Avoid looking desperate

Avoid looking desperate

by Pininvest Analysis

British Companies all US listings on pininvest.com

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Pin-insights

Must avoid looking desperate but must also avoid acknowledging that this could be a dead end 

The bittersweet words of advice to the UK government regarding ‘politics and negotiability’ in the 49-page report ‘On the Rebound: Prospects for a US-UK Free Trade Agreement’ penned by Ed Balls, the former Shadow Chancellor of the Exchequer (2011-2015) and Peter Sands, former chief executive of Standard Chartered Bank, applied to trade negotiations with the United States

We argue that the suggestion is just as relevant to negotiations with the European Union

The UK may leave in a huff, mildly disappointed not to be called back with urgency at the table by the Union, but that is hardly the end of the story

Negotiations will be engaged soon - under pressure of the economic sectors most exposed to the loss of their European markets, joined by the vocal requests of 'Leavers' at risk of seeing their livelihood wiped out (fisheries, lamb producers...)

The deeply divided British political landscape is hardly prepared to take on the challenge - and even less able to narrow the options of political arbitrage which some form of access to the European Single Market requires, if the expert comment of Mr. Lamy , former WTO Director General, is to be believed

We are not there yet and strategic choices are in disarray

 

***

 

Studiously avoiding the Brexit issues for the past year following our earlier reports on British economy and the ‘special relationship’ with the US, and reluctant to add more ‘digital’ ink to the flood of comments, political and otherwise, we saw no reason to reconsider our argument

  • In the world, there are three rule-makers who command the terms of trade and more broadly the legal, social and environmental protection on which people rely, and these rule-makers are the US, China and the European Union
  • In this broad definition, rules are all-encompassing and deep down, they reflect social belonging and a shared cultural and philosophical heritage, which is effectively a political commitment
  • Rule-takers have to ‘make do’ with whichever global entity they feel closest to, which may leave some wiggle room in the name of sovereignty, but geopolitical reality deprives them of any right to make a real contribution to the rules

 

To our embarrassment, ‘leaving’ the European Union has become some sort of hobby horse for rightwing commentators and a battle cry, actually condemning the opposite camp (48% of the vote at the 2016 referendum) as ‘traitors’

  • Extreme words can only hide the hollowness of actual plans for so long

The commitment to fast-track a trade agreement with the US seems to be the only specific project up for consideration, clinging to a reinvigorated ‘special relationship’

Given the strategic thinking of the US, we argued that any relation with the UK will be perfunctory if – as seems probable – Brexit deprives the US of a valuable entry point in continental Europe

Killing all illusions of fond WWII memories nurtured by British politicians, the tidal wave of qualified opinions by no less than Larry Summers, former US Secretary of State, Sir Peter Westmacott, retired UK ambassador to the US, Ed Balls, Shadow Chancellor of the Exchequer and Sir Ian Rogers, Permanent Representative of the UK to the European Commission from 2013 until his resignation in Jan. 2017, exhausted itself against a wall of unflappable ignorance

As for the economy, the sentiment of ‘optimism’ conjured by Alexander Johnson, the recently named British Prime Minister, will probably be as fleeting as his given name, sold down the river for the more familiar Boris

  • The analysis of the Office for Budget Responsibility (OBR) and the critical trends of labor productivity have added insult to injury by showing how the UK was bound to negotiate its withdrawal from a position of weakness …
  • A reality sadly confirmed by the trickle of discreet downsizing of Japanese automakers, and dwindling orders from hesitant European clients (squid from the Falklands which happens to be delivered to the Spanish market, lamb from Wales to France, to name a few)

Given the success encountered in its traditional voter-base by the anti-immigration platform, a surrogate for the expression of a profound unease, the Tory (Conservative) Party doubled down with equally vocal tactics in the hope to squash their right-wing competition

As we know today, the tactics have not been successful

  • Repeated attempts by mainstream Conservatives to offer some satisfaction to fringe ‘Brexiteers’ were swallowed like red meat thrown to the wolves, only calling for more
  • Empty slogans to ‘take back control’ have become articles of faith requiring wholehearted commitment under threat of excommunication
  • In a mirror image of the Conservatives, the travails of the Labor Party look familiar: a split between an anti-immigrant working class and a pro-European liberal left, leading the Party to awkward fence-sitting through a debate critical for the country’s future

While nationalistic fervor can be whipped by astute politicians, their tactics still need the backbone of a strategy, setting out a long-term vision for Great Britain, tying the country in confident and trusting relationships around the world

  • The rapport with America, already as strong and trusting as it gets, can hardly expect to be upgraded very much
  • The former Commonwealth ties will not be restored by sheer will of the former colonial power; harsh terms (such as voiced by India on immigration) and careful balancing of trade agreements with the much larger EU can be expected
Prospects for a US-UK Free Trade Agreement - credit Harvard Kennedy School

All of which puts trade with the UK’s natural – and indispensable – partner, the EU, front and center

 


Trading with the European Single Market

The person putting the issue with great clarity in a speech delivered to the Henry Jackson Society at the House of Commons in London on 29 April 2019 has been Pascal Lamy

Mr. Lamy, former Director General of the World Trade Organization, was 'chef de cabinet' during the entire Presidency of Jacques Delors at the European Commission, 1985-1994, a decisive time of deeper integration and launch of the Single Market

While we highlight key points of Mr. Lamy's conference, the speech should be read in its entirety

 

Central to Mr. Lamy’s analysis is the profound difference between a customs union and the Single Market

A customs union can exist with – or without custom duties; after removing duties within Europe in the late 60’s, the custom union was still operating with internal borders as a ‘Common Market’

The change introduced during the Delors Presidency was the removal of internal borders, making trade entirely free to move across the Union in 1992 in a Single Market

In the precise wording of Mr. Lamy

We only removed borders in 1992, after a long and complex process of regulatory convergence, harmonization and mutual recognition, whatever technology you use, in order to make sure regulations do converge. This is what we did between 1985 and 1992. So that in 1992 we were able to remove borders because there was enough stock and trust that regulatory standards in every part of the European economy and, to some extent, social life were similar, or at least similar enough to be able to remove these borders

 

Besides the fact that the construct of the Single Market was a very long process of mutual trust building and harmonization of regulations, the commitment made by the member states, as price to be paid to remove borders, was political

By leaving the European Union, and departing from its Single Market, the UK is confronted with a dilemma

To benefit from a degree of economic integration, as we have shown necessary for lack of true alternatives, the UK will have to accept regulations governing the Single Market

  • The lesser the regulations judged acceptable, the lesser the economic integration – creating a ‘thick’ border in the words of Mr. Lamy
  • The more regulations are incorporated by the UK, the ‘thinner’ the border

 

The strategy the UK will ultimately find acceptable is a political choice, which remains understandably hidden behind today’s posturing, but the reality will still have to be faced

The paradox may well turn out to be that the British people share most of the concerns underpinning the European regulatory thrust, from environmental protection to consumer health to data privacy rules and other concerns

Concluding dryly that warm words of friendship with European partners seemed more appropriate ‘for a Sunday night banquet’, Mr. Lamy suggested the path in the future relation between the UK and the Union had to be cleared, narrowing the options, what in our trade vocabulary is referred to as discussing, framing, and agreeing about “modalities”

We are not there yet