce to European markets, logistics providers now have to summarise the load, giving commodity codes, product types, gross weight, number of boxes and value, plus other details. Errors can mean longer delays and French importers have also been hit by the red tape.

Fishermen in Scotland have stopped sending their boats out to fish. The Scottish government says the disruption has cost the industry millions of pounds in lost contracts, and meant lower prices at market.

And it’s not just fish:

On the Great Britain end, the trucking disruption means food shortages could be coming. And it’s not as if the EU hasn’t tried to help the UK:

From inews yesterday:

Fears over food shortages on supermarket shelves are growing as figures show French and German delivery companies are avoiding post-Brexit red tape at UK ports in record numbers.

Data from logistics software company Transporean show the number of haulage companies from Germany that are rejecting delivery contracts to the UK have more than doubled since the end of the Brexit transition period on 31 December. French trucking firms are rejecting three times as many UK deliveries.

This has led to around half the usual deliveries coming into the UK since the turn of the year, and is increasing fears of food and other product shortages in the coming weeks.

And the Daily Mail flagged a new spanner in the works, more stringent Covid testing. From a story yesterday:

France is demanding that truckers have Covid tests which can take 72 hours to give a result before being let in amid growing fears of further Dover chaos.

Last month the French government banned HGV drivers from crossing the English Channel in a desperate bid to prevent the spread of ‘mutant’ coronavirus detected in London and the South and East of England.

The unprecedented ban left thousands of lorry drivers stranded in Kent during the Christmas period and led to clashes with police at the border – only resolved when the UK gave drivers lateral flow tests which take 20 minutes to produce a positive or negative result.

But now the French government is worried about the accuracy of the tests and has called on the UK to introduce a fully saliva-based PCR test for the truckers, according to the Times.

Ministers, who are already drawing up plans to allow supermarket lorries to bypass queues at the Channel ports amid fears of food shortages in the UK, are concerned that the demand will result in gridlock at the border again.

The Road Haulage Association (RHA) said that drivers already queue for up to eight hours in the Waterbrook Park estate while waiting for approval for border paperwork. The park is being used for customs checks until March, when the massive 1,700-capacity Kent lorry park will then take over operations….

Meanwhile, Brexit disruption has lead to deserted ‘ghost ferries’ leaving for France, with boats on the Dover to Calais route which should be filled with HGVs and drivers eerily quiet – while many trucks are being held up at factories, warehouses and truck stops across the UK, rather than heading to Europe.

To be clear, the PCR test requirement isn’t just for haulers. France is requiring it of all entrants from the UK starting January 18.

And if this sort of thing doesn’t get straightened out, you’ll see haulers charging much more to go in and out of the UK…to the extent they are willing to come at all:

In other words, things are turning out to be just as bad as we expected. Remember we said repeatedly we’d rather not be proven right.

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  1. oliverks

    There is a lot of concern over the shipping of fish here in Scotland. Several fisheries have seen their crops spoil. It has been in the major news papers here in Scotland.

    1. Ignacio

      Yep. It should have been seen that exporting fresh products for which freshness is an essential qualification (there are common norms on quality regarding freshness and size to most commercial fish species) and that given such fresh products will necessarily be subjected to 1) sanitary inspection and 2) fishery managing inspection as any import from any third country in the designated EU entry points, would indeed be very much problematic, at least in the first weeks/months until the mechanisms and relations with the importers are greased. They could go to export the products in stabilized forms (frozen, salted, etc) but this reduces the value of the export. This includes catches and products from aquaculture (salmon).

      1. PlutoniumKun

        I honestly don’t see a way out for Scottish fishermen. They can obviously change the focus of their catch and move to locally processed fish as you say, but that takes a lot of time and money, and they don’t have either. At the very least, they will have lost 2021 as a season. Which, I suppose, is very good news for fish stocks.

        1. vlade

          Relocate to the EU so they can offload in the EU :). I wonder, could an Irish fisherman sub-contract a UK crew and a ship?

            1. vlade

              Out of curiosity, do you know how does that work technically? Do they operate as an EU boat, or something else? Thanks.

              1. PlutoniumKun

                I was wondering that myself. I assume that as its ‘out of quota’, there would be a lot of paperwork just to land it. Danish fishermen would presumably be very unhappy with this if the fish landed was measured as part of the Danish quota.

                The other thing that occurs to me is that if the price of fish shoots up in Europe because of this, fishermen and processors in the EU stand to gain a lot, so its not in their interest to help Scottish fishermen out with this.

              2. Ignacio

                You can possibly do it by charter contracts but this would not change the picture and these would still be treated as import products if I remember correctly the regulations I read. As long as the departure port is in Scotland and the nationality of the vessel is the UK the products will always be from outside the EU. They can always try to change flag! This is because the flag country has the main responsibility on fishing activities irrespective of the fishing zone.

            2. Ignacio

              There in Denmark might be the most convenient port designated for imports in all the EU. The problem for Scottish fishermen is they will be spending more in fuel and possibly wasting fishing time in transport. I don’t how long does it take the journey but quite possibly only vessels with freezing capacity can do this. Denmark wouldn’t be suitable for the artisanal fleet, which employs most fishermen.

          1. PlutoniumKun

            I always assumed that most Scottish farmed salmon was consumed domestically, but I just did a quick google and it seems that France is the biggest importer, a whopping £221 million worth. The US and China are also big buyers, but I wonder if this will get tripped up by existing deals with the EU – China in particular likes its bilateral deals for food products.

            1. vlade

              That’s comparable to the whole fishing industry (~900m IIRC). I didn’t realise it was as large as that..

              1. Ignacio

                Yeah, take a look at salmon production and exports from Norway that make Scottish minuscule by comparison these come mostly via Sweden.

                Another surprise is the importance of some arctic fishes which are imported by hundreds of millions of tons in the EU mainly from Russia (and in big part via processing in China). From the meddlers, hahaha!!! Alaska pollock (a cousin of the cod) is just amazing how much it is catched and I think it is the second import by fresh weight after Norway salmon.

            2. David

              Salmon in French fishmongers is very frequently from Scotland, and is quite expensive and sought-after. A lot of smoked Salmon is imported from Scotland as well, and, once again, it’s the top end of the market. I must have a look when I next go into a fish shop.

              1. Ignacio

                Yep, salmon is quite expensive. In Spain there is a flourishing culture of gilthead seabream as well as seabrass which have good value but fresh salmon is 50% more expensive in Spain than these. I think it has to do with one of the elements of quality: size. Both species aren’t let to grow as much as cultured salmons.

              2. PlutoniumKun

                I’m surprised at that, Scottish farmed salmon is a horrible product, I thought the French had better taste than that.

                I remember on my childhood holidays to the west of Ireland my mother loved cooking the wild salmon she would buy off the local fishermen. Sometimes the fishermen would give us kids one or two as a reward for helping them out and catching lots of bait for the lobsters. French visitors openly made fun of the Irish for only eating salmon, preferring instead shellfish collected from rockpools and fish Irish people ignored (most of them). But the wild Atlantic salmon is a truly amazing meat, sadly now almost impossible to get without taking out a mortgage. Only organic farmed salmon from off-shore farms comes close.

                I can only suppose that the French buying overpriced farmed Scottish salmon have never tasted the real thing. Smoking is often a way of disguising the poor quality of the original fish.

                1. Tony Wright

                  As an avid fan of eating salmon my favourites thus far are:
                  NZ farmed fresh salmon, which are a Pacific salmon species, not Atlantic, and have a higher oil content and therefore more flavour,
                  The delicious local salmon I was lucky enough to eat on holiday in northern Finland two years ago,
                  and, some wood smoked salmon I bought roadside from a local first nations fisherman on the Olympic Peninsula in Washington state.
                  One day I hope to eat wild caught Alaskan salmon.
                  And heartfelt sympathies to all UK fishermen and other fresh food producers who have been shafted by Boris’s bungled Brexit fiasco.

  2. John A

    Actually, Johnson and his gang don’t give a monkeys about ordinary people, they simply don’t care. Which is why the details in the agreement did not matter to them. They are in hoc to their donors big time. They are already ripping up restrictions on pesticides that are banned in the EU and which are extremely harmful to bees. They are ripping up the 48-hour max working week mandatory in the EU, they are getting rid of tracking working hours so hours actually worked will reduce the effective minimum wage. They are ripping up how many hours lorry drivers can drive at any one time. Johnson has apparently ordered civil servants to go through legislation to remove references to EU legislation as though using bleach. It was always about race to the bottom. Collateral damage? Who cares, these are people who as students, delighted in burning £50 notes in front of homeless people and trashing restaurants, then leaving a cheque to cover the ‘damage’. Nothing matters to them, many already have dual EU or other citizenship/residency. It does not matter what they do, the media cover their backs. The BBC has supposedly been instructed not to expose Johnson’s lies because this would ‘undermine public trust in democracy’. In any case Starmer is as much a Tory as Johnson. You can only be conned if you care. If the money that is lost is not your own, what does it matter if it disappears in a puff of smoke. I’ve got mine, F you.

    1. paul

      That is pretty much the long and the short of it.

      Noblesse oblige?

      Sounds like something foreigners would say.

    2. peak.singularity

      banned in the EU and which are extremely harmful to bees.

      AFAIK, the same nicotinoids have been allowed again in many EU countries a year ago.

    1. Redlife2017

      I saw that one yesterday. Hoo boy! I mean this is actually going worse than I thought it possibly could (and I thought it would be bad).

      I have a giant Brexit “box” as do friends of mine. I am not clear if it will be big enough. Because it’s not just food that is produced in the EU, but cleaning products, toys, etc. Even if they figure out how to get the fresh produce in – the price is going to skyrocket for everything.

      And the number of companies that are going and going to go bust over the next month will be outrageous. We are very much outside of my ability to see what could happen. I guess be as negative as possible??

      On thing to note – we are still on the “smugglers charter” in the UK where customs isn’t enacted yet (I guess the gov’t thought that meant everything would flow fine – lol). But starting on 1 April GB will require customs docs and then 1 July they will finally be checking the docs and the loads. So even if (and this is a big if) they can get trade better than it is now, we will have legs down in April and in July.

      I think -6% on GDP is quite generous…

  3. Redlife2017

    Michael M on twitter is an amazing source for what was going to happen and now what is happening. You’ve scratched the surface of the [familyblog]show.

    Like for instance, less than an hour ago the French transport minister Jean-Baptiste Djebbari had this to say:

    Pour les transporteurs routiers en provenance du Royaume-Uni, les dispositions en vigueur sont maintenues dans l’attente d’une démarche coordonnée entre pays européens.

    [In English: For road hauliers from the United Kingdom, the provisions in force are being maintained pending a coordinated approach between European countries.]

    The biggest thing happening right now is that EU hauliers are refusing to send lorries to the UK:

    CEO of French haulage firm interviewed this morning,

    “We have decided to no longer accept orders for Great Britain, the paperwork and delays are just so bad it is not worth it for us. Our drivers do not want to go there any longer”

    A quote from the European Road Haulage Organisation spokesman on11 January:

    “Without the flexibility we have seen from the French and Belgian governments the UK would have faced very serious food shortages. We now have very many members no longer interested in driving to the UK”

    There are also rumours of a lorry driver strike on the UK side due to all the issues – such as groupage is no longer viable for UK drivers in the EU (under the FTA, British drivers cannot go to multiple firms to pick up goods to go across the boarder to the UK – however EU drivers can go to more than one place in the UK!!).

    The UK got played because they “don’t do detail.” They are already aiming to get us EU tariffs by virtue of the UK gov’t getting rid of employment laws. Basically a nice way to create a no deal with a deal. They clearly want to destroy the economy to create feudalism…

    1. Yves Smith Post author

      Those issues are in the post. However, it fired before I was done and it looks like you commented before the parts about the haulers and hte details on food shortages were up.

      1. Redlife2017

        Yes! Sorry I just noticed that as well. I was a bit too johnny on the spot. The article is great and I will forward this to some friends.

        I’ve been watching this for the past 5 weeks on logistics twitter…it is the worst kind of slow motion car and train crash ever. And honestly it is worse than I thought.

        1. Yves Smith Post author

          No, sorry for making you look a second time. The specific reason is a post needs to go live before 7:00 AM to be included in our daily e-mail. However, the e-mail is headline only, so if a not-fully-done version goes up, it will (usually) get tidied up shortly after the 7:00 AM cutoff.

          And I still had to skip over Northern Ireland because very complex yet not as of the same level of interest to readers outside Ireland (apologies PlutoniumKun and Clive, who have debated NI pretty intensely).

          1. eg

            I’m grateful for all that is posted about Ireland and Northern Ireland despite residing in Canada — thanks to all who contribute.

    2. Andy B

      ” (under the FTA, British drivers cannot go to multiple firms to pick up goods to go across the boarder to the UK – however EU drivers can go to more than one place in the UK!!).”

      This isn’t quite correct , what you mention is an issue called ‘Cabotage’ ( its a very old French term) and yes in your description UK hauliers would fall foul of that (and less noticed is it also affects airlines & ferry companies).

      ‘Goupage’ is a different thing entirely. In airfreight its called consolidating, in sea/rail container movements its called LCL (Loose Container Load) we are still doing groupage by road but it changes our flexibility in that we need to breakbulk at an ETSF as direct delivery is only suitable for full loads.

  4. Egidijus

    This all E-Unionist Schadenfreude is long gone and actual Brexit is just about to hit Great-no-more but yet-still-Britain. Where to get joy now? Are we back to Irish whiskey instead of Scotch single malts yet?

    1. chuck roast

      Apparently we are. I just bought a bottle of Glendalough yesterday. My fave Scotch has soared to $100/bottle. But that may be Trump tariffs more than Brexit.

  5. JT

    Now we have zero-tariffs we see how much the EU is about free trade or just protecting its own single market with non-tariff barriers.

    Personally i think its is best we are out of the EU so they can pursue the plans for closer integration. As the UK didn’t join the euro etc it was better we left and let the EU get on with their plans. Maybe they will be very successful when they get tighter european integration.

    I think fundamental the European countries have a different economic model to the UK. The European countries tend to have a government that figures out the economic direction and then encourages private companies to be the most efficient and effective exponents of that direction.
    The UK (and US and others) the govts aim to provide an economic environment that encourages startups and new business to grow and is more hands-off in setting economic direction.

    I don’t know which is better but it makes it hard for the UK to be part of the EU when we have a fundamentally different approach to economic policy.

    So i think for the both the EU and the UK its better to be separate.

    1. Yves Smith Post author

      Your comment demonstrates a lack of comprehension of what trade agreements are for. No one is about “free trade”and the EU has never pretended to be about “free trade”. There would be no trade agreements at all if that were the case. Did you miss that the UK has bragged about concluding a deal with Japan, which gives the UK worse terms than it had via its EU deal with Japan?

      The world operates on a system of managed trade. Trade agreements set the conditions on which both parties get access to each other’s markets. That always includes demonstrating adherence to product standards.

      And you operate in a delusion about the US. Its rate of new business formation has dropped considerably over the last decade. According to US News, Germany is #1 for startups, followed by Japan.

      The UK is going to be less attractive with its economy contracting due to Brexit and those trade barriers with the EU reducing its markets.

      1. vlade

        Berlin startup scene is, from what I know, very vibrant. And most aren’t wannabe unicorns from what I can tell, or socialy-destructive startups like Uber etc. But those aren’t sexy enough to write about I guess.

        1. Basil Pesto

          Yes, I was going to say, living in Berlin about 5 years ago, startups were ubiquitous. Can’t imagine that’s changed since then.

          Dunno if Wirecard counts.

      2. vlade

        There’s one area where the UK will be still interesting, which is the company formation. A lot of EU startups are held by a UK holding company. The main reason for that is that most of the VC investors understand the English law pretty well, and can’t be bothered (for small fish) to deal with local laws. So small companies looking for investors are advised to incorporate a holding company in either the UK or Delaware (guess why?), which controls the child in the EU.

        1. Rtah100

          As a UK VC, this is true. Continental legal systems are rather inflexible for start ups.

          – Dutch companies have no useful concept of an option scheme and require a Stiftung (foundation) in most cases.

          – Germany is just passing a law to create options and stop dry tax charges on their issue. Company formation is wildly overcapitalised apart from a new “mini” structure and GmbH is not a proper company with shares, so a lot of Germans incorporate in the UK. Everything seems to require weeks of bureaucracy, a notary and an oral recital of the text in German….

          – Italy has no straightforward private limited company, you either have a fully fledged SpA, which can be listed, or an SRL which is more like an LLC, and it does not understand limited partnerships either. Italy does have options law but it is so open to interpretation that barely anyone dares to use it and the innovation SRL vehicle has been created without clarifying which insolvency law if any applies to it! A lot of Italian start ups incorporate in the UK.

          – Norway is pretty flexible but requires capital increases to be lodged in escrow and signed off by the auditors (2 weeks typically) before the cash is accessible and a large number of corporate actions which would be UK board matters can only take place with an EGM. Foreign directors need approval from the King (I will frame mine…)!

          – France actually has a very different but very sophisticated set of entities and instruments but it has the usual counterintuitive board/management governance boundaries and a habit of catechisms added in longhand to every printed document. Every French company we suggested it to has refused UK incorporation!

          The other factor in incorporation is the professional services ecosystem. UK lawyers are expensive but the Companies House procedures are cheap and fast and the accounting and audit fees low. Insolvency is an issue, the process is very creditor friendly at the expense of shareholders and can be gamed by management seeking a pre-pack. Continental procedures seem to have more teeth for directors’ duties.

          I don’t see these thin advantages paying the import bills though. We will need a more widespread redistribution of wealth and public investment to bringbfirth private investment and consumption. Not hot VC money pursuing regulatory arbitrage, especially if the owners are all offshore anyway. A startup Wimbledon is not the answer.

          1. topcat

            I started a company in Germany, GmbH in machine building and indeed there is a fair amount of work involved including the “Notar” reading the contracts (license to print money) but it is fairly easy to do. There are many other models though depending upon what you are trying to do, however the US-style options financed schemes don’t exist, maybe because there are fewer pure software companies whose owners are trying to get rich from an IPO. Who in the VC world is interested in growing a company and employing people? Exactly.

      3. Darthbobber

        Thanks. Collective mercantilism giving members the advantage over non-members is the whole point of a trading bloc. And for all the political and other aspirations of various promoters of the project, from Common Market to EU, the trading bloc aspect has always been the part that actually works as designed and functions as pretty nearly the sole basis of unity for the otherwise contentious members.

        This is also why the UK was never going to be allowed to be both in and out in the sense its leaders seemed to want. A trading bloc knows a Trojan Horse when it sees one. And it absolutely can’t afford to allow that.

    2. Bill

      Those “non-tariff” barriers are required because the eu has 36 trade agreements, which includes 60 countries. Without those checks the EU would be in breach of WTO rules. The uk is a 3rd country and wanted only a deal on tariffs and quotas. Which shows that the uk government doesnt modern understand international trade; the no1 barrier to trade is regulation differentiation.

      Would like to add that the eu doesnt determine the product regulations. For example car regulations are made by an UN body.

  6. The Rev Kev

    Gawd. This is just like reading yesterday’s ‘Near-Term Covid Analyses Point to Risk of Medical System Breakdown’ article. As you read further down the article, more and more bad news is added and you start to get a good idea of the scope of the problems facing the UK. And the worse of it is that not only there no good solutions, but that the people in charge are utterly incapable of coming up with one – except to double down on neoliberalism. If I was Boris, I would be adding barriers around the British Parliament as they might need them sometime soon. There is a general consensus to patiently go along with the system in the UK, even when it gets bad, but between the pandemic and this self-inflicted sucking chest wound courtesy of people like Boris and Farage, I am beginning to wonder if this consensus might start to break down which leads to unexpected and radical developments in the UK.

    1. Wukchumni

      I’ll admit to having scant interest in Brexit, and from watching the antics it seems to have morphed into Black Knight territory, ’tis just a flesh wound.

      1. shtove

        Matthew of Paris describes the end of William Longspee during the 7th Crusade:

        When William, on whom the Saracens turned their attack, saw this, he knew that his life was forfeit. Man-fully he bore up against all assailants, and cutting in pieces many, sent their souls to Hell. Yet though his horse had succumbed and his own feet were cut off still he continued to lop off the hands, heads, and feet, of such as attacked him. And then, after sustaining many blows and wounds, with blood gushing out, and overwhelmed by the stones of his assailants, he, a most glorious martyr, breathed out his soul, that sped forth to assume its crown.

        Another source said he had one hand cut off as well. Third time round for this bit of history.

  7. vlade

    I’ve heard anecdotes that firms that exported outside the EU can cope, but those which exported to the EU only (and there’s many more of those, especially amongst the smaller companies) struggle badly.

    The strugglers can, eventually, catch up, the question is whether it’ll be worth for them. Adding a day’s worth to “fresh” seafood is bad.

    I wonder, how much does it take to register as a fisherman in the EU? Maybe some scottish fishermen should register there, and unload directly in the EU…(would be funny in respect of the quotas..)

    1. Fazal Majid

      Probably easier to just sell the quotas. Most English fishermen sold theirs to the Spanish when temporary moratoriums on cod fishing were put in place to allow stocks to recover. Scottish fishermen, who tend to be more family-owned, didn’t.

  8. vikash tandon

    24 June at 04:37 ·
    The June 23rd 2016 referendum in Britain irrespective of the name calling and ‘politicking’ socially ‘engineered’ by instrumental reason (ratios and % tages); reflects an epitome of the English national-regional divide and narrow socio-cultural-psychic horizons. The prevalence of neo-positivist philosophical orientation within the ‘powers that be’ in mainstream media, championed by political pundits and the political divide between the dominant political parties has it’s opposite face in the disenchantment of the ‘traditional working-class’ constituencies towards the changing cultural and social landscapes in areas that have been experiencing decades of ‘de-industrialization’ commenced by the ideology of monetarism personified by the Thatcher/Reagan counter-revolutions; after the exhaustion of Keynesian state interventions during the 1970s. Blairism was/is a continuation of monetarist and empiricist legacies left over since the ‘milk snatching’ decades under ‘Thatcherism”. At a psychological and social cum cultural level communities that have been left by the wayside; particularly ‘the working-classes’ in the northern parts of England have been caught up in disenchantment with the ‘European Union’ project reflected in the psychology of fear of the ‘migration’ of East European citizens in traditionally ‘working-class’ areas. Indeed, this fear of the other is paradoxically shared by the second generation of Indian migrants from South Asia and East Africa during the 1970s. Metaphorically speaking, whilst enjoying infinite bottles of cheap imported lagers from continental Europe and the aromatic ‘chicken tikka masala’ the English ‘brexiters’ are caught up with an ‘ideality’ and reality of ‘multicultural identities and/or non-identities’.

    The English identity bequeathed and nourished by the colonial and post-colonial exuberance is perpetually caught in a state of the archetypal bull-dog fight with the European Union in the name of national sovereignty. In other words the dance of non-identical identities with identical non-identities is being played in the housing estates and communities, in areas devastated by the processes of de-industrialisation. Meanwhile thirsty politicians seek solace in an imagined oasis created by globalized finance-capital as reflected in the predominance of the service sector; personified by the financiers, bankers, property developers, insurers, and advertisers among many others in the City of London. Here the name of the game has always been to make a fast buck on the back of the toiling masses of post neo-colonial countries based in Africa and South Asian continents.


    1. c_heale

      The working class communities in the North of England didn’t vote for Brexit, although this misinformation is widely believed. The middle class communities in the South outside London did. There is a very good video by a Professor Dorling of Oxford University on youtube about this.

  9. PlutoniumKun

    A few anecdotes:

    My local pub tweeted that they were going to cancel their Zoom Burns Night dinner (click and collect, with songs and poetry via Zoom), because they couldn’t get Scottish sheep stomach for the haggis. But just in time they sourced some domestically. I’m not sure everyone thought that was a good thing. I’m glad to be sticking to the veggie version.

    I was talking last night to some friends in England. The impacts appear very random. Some friends said that their local shops were entirely normal, one (in an east Midlands City) said that his local supermarkets had been entirely stripped bare of fresh veg, and he had reluctantly to make his kids eat frozen carrots. How much of this is down to Brexit I really don’t know, only time will tell.

    It is clear that EU companies are not clamping down hard, but neither are they turning a blind eye to the rules. I suspect the instruction was ‘don’t be stupid about it, but make it clear to Britain that this is what they signed up for’.

    There is a general assumption I think that things will sort themselves out over time as traders get used to it. But as Yves says, the level of bureaucracy will be ramping up over the year, and its not clear that traders will be able to catch up.

    I wonder what the reaction of European consumers will be when the price of many types of fish rise. Will they blame their governments or the British? Again, time will tell.

    As for northern Ireland, they are having real trouble as its clear that even the big companies didn’t get their heads around the idea that the border is now on the Irish Sea. Its been highly disruptive for trade chains within the UK and they are caught in a bind as if they ignore the rules, especially over food, the EU will retaliate rapidly. The logical thing for most larger retail and food production chains is to simply make an all-Ireland unit, tied to the EU – but thats easier said than done for companies that have always seen Ireland as a bit of a profitable ‘extra bit’ for sales for their British based operations. Again, time will tell, but business logic will be for all-Ireland trade units to develop in sectors like retailing and construction products.

    1. vlade

      The bureaucracy will cost, and some things (groupage in particular) make shipping much costlier than before.

      It may well make the EU market unprofitable for some, which in some cases may mean the business closing down or relocating (I believe there was some interest in the small EU companies in buying the UK ones, in effect buying their customers .Don’t know how much that went though, but suspect that in 2021 there may be some bargains. Not much beyond that though, as the EU will find replacements elsewhere).

      But as you say, only time will tell what will be the impact, I’d say next five years or so.

      1. PlutoniumKun

        Yes, its a logical thing (in both directions) for companies to buy or go into partnership with cross-border companies to make things easier. I know there is a strong interest in this in the construction consultancy (engineering, architecture, law, etc.) area, but there are a lot of uncertainties, particularly when it comes to professional liability insurance.

        But as you say, the big issue is bureaucracy, combined with uncertainty. It doesn’t take much for a small to medium sized company to just decide that it makes more sense to abandon external markets to retain focus. I suspect this is why Japanese companies have been among the leaders when its come to moving out of the UK (as the tweet above shows). They are notoriously risk averse, while the Chinese and Americans tend to see uncertainty as an opportunity.

    2. The Pale Scot

      Vegetarian haggis? I’ll get back to you in a few days after my mind has wrapped itself around the concept.

  10. upstater

    The jam up of trucks at ports is shameful. A cousin runs a small transport business from Lithuania to the UK. They have one big industrial customer and then fill out the loads with multiple small shipments. Needless to say the customs paperwork and multi day delays at the ports have decimated their business and disrupted the lives of their drivers, putting 6 out of work. I suggested to my daughter in London that she buy a dozen cloth diapers, as disposable nappies are imported.

    Being a former railroader, it seems obvious that container trains could aid in reducing the port congestion. But the EU and UK move far less freight by rail that the US or Russia. And with the exception of Russia, the vast majority of time sensitive freight moves by trucks. It is compounded by newer production and distribution facilities are far from rail yards. And it goes without saying the carbon footprint of truck transport is massive when compared to rail.

    Yes, the wheels are coming off. Everywhere is a cluster f.

  11. Rtah100

    A lot of these issues are noise. We left, we follow new rules. They are what they are. The scandal is not the deal but the lack if preparation for it by HMG and by the UK business class (the inaction of the former being only partial excuse for the inaction if the latter: the third country processes could have been drilled for at any time).

    As for the bedding in period:
    – if EU lorry drivers will not come to UK, we will need to swap cabs in Calais or Dover so they can turn straight around. I have not used a Channel ferry in years but a lot of freight on the internal Liverpool-Belfast ferry is loaded with a “donkey” cab (there’s probably a term of art). It seems laborious but it is a solution and the captive market for UK hauliers may make up in part for loss of EU cabotage rights (not sure what the deal is here).

    – whatever dislocation to food supplies occurs will be temporary and the supermarkets will use air freight to circumvent port queues or British suppliers. There is no reason for us to ship in season produce from northern EU anyway, only winter salad and fruit from the Med. Food miles will reduce on seasonal stuff and may increase on air imports from Morocco, Kenya etc.

    – fresh fish has an acute problem. Either they master the formalities and use air freight to maintain end to end journey times or they land their catches in Ireland and France. Here in the southwest, the French ferry company Brittany Ferries brings Breton produce in, which is why the Bretons set it up. Since our airline Flybe went bust, there is a gap for an operator – it could address passenger traffic and fish exports, like Brittany Ferries.

    It is tedious to have all these shrouds waved as a salutary tale when they either have consequences we must live with or admit creative solutions (not necessarily perfect). It helps to remember that Brexit was not a vote on microeconomic utopianism but macroeconomic populism. Or in Lambert’s formula: (1) because nations; (2) go die!

    1. vlade

      Sort of. There was a number of points where a good argument can be made that a Brexit was missold.
      – “we follow new rules”. Brexiters commonly said the UK would not, it would make it’s own rules (the whole sovreignty shtick).
      – the lack of preparation on the business side. Unforgivable for any larger businesses, but for SMEs, remember that the govt was claiming all the way that it’ll be “business as usual”. Johnson in particular was very good at this. Arguably, HMRC was bombarding people with mails about Brexit, but it was only in Dec, before then I got 20 Covid mails for one Brexit. That was way too late.
      – macro populism has micro consequences. It’s unavoidable.

      In 2016, I very reluctantly voted remain. Not because I like the EU, it has plenty of problems. But because I didn’t see Brexit as helping to solve any of those problems in the UK, never mind the UK grown ones, which are massive.

      Not because they would be fundamentally unsolvable by the UK, but because the UK politics is such that I’d honestly rather have pols in Brussels deciding stuff than the Westminster.

      So far, I have seen nothing that would make me to change my mind. Short of a great new politicians appearing from the thin air (because there aren’t any in the current crop on either side of the aisle), I’d say a generation or more before it can be looked at, and most likely it will require a crisis.

      It’s possible that exiting the EU will speed up that crisis, so in the end it may make it “better” for the UK, but TBH, it’s for a very weird definition of “better”, as the required crisis will be, IMO, way, way worse than GFC or CV, and create a lot of suffering. Maybe it is the way it has to be, maybe w/o that suffering mankind cannot progress, but it’s not something I’m (currently) reconciled with.

      1. Rtah100

        I voted leave, precisely to accelerate the change. I see no hope of rebooting the political class any other way. There is a great danger that we just get another rough beast (not BoJo) slouching towards Westminster.

    2. David

      I think it becomes easier to understand if you accept that Tory policy under Johnson (and to a large extent under May) has been essentially:

      – sign anything so long as it can be presented as getting Brexit “done.”
      – promise anything to anybody to smooth the passage in the UK.
      – worry about the consequences later.

      Much of the private sector in the UK is a mess now because they believed promises that were not kept, and assurances that were quickly shown to be false. Given that many important figures were Tory supporters, voters and even funders, it was something of a step to believe that the government was actually lying to them (or perhaps simply didn’t care whether what it said was true or not). Governments always try to put the best face on negotiating outcomes, and play up what they hope to achieve, but I think this is the first time I have ever known a major western government so indifferent to the truth of what it says about negotiations, because in the end it just doesn’t care about these kinds of details.

      OK, you say, so it’s “later.” Now what? Well the Tories are in power, with a large majority, a surprisingly good poll score, a (reasonably) united party even on Europe, four years until the next elections and an unexciting Opposition. There are worse places to be politically.

        1. Keith Newman

          Interesting take on Brexit as Capital being divided, with the cowboys winning. Unfortunately his post is rather short on evidence.
          Sadly for UK-ers the hapless Labour Party, dominated as it is currently by its neo-liberal wing, will be unable to take advantage of the divisions of Capital. It seems a new. class-based, progressive party will be needed. That could take time and a lot of work on the ground to develop.
          We faced a similar division here in Canada in 1987 over “free trade” with the U.S. Sixty percent of the population opposed it according to polls, as did important sectors of Capital. It was quite clear via the public statements of the various actors. Nonetheless the party in favour, the Conservatives, by playing on divisions in the country, (Quebec nationalism and Alberta conservatism), won a majority government with 40% of the vote and it went through. Those who campaigned against it, as I did, it were betrayed by the nominally social democratic New Democratic Party that dropped its opposition during the election.

          1. HotFlash

            were betrayed by the nominally social democratic New Democratic Party that dropped its opposition

            Yeah, those guys.

        2. shtove

          Capital seems to have spoken uno voce in getting the pharma companies to roll out the vaccines; and, maybe in the same spirit of keeping the foundations secure, in convincing austerity-inclined governments to subsidize pay-rolls.

          1. Keith Newman

            Yes, so it seems. Then again in 2008 Capital was in favour of massive spending to prevent economic collapse, then austerity began shortly after.
            Here in Canada our federal government has spent 15% of GDP (not sure exactly) to support people directly ($2000 monthly for 5 months, now less, also a top-up to UI). The deficit is 19% of GDP so far. It was quite impressive. Programs targeting millions of people were put in place in 3 weeks and the money went out fast. I know someone who applied on a Monday and received their 1st $2000 on Wednesday, 3 days later.
            A couple of months ago a number of “respectable” fiscal conservatives from the CD Howe Institute, a think tank supported mostly by the big banks, said too much was spent to support people. They disliked the fact that many low wage earners got as much, and in many cases more, on emergency benefits than when they were working. It seems CD Howe itself was out of touch with its backers as bank economists have been supportive of the federal government’s spending. Importantly, no elected representative has dared say too much was paid out. It would be the end of their political career. All to say the fiscal situation is in flux here.

  12. Porcupine

    Why didn’t businesses make more noise? I have seen that question a few times, but I don’t know how exactly companies were meant to be doing that. At least speaking from my own experience of working for a global company. Talk to our HMRC liaison? They know less than we do. Talk to government representatives? They have made it very clear that they don’t really care. Lobbying? We even have some high-ranking former government members on the payroll, but they don’t have any influence with the current government. The press? Perhaps, but not very attractive, do we really want to give the impression to customers that the company may be struggling. So instead we just got on with it and rejigged our logistics accordingly.

    A lot of the issues being talked about now are not “little tripwires” inserted into the trade deal by the EU, but were advertised in the EU Notices to Stakeholders years ago. The UK government simply never bothered about these details. And whether or not there was a trade deal makes little difference to many of the changes. I don’t think anyone could really expect to be able to run a UK-based distribution hub for goods going into the EU, or not to have sanitary checks on fresh produce.

    Btw, thanks for the fantastic Brexit coverage.

  13. Synoia

    Once upon a time, in 1967, I and a couple of pals took a DXpedition to Andorra, via France. A DXpedition is where one takes an HF ham transmitter and receiver to a rare location to have other Ham radio people add to their collection of Countries contacted.

    We arrived in Calais with out equipment (UK made at that time), and declared out intentions to continue by road to Andorra. We cleared customs 28 hours later.

    We now appear to be returning back to that time in Customs delays.

    I enjoyed similar trips from Nigeria to Ghana by road, where one had to pass through two french speaking countries, and (the inevitable) too much delay meant one missed the daylight only ferry across the Volta River.

    As to the UK’s motives for wanting to leave the EU, I perceive the UK populace were disgruntled with their lot – and the blame was placed on the EU by the Tory Political leaders.

    It will be interesting to watch how the UK’s Tory leaders wriggle out of their self-inflicted Brexit mess.

    The people of Britain will, as always, suffer as they must.

  14. auskalo

    The Durrell series, freely inspired by the books that Gerald Durrell dedicated to his family’s stay in Corfu, deals less with the Greeks than with the English, particularly their difficulties in accepting the rest of the world. In one chapter, the Durrell family is visited by some rather obnoxious relatives and, when one of the brothers asks why the English are always so unfriendly, another replies that it is not that they are unfriendly but that they live better in captivity, that is, in England.

    1. skk

      I’d read the books as a kid in the ’60s. I was a fan of the TV series with Hannah Gordon that aired in the ’80s. It took a while but I also learnt to appreciate the remake with Keeley Hawes that’s aired in the last few years.

  15. Not Yet Convinced

    How come Clive hasn’t had anything to say in this discussion? He’s the resident Leaver. He should be explaining how it’s supposed to work.

  16. Barry

    All the UK supermarket chains have been having problems in Northern Ireland with empty shelves. The exception – LIDL Northern Ireland. Their twitter account tells why – 2 years preparation and heavy buy local. It´s worth reading

  17. John d

    I think a lot of the issues arise from a complete lack of preparedness by the British government. But the fish are happier according to the repulsive Mogg. Maybe because said fish are still in the sea.

    The added beauracracy is more likely to hurt small producers, which i think is working exactly as designed by the tories. No doubt they will have some vulture fund or rich donor who can swoop in.

  18. Anonymous2

    Thank you for a very interesting post and comments with much valuable information and opinions.

    Some suggest that this must have political consequences. The obvious occasion in the near future when the chickens may come to roost is the Scottish election in May. One idea that I have seen floating around the internet is that the SNP may announce that it is a ‘plebiscite election ‘ which I take to mean that any vote for them or any other party supporting independence will be taken to be a vote for Scottish independence. If these amount to more than 50% then it would be announced that the Scottish had voted for independence and the SNP would enter into negotiations with the London government to expedite the decision of the Scottish people. This would sidestep the legal requirement for Westminster to approve a stand-alone referendum.

    If this plays out this way then the UK will be facing its greatest internal crisis in 300 years.

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