More Brexit Insanity: Corbyn Proposes Dead-on-Arrival, Misbranded “Soft” Brexit; Auto Part Makers to Take Huge Hit; Irish Border Groundhog Daze

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British officials seem determined to outdo Lewis Carroll’s Queen in how many impossible things they can believe before breakfast. We’ll discuss four sightings: Corbyn’s single market nonsense, the auto parts industry nightmare, the Government’s new-almost-certainly-old Irish border plan, and customs paralysis. There’s even more but we needed to keep the post to a digestible length.

Corbyn Punts

The latest is Labour Leader Jeremy Corbyn acting as if he had a remedy to the Brexit conundrum by proposing that the UK remain in the single market. But this is just a variant of an idea that the Tories proposed regarding Ireland and separately, for the City, that of having the UK have some sort of really super special deal with the EU…and keeps them in the single market…but lets them still negotiate their own deals!

Corbyn presented these wooly-headed ideas at a speech in Coventry earlier this year. :

That much puts Corbyn in exactly the same “have your cake and eat it” territory as the Conservatives – except that he has an entirely different means of achieving this magical state. He tells us:

We have long argued that a customs union is a viable option for the final deal. So Labour would seek to negotiate a new comprehensive UK-EU customs union to ensure that there are no tariffs with Europe and to help avoid any need for a hard border in Northern Ireland.

The two paragraphs cited and consecutive and need to be taken together. Mr Corbyn is effectively suggesting that we enter into a customs union with the EU in order to give us full access to European markets and maintain the benefits of the single market and the customs union.

And that really is gibberish. Even if it was technically possible, which it isn’t, it would be a political non-starter. The EU has said any number of times that the UK is not going to get full EU benefits once it has left – whatever mechanism is chosen.

Reader vlade flagged the Guardian’s description of what it correctly called a “scheme to maintain access to EU single market.” This is the guts of the idea:

Although EU negotiators have repeatedly made it clear that there can be no cherry picking to the UK’s advantage in the negotiations, [Labour shadow Brexit secretary Keir] Starmer insists the new proposal would deliver full access to the single market, backed by EU-agreed standards, rights and protections. There would be shared UK-EU institutions and regulations, and no new impediments to trade.

Help me. The EU is going to create a whole new institutional apparatus, with the UK as a partner, a better status than it had when it was inside the economic union…just to spare the UK the hassle of changing its life as a result of its own Brexit decision? As vlade elaborated:

The scheme, as described is idiotic and would never ever be accepted by EU (as it would imply any third party could get single-market w/o the rules and all the stuff that goes with it).

To me, that means one of two things:

– Labour is equally idiotically incompetent as Tories are, has no clue about EU, and assumes UK would get things just because UK asks for them. Not to mention it again conflates custom union with regulatory union (“Labour’s amendment, along with a commitment to negotiate a new comprehensive customs union with the EU, is a strong and balanced package that would retain the benefits of the single market“) – bolding mine.

– Labour knows the difference, but does not expect the amendment to pass. It, on purpose, conflates custom union and single market, so that it can sell it to both leavers (“We didn’t want single market”) as well as remainers (“We wanted single market equivalent”) on the catastrophic Brexit due in 10 months. TBH, this for me would be even worse (the idiotic incompetence is par for the course, and something I already came to expect), as the purported greatness of Corbyn is that he’s principled – to me, this is equally principled as the “Brexit will get NHS 350m a week” –  a knowing lie intended to get support of clueless audience.

Moreover, even from strategic position, this could backfire in the same way as the NHS lie – if the amendment does pass (we can assume Labour support, and if there’s sufficient number of clueless Tory soft-brexit MPs it could happen, given the Lords have already a customs amedment tabled), it would expose it for the lie it is. (moreover, in the comments section for something else, Labour supporters were claiming this was already agreed to by EU, which was another barefaced lie).

I’m sure North will have fun with this, given the box Guardian put in the article (the main idiocies highlighted by me)

 What is the customs union?

The European Union is a customs union. It allows free trade between countries inside it and allows imports in to the area by setting common tariffs *). The area does not just include EU members. For instance, Turkey is part of the customs union for manufactured goods but not services or agriculture. The single market involves deeper integration of free movement of people, goods, services and money. This means laws need to be aligned. Some countries have access to the single market **) without being members of the EU’s customs union.

*) No. It unifies tariffs to third party markets. It does not say anything about imports or “free trade” – for a given definition of “free trade”.  Any goods imported to the EU must still fulfill EU criteria. Say, Turkey could import chlorinated chicken from US, if it wishes to do so, and if poultry has any tariffs (w/o any sub-tariffs), they would be the same on these Turkey imports as a non-chlorinated, EU compliant chicken imported into EU from the US. But it does not mean Turkey can then re-export the chlorinated chicken to the EU, or that EU would take in chlorinated chicken.

**) No. Any product that complies with EU rules and regulations has access to the EU market – but it may be held on the EU borders for quite a while, at a cost. EEA/EFTA countries are part of single market (at least parts of it, i.e. goods), and subject to the relevant EU laws and regulations, including, I believe,  ECJ jurisdiction over them (technically it may be the EFTA court, but in practice it adopts ECJ rulings most of the time, including adjusting its case law – although it works both ways, where on some rulings ECJ adopts EFTA court rulings. From practical perspective, little to no difference).

Mind you, we are assuming that the Guardian reporting is correct. There’s enough confusion on Twitter, including from Labour party back benchers, to suggest that Starmer might not be giving the straight scoop. For instance:

Labour's Withdrawal Bill amendments really only amount to one substantial thing: Corbyn has won an internal tussle to shoot down EEA membership. Corbynistas should realise this is a hardening of Brexit, not a softening.

— Tom Newton Dunn (@tnewtondunn)

Jeremy Corbyn says Labour's planned Brexit customs union must allow for UK to strike its own trade deals. Is the man a fool? The whole point of a Customs Union is you cannot strike your own deals.

— mickoforpington (@MickGreenhough)

Got to be honest, I'm a Labour member, I don't have a fucking clue what my front bench is trying to achieve about EEA and Brexit right now

— John Harrison (@Purfleetjohn)

Labour: “We want a jobs first Brexit…”

“So you’ll support the Lord’s EEA amendment then?”

Labour: “A Brexit that gives us the same access as before…”

“So, the EEA?”

Labour: “The sane frictionless trade as before…”

“EEA then?”

Labour: “No, we’ll abstain”

— David Schneider (@davidschneider)

Auto Parts Marker Train Wreck

We’d predicted from early on that the UK transportation goods industry would be a big loser in Brexit. For instance, autos are made in global supply chains. Dealing with a hard border with the EU would create hassle and increase uncertainty of arrival times, a particularly bad feature since most car manufacturers run on just-in-time inventory management principles. So we had assumed that auto companies would shift production for non-UK end market goods out of the UK, which might not even be all that hard, since plants in the EU are reported to be operating at well below capacity levels.

A story in Sky News explains how EU manufacturers are starting to cut their use of UK car parts, although the driving concern, minimum EU content requirements, is different than the one we’d highlighted. From :

European governments are advising businesses not to use British parts in goods for export ahead of Brexit…

….the Dutch government has told its exporters that “if a large part of your product consists of parts from the UK” domestic exporters may lose free trade access under existing deals…

“After Brexit, parts made in the UK no longer count towards this minimum production in the European Union.”…

In order to qualify for EU free trade deals, a certain proportion, typically 55% of a product’s parts, needs to come from the EU…

That warning has also been underpinned by the EU’s own technical notice on this issue….

A leading car industry executive told Sky News that not using UK parts for EU exports would be a “catastrophe” for the British industry.

“The hard Brexiteers have built a bomb under the UK automotive industry and the EU have lit it,” said one chief executive.

Sky News has also heard of major UK automotive suppliers now ceasing UK supply of major components to cars for export to countries currently covered by EU Free Trade Areas – countries such as South Korea, South Africa and Canada.

Smaller companies are also being hit.

Andrew Varga of Seetru, a manufacturer of safety valves in Bristol, said that last autumn, many existing customers showed caution in taking UK parts into new models.

More Irish Border Magical Thinking

Express, in its typical breathless style, tells readers that the Government has solved the Irish border problem. No, really, truly this time.

From :

Sources in Westminster have revealed the Prime Minister’s next so-called Brexit war Cabinet will meet on Thursday, which Mr Robbins will attend and potentially be given the go-ahead to present Mrs May’s Irish solution….

He is likely to present a presentation to his EU counterpart Sabine Weyand, Michel Barnier’s deputy, in order to clarify Britain’s latest position.

The document will likely be a customs paper which essentially spells out the idea of an all-UK customs union in order to act as a temporary backstop.

Britain is hoping to take advantage of EU who will be hoping to avert anymore potential crisis in the wake of the acceptance of an anti-establishment government in Italy.

If this is accurate, it’s another “dead on arrival” plan. And a bit of gravy is the misreading of what the populist upsurge in Italy means for Brexit. It increases the EU’s incentives to cut the UK no breaks, so as to demonstrate that the costs of leaving the EU are high.

As anyone who has been following Brexit closely knows, even if this customs union idea were workable, it does nothing to prevent the need for a hard border. As Richard North has documented in gory detail, Turkey and Switzerland both have a customs union with the EU yet have extensive border checkpoints. He elaborates why in a new post, this one :

And nor has this same gaggle cottoned on to the fact that all the manufactured goods which require third party approval and have relied on UK certification are going to have similar problems. Vehicle and their components, aircraft and their components, medicines, medical devices, and the vast range of goods which require third party testing for their CE marks, are all going to be turned away at the border – or in some cases held for expensive and time-consuming re-testing.

A vast cloud of pessimism seems to be descending on the group as the leaders question what impact they could have on negotiations. “It’s not only ‘What’s the point?’, it is ‘What can you actually do?'”, says one. “When you keep circling round and it keeps coming back to Ireland, and you know the solutions being proposed are not acceptable to the EU, you get in this desperate spiral of: ‘What the hell can we do?'”

One company that is answering that question is the US pharmaceutical giant Merck & Co. We are told that it is planning for the possibility of a temporary supply blackout after Brexit and is looking to stockpile as much as six months-worth of goods in the UK.

Customs Planning Paralysis

If you think North was being alarmist by presenting his Merck story, the lack of any serious thinking regarding what will happen to agricultural imports and exports might convince you that the officialdom has completely dropped the ball in terms of taking care of its citizens’ needs. From North:

“Of the eight demands made in FTA’s list of essentials to ‘Keep Britain Trading’ issued at the beginning of the year, not a single one has been progressed,” [James] Hookham [Deputy Chief Executive of the Freight Transport Association, the UK’s leading logistics trade body] says. “Details of whether or not the country will have a Transition/Implementation Period are still unclear, there is still no decision on what Customs arrangements we will have from March 2019 onwards” he adds.

Expanding on his litany of complaint, he goes on to say: “We keep getting told that all food and agricultural exports to the Continent and Ireland will be checked at EU ports – but there is nowhere to check them, and the system to check them does not exist”.

Then, he says: “We still don’t know if we will be able to employ the 43,000 truck drivers in the UK that are nationals from another member state – that’s 13 percent of our driver workforce!”. And, “there is no clarification on whether UK drivers’ qualifications are to be recognised, so they could well be barred from driving their own vehicles on the Continent”.

A careful reader will note that Hookham is discussing UK agricultural exports, which is arguably a commercial issue, as in whether those producers survive, as opposed to whether Brits have trouble getting needed foodstuffs from the Continent. But there are likely to be knock-on effects, since presumably many of the shipments to the EU have backhauls of EU agricultural produce to the UK. And if the various points of entry are all backed up due to customs chaos, even efforts to prioritize perishables and other high-priority goods might not work very well for quite a while.

As we’ve said before, it would be better if we were wrong. But we recommend assuming the brace position just in case.

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51 comments

  1. Biologist

    On the (shifting?) political landscape within the Tory party, may be of interest.

    It argues that most hardline Leavers have come around to a the idea of keeping more regulatory alignment (rule-taking?) as a price to prevent a no-deal Brexit, “a bad deal is better than no deal”. The reason: they have become more afraid of losing 10 Downing St to Jeremy Corbyn, than eager to cut all ties (i.e. at the moment their fear trumps their greed).

    I’m curious what the usual highly informed commentariat here think, as a) this suggests that the distaster capitalists that want a no-deal Brexit have lost ground among Leave MPs, and b) there is a large gap between what MPs in London want, and what is possible in the real world (hence a no-deal Brexit may still be very likely, simply because it will happen by default).

    How Brexiteers lost control of Brexit

    “May and her team believe they have found a fudge that the majority of her Cabinet can stomach, partly because some pro-Leave Tories didn’t realize what was happening, because others came around to May’s approach, and because the rest did not have a plan to stop it.”

    But, of course:

    “even if the prime minister manages to get her Cabinet to agree, she is yet to secure the backing of Brussels, where EU officials and diplomats say the U.K.’s latest proposal is dead on arrival. “

    Key point:

    “One member of the ERG, who signed the group’s letter to the prime minister in February demanding the U.K. leaves the customs union and secures “full regulatory autonomy,” said they have since changed their view. “I voted Leave and I’m a free-marketeer but I care more about stopping Corbyn getting into No. 10 [Downing Street] than I do about signing new trade deals,” the MP said.”

    1. PlutoniumKun

      The only thing I can add to this is that I was recently at a talk with a representative of the CBI (Confederation of British Industry) where he said that they had been engaged in very vigorous lobbying at individual MP level over the need to stay within the Single Market and Customs Union. I think that because of the vote, they believe that ‘quiet’ lobbying is more effective than putting their head above the parapet in public. I assume, given the nature of Tory MP’s, this has been successful in persuading a significant number of individuals that the government has to concede a lot to the EU in order to protect mainstream businesses (the CBI would represent manufacturers and service industries, not bankers). So somewhat belatedly, it would seem that the consensus among those Tories who aren’t ideologues over Brexit (for or against), is to try to get the softest possible exit.

        1. bold'un

          There is ‘disaster socialism’ as well as disaster capitalism: I can see how someone might think that a shambolic ‘Tory brexit’ allows the Left to re-occupy the commanding heights of the economy. But whether disaster comes from the left or the vulture funds, the result may be ‘Helenic’ levels of interest rates – accompanied by an IMF rescue. For after the ‘gnomes of Zurich!’ and ‘Brussels!’, the UK populist press will surely need a new scapegoat…

      1. ChrisPacific

        I have been wondering whether May is engaged in a kind of brinkmanship strategy where she runs the clock down until capitulation to the EU on everything becomes the only viable option, and gambles that the chaos that would result from no-deal Brexit will become apparent soon enough that everyone agrees to EU terms as a least bad alternative.

        A number of recent stories have been consistent with this idea, such as the story about how the government has abandoned preparations for no-deal Brexit. I still find it hard to credit as I can’t see how she could survive that politically (large constituencies will feel betrayed if that happens, and will seek scapegoats). Even a Brexit where the EU dictates terms is likely to require substantial preparation and changes to systems and processes in order to accomplish successfully, which won’t happen if May is running the clock down. Finally, based on the quality of coverage to date I strongly suspect that the UK is quite capable of remaining delusional about the impact of no-deal Brexit right up until the final moments.

      2. beachcomber

        err – “to stay within the single market…”??? Staying within the single market is *non*-Brexit, as is staying within the customs union permanently.

        The CBI can only credibly be lobbying for this if they are bent upon reversing the Brexit vote, because the two things mean the same thing, only using different words. Meanwhile, on 29 March 2017, the UK government invoked Article 50 of the Treaty on the European Union. So what does the CBI think it is doing?

    2. Yves Smith Post author

      To underscore what you wrote, the key point is this bit:

      …. keeping more regulatory alignment (rule-taking?) as a price to prevent a no-deal Brexit, “a bad deal is better than no deal”

      This “regulatory alignment” idea is indeed a non-starter. The EU has rejected it repeatedly. As both Clive and vlade (and others) have stressed, the EU isn’t just regulations. There is a large regulatory apparatus to make sure it all works well. The UK idea that the EU will agree to new special regulations just for the benefit of the UK, which also implies the creation of a new bureaucracy, is just barmy. Yet this is one of what an EU negotiator called a reheated casserole that the UK keeps trying to foist on the EU.

      1. Colonel Smithers

        Thank you, Yves, for highlighting this issue.

        You may have heard UK regulator Andrew Bailey pipe up about this. His idea is a non-starter, too, but that’s not the point. Having lost his sponsor, George Osborne, in the race to succeed Mark Carney and fallen behind in the race, Andrew has worked his way back and tells the government what they want to hear, just like Legatum, Open Europe and the Institute of Economic Affairs. He knows better than that, what he says, as he has three women, all ex EU and Irish officials, so very well versed on such matters, working with him.

        BTW the three so-called think tanks mentioned above act as gatekeepers to and echo chambers for ministers. They control access to and the agenda for ministers more than is appreciated. Lamp posts should be earmarked for them.

        As David explains below, it’s the post-Brexit market that people are focussing on now. That goes for civil servants in Whitehall and financial services time wasters like me.

      2. Biologist

        Thank you Yves, I agree 100% it’s not going to fly in Brussels (reminds me of Monty Python’s dead parrot sketch…). Yet, within the la-la land of the Tories (and UK politics in general–Labour too as you write), this “regulatory alignment” idea is emerging as the reasonable consensus. More time wasted discussing non-starters, until at some point reality will hit of course.

  2. PlutoniumKun

    I can’t find the link right now, but a few weeks ago I read an article which outlined what I think is the most likely theory about Corbyn’s views on Brexit to explain his policies – quite simply, he isn’t terribly interested in it, he just wants it over and done so he can get on with his socialist revolution. I think this would explain the ambiguousness/incoherence of Labours approach. Corbyn and his immediate circle just see it as a political problem, and will say what is needed to cause the Tories as many problems as possible and help Labour activists on the doorstep. Politically, this is fairly reasonable, but it does raise the question of what on earth happens if the government collapses and Corbyn finds himself in power. He will be hit with a tsunami and will have no plans on how to deal with it. .

    As for the border issue, the Irish media have pretty much stopped even reporting on what Britain is saying now, its become so ridiculous. The Irish government have gone quiet. I think the assumption is that the only thing that will stop a chaotic border is a complete capitulation by London on the border issue. This, I think, looks increasingly likely as I think there is slowly (maybe too slowly) panic building up in the establishment as the deadlines all loom large.

    Ironically, the new dynamic in all this is abortion of all things. Thanks to the useless British media most of the British establishment have been able to ignore what a bunch of reactionary far right wingers the DUP actually are. But the abortion referendum in the Republic have brought them out of their closets to defend the abortion ban in Northern Ireland (one of those little constitutional curiosities – the DUP have never had a problem with ‘special’ arrangements for NI when it suited them). Its possible that DUP attempts to defend the abortion ban could backfire on them as everyone realises its entirely possible for NI to have its own rules, including staying within EU trade rules.

    So ultimately, I think the only thing that will prevent the very worst type of chaotic Brexit is, ironically, chaos in Parliament. With both main parties completely divided, and arguing over the wrong policies, the only way out I see is a capitulation to EU demands on the border backstop – no doubt Bernier would allow some fig leaves for May’s humiliation, but this is what it would be. It would mean the DUP being isolated and over-ruled, but I suspect this is politically possible given that the opposition is not united enough to bring the government down.

    1. vlade

      I’d agree it’s quite possible that Corbyn sees Brexit as you describe it – but that to me screams incomptence, for the reasons you describe – a no deal, crash-out Brexit will be such a mess that any plans he might have will be dead on arrival as all the management capacity will be dealing with fighting fires.

      Moreover, it still has the assumption “they have nowwhere to go” on the left leaning remain voters. On Brash (Breit Crash), I very much doubt that the remainers will be much forgiving to Labour and kiss-up-and-make-up. My call is that after a crash-our Brexit the UK will have another election, and that will result in a hung parliament, with LD likely to get a reasonably large surge. If that occured, LD doing a deal with Corbyn is unlikely, as it would be repeat of Clegg-Cameron deal, and that’s too recent a memory for LD. SNP could do a deal with Corbyn subject to Scottish indy ref #2.

      1. PlutoniumKun

        I think the problem with the definition of ‘competence’ is that politicians see it in political terms – and so far, Corbyn hasn’t significantly suffered from his stance. What is good, competent politics can be incompetent governance, and vice versa. Having said that, I think that things are coming to a head for Labour, people will soon be screaming for an alternative, and Labour can’t provide it. The big danger of course for Labour is a split and a third party, and while the threat of this is receding, it hasn’t gone away.

        I think the government could collapse at any time, with a chaotic Brexit making it more likely, but I would never over estimate the fear the Tories have of handing power to Corbyn. I think that if things become impossible for May, then we’ll see Gove slither into power, portraying himself as a pair of clean hands, acceptable to all sides. I think the Tories will do all they can to hold on for the full term, relying on things improving when the dust settles after Brexit (as I don’t think any of them realise just how bad it can be).

        The wild card of course is the DUP. I’m not convinced that an election has to follow if the DUP march off. I think the Tories could keep going as a minority government, or maybe even do their own deal with the SNP or others.

      2. Mirdif

        I’d be surprised if Lib-Dems got any kind of a meaningful surge. The remain-voting demographic was stung by the Lib-Dems going along with the Tories to increase tuition fees. This is still in the minds of some of them.

        Corbyn cannot go against Brexit or he risks his heartlands in the north of England that voted for Brexit. Remember if a government had been elected on the back of the Brexit vote they’d have had approximately 400+ seats.

        The Tories can and most likely will survive chaotic Brexit but they risk re-awakening UKIP or some such similar at the moment if they advocate anything other than hard Brexit. The problem is that some kind of big economic event is not likely until we get really close to the cliff edge if it materialises at all. That is likely the only thing that can prevent a crash out by allowing the government to use it as a reason to back out completely or partially.

        Of course, there were the statements some days ago by JDD over at Richard North’s site where he insinuated that May is likely going to be replaced by an interim leader without a Tory leadership election in the next few weeks – good old British democracy in action demonstrating how it’s done to Johnny Foreigner. Sajid Javid and Anna Soubry were two names mentioned by the readers and JDD did respond by mentioning their odds at the bookies.

        Soubry I think unlikely. Sajid Javid signed the ERG letter some weeks ago to May so crash out would increase. He’d be a fool to take it in any case not least that some sections of the British population may well blame him in any case using his heritage as a reason. Similar to the whole Obama nonsense which previously permeated some sections of the American political debate and continues to do so.

        1. vlade

          Various latest polls – and more importantly various by-elections to councils – show that LD are gaining. A poll run a month or so back indicated that a number of voters who voted Labour last election would switch to LD if Labour backed hard(ish) Brexit

          Similarly, in the local elections LD got 75 new councillors – just 4 short of what Labour did, and almost doubled their number of controlled councils from 5 to 9.

          Re Tories – Robert Peston tweeted yesterday I think that he had been told that May would be ousted post the EU bill vote (Which means that it would be a new PM doing the negotiation round in late June…. )

          1. Colonel Smithers

            Thank you, Vlade.

            I heard that the Liberals have won about half of council by elections in the south east since the June 2017 elections. The seats that were contested, about 150, were largely Tory losses.

        2. Colonel Smithers

          Thank you, Mirdif.

          I read these comments and had a look at the odds at Epsom ( :-) ) last Saturday. JDD was correct. Soubry was 100-1. Javid was early teens to 1. His odds have shortened / halved since promotion to the Home Office.

          Just one thing about the ethnic minority voters. A third of Caribbean and African voters voted out. A quarter of (various) Asian voters voted out.

          A friend, son of Indian shopkeepers expelled from Uganda, said most of that community, including him, are Kippers and want out. “All that EU regulation. Too many immigrants and welfare scroungers. You can have a beer with Farage.” UKIP has twice fielded an Indian shopkeeper in my constituency.

          1. Mirdif

            I think it’s now been largely forgotten, mainly due to subsequent antics, that UKIP fielded more than 20 Asian candidates in the 2015 election. More than half of those Asian candidates were Pakistani Muslims.

            I have heard the “too many immigrants” sentiment expressed as “Eastern Europeans are undercutting us” in the years leading up to the referendum.

            1. PlutoniumKun

              Its a common feature of immigrants that often that those who have established themselves are the keenest to raise the drawbridge behind them. Its one reason why ‘liberals’ who put their electoral faith in naturalised immigrants and their first and second generations are likely to be disappointed.

              In many ways its a natural response, as immigrants tend to establish themselves in businesses and professions which are most open to other immigrants (such as shops in run down areas, unpopular social service jobs, etc), so they feel the pressure on their incomes much more strongly than the established ‘natives’.

  3. The Rev Kev

    OK, if we can now agree that both political parties are off in magic sparkly pony land, I have a question. Reading about the troubles that are building up in the auto parts industry made me wonder about this. The UK has been meshed in with the EU for decades now so there must be a lot of these cross-dependencies between the two so has anybody heard of any studies done on the effects of the UK leaving the EU from the EU’s side? Virtually everything I have seen is on the effect on the UK (not good!) but I have heard nearly nothing on the effect for the EU. You would reckon that there would be some major effects.

    1. Detlef

      I found some figures

      In total, 9.3% of the UK’s inputs are sourced from the EU. However, the degree to which different UK industries make use of inputs imported from the EU varies greatly (Figure 2). They are most important for UK manufacturers, who obtain 16% of their inputs from the EU, followed by healthcare and agriculture, which obtain 13% and 11% of their inputs from the EU respectively. Inputs from the EU are, perhaps unsurprisingly, less important for service industries such as real estate.

      Looking instead at the importance of UK inputs for industries in the rest of the EU, the first thing to note is that the UK is a much less important source of inputs for the EU than vice versa. For example, manufacturing firms in the rest of the EU only obtain 1.5% of their inputs from the UK. One industry in which UK inputs are noticeably more important than others, however, is financial intermediation: 3.3% of inputs to the rest of the EU’s financial intermediation sector come from the UK. The total proportion of the EU’s inputs sourced from the UK is 1.4%.

  4. PlutoniumKun

    Just to show that its not particularly new that British governments have been pretty clueless about the EU, there is a nice quote from Sean Lemass, the Irish PM in the late 1960’s on the initial negotiations

    The Sean Lemass tapes, where the late former taoiseach talks about the UK’s sense of exceptionalism and entitlement vis-à-vis the then EEC, remind us just how long this has been going on. “I do not think that either MacMillan [British prime minister from 1957 to 1963] or any member of the British government ever fully understood that they could not be half in and half out of the EEC… I do not think they had any other idea initially in relation to the Common Market, except to destroy it. Even when they recognised they were not going to succeed in breaking it up, their application for membership was probably inspired by the idea that they could slow down its development in some way and perhaps change its character.”

  5. PlutoniumKun

    I can’t remember the links right now, but there have been a few studies – I think a few of them have been linked in the past on NC. In short, the consensus seems to be that the impacts would be of the order of around 0.5-2% of GNP, with Ireland the worst hit, followed by the Dutch, Belgians and French. The impacts on easter Europe would be negligible. But the impacts would be far lower (except possibly for Ireland) than for the UK. Also, from memory, the studies have not taken account of the economic benefits of companies ‘on-shoring’ contracts to the EU from the UK, such as the auto parts issue Yves writes about above. But certainly the main players in the EU seem to think that the impacts are within ‘acceptable’ limits. i.e., they won’t lose votes over it.

    The big unknown I think is whether there may be multipliers at work if Mr. Market gets spooked about the impact on banks, etc.

      1. The Rev Kev

        Thanks for that, PK. I find it interesting that the impacts on east Europe would be negligible as it is the people from those very same countries that were heading to the UK in such large numbers aka, the infamous Polish plumbers.
        You wonder where the east Europeans will head off to next for work as the UK shuts its doors, especially now as the job market will be tighter because of a million or two muslim refugees fleeing the conflicts in the middle-east.

        1. vlade

          Actually, a large number of Poles were heading back to Poland (which is a bit of a headache for the ruling party, as they are unlikely to vote for them). Overall, the major movement in the population more or less ceased – there were still some Romanians (IIRC they are giving Poles run for their money in terms of EU immigrant numbers in the UK)/Bulgarians, but again, most people who wanted and could move did. The young generation is still likely to keep moving, but it’s not going to be so massive anymore.

          1. Colonel Smithers

            Thank you.

            In Buckinghamshire, many Poles, Czechs and Slovaks are going home or to Germany and Austria, a second wave out this summer, mainly young families. Some Romanians and Bulgarians are coming, again often families this summer.

            1. PlutoniumKun

              I’ve heard anecdotally of a huge ‘turnover’ in Polish and Baltic immigration to Ireland – the reason is rents and house prices. They come for what seem like high wages, then leave after a year of two when they can’t get settled in reasonable accommodation.

        2. PlutoniumKun

          I don’t think the studies looked at the migratory element – the studies I’ve seen have been fairly simplistic models. I think there is an assumption that there would be a dispersal of East Europeans around Europe and ‘home’. But its not clear that returning plumbers would be a drain on the economy of Poland, etc., you could argue that as their economies are doing ok they could do with more skilled workers. In some eastern European countries they are taking in Ukranians and others as their own version of the Polish Plumber.

          1. vlade

            In the Visegrad-4, Czech economy in particular has a very large labour demand which it can’t fill, pretty much across the labour “stack”. The unions for the largest employer – Skoda car automaker were able to get 20% total-take increase – 12% wages + 8% increase in the “profit share” pay (which still makes an blue-collar average before-tax pay there about $2000/month, so less than $10/hour )

            1. Colonel Smithers

              Thank you, Vlade.

              A shortage of labour? Luxury!

              I reckon you should set up an agency for Brits to marry Czechs and get an EU27 passport. Same for PK in Ireland, especially as the language barrier won’t be as bad.

    1. Ekatarina V.

      As regards ‘on-shoring’ to Eastern Europe (or the EU in general), there are examples like that are bound to have a net positive impact on the country in question. Though it is difficult to say how much of the reasoning behind this particular decision was related to Brexit, they do use the phrase “to offer our customers in Europe the shortest delivery times possible”. A handy euphemism for ‘staying in the single market’, I believe…

  6. vlade

    As PK writes below, there’s been quite a few studies on this. There would be regions impacted (primarily Dutch and Belgian port regions, quite a bit of Ireland), but the rest would be mostly ok. Again, as PK says that was not taking into account the fact that a lot of EU businesses (and this is a wide definition, better one would be “companies that sell to EU and are currently UK based”) will very likely relocate their UK production somewhere else within EU. See the auto parts manufacturing that Yves mentions in the post.

  7. Ignacio

    I think that the Labour is just as confused as the Tory. The inability to admit what brexit really means (customs arrangements, border checkpoints, permits…) and to provision the arrangements & facilities required (in both sides) implies that… IMNSHO there are only to possibilities left: crash out brexit or no brexit at all (something like an indefinite retardation of the process until everything is prepared in the following century or until new referendum). I bet for the second.

    At 1.62, that’s still the case but, at the moment, it seems more likely every week that the Brexiteers’ dream is dying.

  8. David

    I think the easiest way to understand Corbyn’s position is as follows:

    – there is now no possibility of a sensible and workable scheme emerging to allow a graceful Brexit with minimum damage. There are theoretical ideas for reducing the impact, but none that command enough support within the Tory party, would be practicable, and could be agreed in time.
    – therefore virtually all public statements made by UK politicians are not intended to be taken as literal proposals, but as rhetorical positions, aimed at the post-Brexit political market, when who said, what, who supported what, who warned against what etc. will be the major issues for debate and the main determinants of who will be in power. My main criticism of Richard North is that he fails to understand this, and treats statements by politicians as if they were serious negotiating proposals.
    – there is no chance of any proposal made by the Labour Party being accepted, or even seriously discussed, by the government, no matter how sensible it might be.
    – therefore Labour’s best bet is to assume a low profile and let the Tories tear themselves apart, whilst not saying or doing anything that would convert the present chaos into a Tory-Labour spat, which would come as an enormous relief to the Tories were it to happen. Effectively, some kind of shambolic Brexit has already been assimilated into the thinking of the British political class; The issue is who benefits from the resulting chaos and how.

    1. vlade

      I agree with you, but that’s where I believe Labour is still making a mistake, in that they assuming that the angry remainers will have nowhere else to go but Labour.

      That would be a reasonable assumption if the likely outcome of Brexit wasn’t a total chaos, but just something slightly bad but not too bad. I do not know whether it will be a total chaos, but the likelyhood of it is IMO quite high.

      So basically, it seems to me that Labour is betting (knowingly or not) on “sligtly bad but not catastrophic” Brexit (or, alternately no Brexit at all), which IMO is only a slightly more likely outcome than a good Brexit that Tories are betting on (well, to be honest, Tories seems to be be betting on “Failed Brexit we can blame on the EU”).

      1. nervos belli

        “slightly bad but not catastrophic” is the only sensible thing they can bet on. If it is actually catastrophic, the resulting chaos will be so bad, one cannot make any plans for it, it is chaos after all. If there is chaos, you have to play it by ear and ditch all useless plans.
        If it’s “sunshines, roses and 350M for the NHS” then equally all is lost too from the point of Labour.

        So for Labour, the only thing they can plan and hope for is “bad but not too bad” as they are doing. Bad enough to oust the Tories, not bad enough for civil war on the streets.

        1. vlade

          The problem with that is that it could be a successful strategy two years back, but as the time goes, it’s more and more likely that only two outcomes will eventuate (unless EU does roll over, which if EU has Italian problems is even less likely):
          – no Brexit (A50 revoked in effect, there’s no other way to do it) – and I’m quite generous in considering it a possible outcome;
          – crash out catastrophic Brexit. Right now, even a Brexit WITH transition period will be chaos, as the UK will drop off the EU treaties with third parties, and there is zero preparation done for that. I do not believe it can be done within the 10 months remaining.

          Labour does not seem to adjust its strategy to the recent development. It could have imposed a defeat on the government, which would as likely as not cause new elections – instead it chose something that will, in case of anything but “somewhat bad but not too bad” Brexit make it complicit (either with remainers or leavers), and quite possibly break the party too, as well as the UK.

          Last time a UK party chose party over the country, we got the referendum from Cameron. That did not end well.

          Labour is choosing party over the country too, and I have my doubts it will end well either.

      2. David

        I would use the eleven-dimensional chess metaphor here, not because the players are smart enough to deliberately play it, but because that’s what the question (assuming there is a single one) has turned into. The potential ramifications of the various combinations of Brexit outcomes and consequences, even on the limited area of domestic UK politics, are now so complex that they have passed the point where anyone can hope to fully understand them, let alone think through the second- and third-order consequences. Governments are habitually blamed for things that go wrong, and I don’t see how the Tories can avoid having to take responsibility for Brexit consequences, however they might try to blame it on foreigners. In politics, the nearest target always gets the sh*t thrown at it, just because it’s there. This may well go beyond the leave/remain split, because it’s the general competence of the government that will be in question.
        And I don’t really see what Labour could actually do to put country before party. Even if they brought May’s government down, and there was an election, or they otherwise managed to form a government, they would be confronted with the same intractable problems. They would only have two options. One would be to revoke Art 50, which they could only do if they had campaigned on that basis. The other (my personal favourite) would be to stop the clock in Brussels while everyone calms down; But I’m not sure that’s possible either. Labour is not the fairy godmother who can solve the shambolic mess the Tories have created, and if I were Corbyn I wouldn’t be offering myself for that role.

          1. PlutoniumKun

            That is interesting – I’d assumed it was settled law that the clock couldn’t be stopped (at least without a strong willingness of all major parties not to rock the boat). I wonder how widely that view is held.

            1. David

              As I read the article, it’s essentially a list of clever ideas for providing legal justifications for stopping the clock under a wider range of conditions that originally thought. But you still need a consensus to stop it … And in the UK, just to take up one point, it’s the Crown, not Parliament which is sovereign.

        1. vlade

          I agree on the multidimensionality.

          What Labour could have done to put country before party was not to vote on A50 w/o a worked out plan to a costed solution. Even if this way took a whole electoral cycle, and a normal elections in 2020 would have served as a referendum on “go/no go”. But remember, Corbyn WANTED A50 triggered immediately after the referendum – pretty much the only politician (except Kippers of course) to do so. If that happened, given the history, we would have had a total crashout.

          Any decisions by the UK parliament are now, after A50 trigger, hostages to the EU – although I suspect that the EU might be open to some extensions/fudges IF it had a strong belief that the UK wants to negotiate realistically in a good faith. The dumbness of the plans from both Tories and Labour though pretty much preclude that.

    2. beachcomber

      @ David

      IMO yours is the most penetrating and undoctrinaire comment that’s appeared here for a long time (not excluding my own from the comparison)

  9. Ignacio

    Energy issues and brexit:
    1. on Energy
    2. Particularly important in Northern Ireland.

    The issue is particularly important in relation to the electricity sector in Northern Ireland which is highly integrated with that of the Republic of Ireland – through the existing Single Electricity Market (SEM) and the new I-SEM (Integrated Single Electricity Market), which is under development and scheduled for go-live in October 20181. Whilst the Government has stated in its position paper on Northern Ireland and Ireland that it is seeking the continuation of the SEM, the framework for doing so would need a special arrangement to be found. Indeed, in the draft of 19 March 2018 of the EU Withdrawal Treaty2 (the draft Withdrawal Treaty), the EU and the UK have agreed in principle that certain EU laws governing wholesale electricity markets shall continue to apply in respect of Northern Ireland following Brexit (although notably the relevant annex is yet to be published).

    On nuclear power:

    The House of Lords’ EU Energy and Environment sub-committee report on the impact of Brexit on the UK’s energy security, published in January 2018, highlights that leaving Euratom’s regulatory umbrella has the potential to impact the UK’s current nuclear operations; including fuel supply, waste management, cooperation with other nuclear states and research. Changes to immigration policy may also adversely impact the availability of skilled labour, particularly engineers and professionals within the nuclear industry.

    On Ntl gas everything should be OK but there are long-term potential problems:

    Of greater significance will be issues such as expiry of long term supply contracts and restrictions, under the current regulations, on selling capacity on a long term basis. The tariff network code, which is being phased in from the 6 April 2017, restricts the price at which interconnectors can sell their capacity. Brexit may give rise to complex issues such as whether or not the interconnectors continue to be bound by such restrictions. Also of importance is the potential for the UK to lose the benefits of being part of key energy security mechanisms and institutions, such as the Early Warning Mechanism and the Gas Advisory Council, unless it can negotiate to retain its role and benefits in these.

  10. cnchal

    Thanks to Yves and the informed commentary for sounding alarms. Informative and timely news you can use.

    So far, I have had nothing to say about Brexit, a spectator if you will.

    We have a known black swan flying around, visible to anyone with eyes, a know date when she lands, and a known place where she lands.

    The great unknown is if assuming the brace position will be enough.

  11. vlade

    Well, here’s what Labour is saying they would like to do.. I don’t have time to take it apart, especially as I’m sure North will have a lots of fun with it in next couple of days. All I’ll say is it’s OpenEurope/ERG/etc. quality of material – wishful thinking trying to pass for a plan.

  12. ChrisAtRU

    Has no one from the wider sane-economics community reached out to Corbyn???

    People like Neil WIlson? Ann Pettifor? Anyone? Bueller??

    Should the NC Commentariat crowd-source a #BrExitAsFolly missive? ;-)

  13. Ctrl_Z

    Thank you everyone on this forum for the rich, thoughtful discussion on such an important issue. One would have imagined that the media should, at some point, play its role as the fourth estate and offer something akin to this discourse, but alas.

  14. rtah100

    It’s Corbyn’s hour.
    There are many people who want Brexit and will hold their nose on economics for Corbyn to deliver it.
    There are many people who want to roll-back neoliberalism and will hold their nose on Brexit for Corbyn to deliver it.
    And there are some happy people like me who want both.
    He needs to say as little as he can and make even less impact on the situation. He will still win the next election. And then, on verra.

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