The Brexit myth of no-strings frictionless trade

Chris Giles in The Financial Times


Take a wooden pallet and stick two sets of mundane goods on to it — Chinese plastic cutlery and British cuddly toys. As it trucks towards Dover, ask yourself the following question: how will this consignment enter the EU after Brexit? 

The answer is more complicated than you think, but serves as a simplified guide to the costs and benefits of different future trading models. British MPs, preparing to debate these matters next week, might want to take note. 

Today, there are no checks. When a good is in free circulation for sale in the UK, that also applies in every other EU country. Under an antagonistic “no deal” Brexit, the consignment probably would not make it to France, such would be the chaos at ports. The question is what deals can be struck, between these two extremes, to ease the flow. 

Both the EU and UK want to strike a free-trade agreement. This would eliminate the 4.7 per cent tariff on stuffed toys, but there would still be customs declarations to fill in and many other checks in addition to a 6.5 per cent tariff on the Chinese kitchenware. A free-trade agreement is far from friction free. And for Britain to secure this deal, the EU has insisted it must accept “level playing field” conditions, preventing the UK from undercutting EU standards in competition, state aid and many other regulatory areas. 

So, I am sorry to tell the Tory Brexiters: the promised bonfire of regulations will not ignite under a “free trade” deal. (And sorry, too, Labour Brexiters, but your nirvana of state-subsidised industries will also not fly.) 

How about getting rid of more friction by joining a customs union with the EU? This would avoid the complicated burden for business of proving the cuddly toy was indeed of British origin and the tariffs on the cutlery. But it would not do much to lower other frictions at the border. For the lower business burden, Britain would give up its right to an independent trade policy in goods with countries outside the EU. 

A greater border simplification would come from a legal commitment to align UK regulations with the EU for all industrial goods. It would eliminate the risk that goods would be stopped at the border with demands to see whether the requisite approvals conform with EU regulations. The downside is Britain would become a rule-taker. 

Our consignment is more tricky than simple industrial goods, however. Because people lick plastic cutlery and there is a history of contaminants in Chinese imports, special rules apply to the vast majority which come into the EU via the UK. To be allowed to enter Calais, we would have to pre-notify the French authorities at least two days in advance, declare that our cutlery met EU standards and at least one in 10 consignments would have to wait days for a lab test to verify its safety. 

That is not the end of the new border checks. If the goods had been loaded on any old pallet, we would also face the likelihood they could not enter the EU because wood packaging was not compliant with ISPM15 international standards which ensure it is pest free. 

The only way to avoid such onerous checks on plant, food and animal hygiene would be to become a rule-taker in these special regulations — as Switzerland and Norway have done. 

But our pallet would still not be allowed to cross before value added tax was paid on the consignment. Officials would do a paper or physical check that the contents in the truck matched the customs declaration. To avoid this burden, Britain would have to join the EU VAT area and follow the relevant European tax law with EU judicial oversight. 

Of course, our truck and driver still would be stuck at the port unless Britain also signed a transport services agreement, allowing lorries and drivers to operate on the continent. Brussels has already said such an agreement would require “a strong level playing field” on regulatory harmonisation, with effective enforcement mechanisms. 

This is the choice. Technology can help lower border barriers, but even for a relatively simple consignment, frictionless trade is available only with the full list of agreements alongside the lost sovereignty outlined above. Even then, the combination would almost certainly fall foul of the European Commission’s “no cherry picking” clause, requiring Britain also to concede to freedom of movement and payments to the EU budget. 

Once politicians accept these trade-offs we can start a serious discussion of what Brexit means and whether we still want it. Rather than prevaricate, it is time to admit to the public that there is no magic solution which maintains frictionless trade with the EU and allows the freedom to be “Global Britain”.

My fantasy Corbyn speech: ‘I can no longer go along with a ruinous Brexit’

Alastair Campbell in The Guardian


Last week I wrote a speech for Theresa May, which concluded with an announcement that she had decided Brexit was impossible to deliver. Sadly she didn’t listen, and so onwards she leads us towards the cliff edge. I am hoping for better luck with Jeremy Corbyn, fantasising that he delivers this speech to a rally of his faithful Momentum followers …

“Thank you for that wonderful reception. Yes, yes, I know my name. ‘Oh Jeremy Corbyn’. Yes, that’s me. Now please stop singing and sit down. Please.

“I will be honest with you. I didn’t want the job. I didn’t think I would get the job. I wasn’t sure I could do the job. But thanks to you I got it. Thanks to you I now have the confidence to do it. I approach the challenge of being prime minister not with fear or trepidation but with confidence that our time is coming. That it is our duty now to serve. Protest is one thing. Government is another. And we must now prepare, genuinely prepare, as a government in waiting.

“If I become prime minister it is Brexit that will define my leadership. As a result of what happened on 23 June 2016 I have no choice in the matter. The people’s choice dictates that it is so.


I have concluded that rejecting this vision of Brexit is the only route to the vision of the world that drives us

“It is clear to me the constructive ambiguity of our position on Brexit is no longer tenable. It is fine for a party of protest. It is not good enough for a party one step away from government.

“Let’s imagine this entirely credible scenario. As the current chaos inside the government continues, Mrs May falls. The Tories try to foist another prime minister on us, chosen by their ageing membership. But we and the public won’t wear it. We force an election. We win an election. I am prime minister. Now the hard part begins.

“What does our ‘jobs-first’ Brexit mean then, in power? What is a jobs-first Brexit if our leaving the single market hurts growth, as every analysis in the world says it will? What is a jobs-first Brexit dependent on trade if trade slows and even grinds to a halt with the absence of a proper customs infrastructure at our ports, the absence of good trade deals not just with the EU but with the 66 countries with whom we have deals as part of the EU? What is a jobs-first Brexit if firms decide that if the UK leaves the EU, they leave the UK, and take their jobs and their tax take with them? 

“And how can we fund all the things in our election manifesto that we need and want to fund in the future if our economy tanks?

“At Labour’s party conference, I said that our continued membership of the EU would prevent us from implementing many of the plans in our manifesto. I am grateful to the New European, which sought legal advice in Brussels and established this was not the case. So the question becomes, not ‘What do we lose by staying in?’, but ‘What do we lose by coming out?’

“The dominance of the hard right is clear in their pressing Mrs May to walk away from the negotiations, crash out of the EU, into the World Trade Organisation. I am of the internationalist left. We exist to fight the nationalist right, not to dance to its tune. We believe in support for the many, not the prosperity of the few. It is the nationalist right that is leading the Brexit Mrs May is pursuing, whatever the cost. It is their only route to the vision of the world that drives them. And, today I want to tell you – I have concluded that rejecting this vision of Brexit is the only route to the vision of the world that drives us. In this debate, they are the reactionaries, we and the Europeans the progressives.

“Take back control, they said. But what kind of control? Their control. Their right to dump decades of law with their ‘great repeal bill’, and bring about their vision of a low-tax, low-regulation economy, public services there for profit not public, employment and environmental rights shredded, one of the great powers of the world reduced to a gigantic Cayman Islands. That is their dream. And many of those who voted for Brexit, in the poorest areas, the places we represent, they will be the hardest hit. As the reality of power nears, I must tell you, candidly, that I can no longer go along with it. Not now. Not in two years. Not ever.

“No deal, I must warn you, would be a catastrophe. So if Mrs May is still prime minister, and presents the no-deal option to parliament, be in no doubt – we will vote against it. We will press for a deal with keeps us in the single market and the customs union, to protect trade and avoid chaos.

“But today I want to go further. The referendum was close. It was not, contrary to the claims of the Brextremists, ‘clear’, let alone ‘overwhelming’. Millions are deeply concerned about what is happening to our country. I believe people have a right to change their minds as this all unfolds. And politicians have a duty to reflect that, and to give proper vent to the debate it represents.

“Democracy is a process, not a moment in time. If the government falls, and we win an election, then we can put a different vision of Brexit to the country, and we will. If we can bring about a fresh election, this is the Brexit policy you will be voting for.

“We will take over the negotiations from Mrs May and her hapless, hopeless team. We will review what progress has been made and assess whether Brexit can be delivered on the timescale set out under the article 50 process she triggered.

“If we conclude, as on any current assessment seems likely, that Brexit cannot be delivered without real damage to our economy, that a jobs-first Brexit is impossible, that it will mean lower growth, higher prices, higher unemployment, more austerity, cuts to public services, customs chaos, the return of a hard border in Ireland and the potential undoing of the Good Friday agreement, the loss of security cooperation with our partners, then I will revoke article 50.
“I am clear that a referendum decision can only be overturned by another one, and so we will legislate for a new referendum, and the choice we will put before the British people is between staying in, or leaving on the terms then on offer.

“If, as I believe they will, the British people opt to reverse their decision of last June, that will put us in a strong position then to succeed where David Cameron failed, and win the argument for a reformed EU that works for all.

“Comrades, this has been a lot to take in. But I believe it is the right course for our party, for our movement, and most important of all, for the country.

“This is our country too. This is our time. Let’s take back control of our destiny, and build a country future generations will be proud to call home. Thank you.”

All those in developing countries please look away now - Aid in reverse: how poor countries develop rich countries

Jason Hickel In The Guardian


We have long been told a compelling story about the relationship between rich countries and poor countries. The story holds that the rich nations of the OECD give generously of their wealth to the poorer nation cheats of the global south, to help them eradicate poverty and push them up the development ladder. Yes, during colonialism western powers may have enriched themselves by extracting resources and slave labour from their colonies – but that’s all in the past. These days, they give more than $125bn (£102bn) in aid each year – solid evidence of their benevolent goodwill.

This story is so widely propagated by the aid industry and the governments of the rich world that we have come to take it for granted. But it may not be as simple as it appears.

The US-based Global Financial Integrity (GFI) and the Centre for Applied Research at the Norwegian School of Economics recently published some fascinating data. They tallied up all of the financial resources that get transferred between rich countries and poor countries each year: not just aid, foreign investment and trade flows (as previous studies have done) but also non-financial transfers such as debt cancellation, unrequited transfers like workers’ remittances, and unrecorded capital flight (more of this later). As far as I am aware, it is the most comprehensive assessment of resource transfers ever undertaken.


The flow of money from rich countries to poor countries pales in comparison to the flow that runs in the other direction

What they discovered is that the flow of money from rich countries to poor countries pales in comparison to the flow that runs in the other direction.

In 2012, the last year of recorded data, developing countries received a total of $1.3tn, including all aid, investment, and income from abroad. But that same year some $3.3tn flowed out of them. In other words, developing countries sent $2tn more to the rest of the world than they received. If we look at all years since 1980, these net outflows add up to an eye-popping total of $16.3tn – that’s how much money has been drained out of the global south over the past few decades. To get a sense for the scale of this, $16.3tn is roughly the GDP of the United States

What this means is that the usual development narrative has it backwards. Aid is effectively flowing in reverse. Rich countries aren’t developing poor countries; poor countries are developing rich ones.

What do these large outflows consist of? Well, some of it is payments on debt. Developing countries have forked out over $4.2tn in interest payments alone since 1980 – a direct cash transfer to big banks in New York and London, on a scale that dwarfs the aid that they received during the same period. Another big contributor is the income that foreigners make on their investments in developing countries and then repatriate back home. Think of all the profits that BP extracts from Nigeria’s oil reserves, for example, or that Anglo-American pulls out of South Africa’s gold mines.

But by far the biggest chunk of outflows has to do with unrecorded – and usually illicit – capital flight. GFI calculates that developing countries have lost a total of $13.4tn through unrecorded capital flight since 1980.

Most of these unrecorded outflows take place through the international trade system. Basically, corporations – foreign and domestic alike – report false prices on their trade invoices in order to spirit money out of developing countries directly into tax havens and secrecy jurisdictions, a practice known as “trade misinvoicing”. Usually the goal is to evade taxes, but sometimes this practice is used to launder money or circumvent capital controls. In 2012, developing countries lost $700bn through trade misinvoicing, which outstripped aid receipts that year by a factor of five.

Multinational companies also steal money from developing countries through “same-invoice faking”, shifting profits illegally between their own subsidiaries by mutually faking trade invoice prices on both sides. For example, a subsidiary in Nigeria might dodge local taxes by shifting money to a related subsidiary in the British Virgin Islands, where the tax rate is effectively zero and where stolen funds can’t be traced.

GFI doesn’t include same-invoice faking in its headline figures because it is very difficult to detect, but they estimate that it amounts to another $700bn per year. And these figures only cover theft through trade in goods. If we add theft through trade in services to the mix, it brings total net resource outflows to about $3tn per year.

That’s 24 times more than the aid budget. In other words, for every $1 of aid that developing countries receive, they lose $24 in net outflows. These outflows strip developing countries of an important source of revenue and finance for development. The GFI report finds that increasingly large net outflows have caused economic growth rates in developing countries to decline, and are directly responsible for falling living standards.

Who is to blame for this disaster? Since illegal capital flight is such a big chunk of the problem, that’s a good place to start. Companies that lie on their trade invoices are clearly at fault; but why is it so easy for them to get away with it? In the past, customs officials could hold up transactions that looked dodgy, making it nearly impossible for anyone to cheat. But the World Trade Organisation claimed that this made trade inefficient, and since 1994 customs officials have been required to accept invoiced prices at face value except in very suspicious circumstances, making it difficult for them to seize illicit outflows.

FacebookTwitterPinterest Protest about tax havens in London in 2016, organised by charities Oxfam, ActionAid and Christian Aid. Photograph: Carl Court/Getty Images

Still, illegal capital flight wouldn’t be possible without the tax havens. And when it comes to tax havens, the culprits are not hard to identify: there are more than 60 in the world, and the vast majority of them are controlled by a handful of western countries. There are European tax havens such as Luxembourg and Belgium, and US tax havens like Delaware and Manhattan. But by far the biggest network of tax havens is centered around the City of London, which controls secrecy jurisdictions throughout the British Crown Dependencies and Overseas Territories.

In other words, some of the very countries that so love to tout their foreign aid contributions are the ones enabling mass theft from developing countries.

The aid narrative begins to seem a bit naïve when we take these reverse flows into account. It becomes clear that aid does little but mask the maldistribution of resources around the world. It makes the takers seem like givers, granting them a kind of moral high ground while preventing those of us who care about global poverty from understanding how the system really works.
Poor countries don’t need charity. They need justice. And justice is not difficult to deliver. We could write off the excess debts of poor countries, freeing them up to spend their money on development instead of interest payments on old loans; we could close down the secrecy jurisdictions, and slap penalties on bankers and accountants who facilitate illicit outflows; and we could impose a global minimum tax on corporate income to eliminate the incentive for corporations to secretly shift their money around the world.

We know how to fix the problem. But doing so would run up against the interests of powerful banks and corporations that extract significant material benefit from the existing system. The question is, do we have the courage?

 

The logic of arranged marriage in India 15 Mar 2009, 2226 hrs IST, Santosh Desai

Why does the institution of the arranged marriage survive in India in this day and age? The India I am talking about in this case includes the educated middle class, where the incidence of arranged marriages continues to be high and more importantly, is accepted without any difficulty as a legitimate way of finding a mate. Twenty years ago, looking at the future, one would have imagined that by now, the numbers of the arranged marriage types would have shrunk and the few remaining stragglers would be looked down upon as belonging to a somewhat primitive tribe. But this is far from being so. The answer lies partly in the elastic nature of this institution, and indeed most traditional Indian customs, that allows it to expand its definition to accommodate the needs of modernity. So today's arranged marriage places individual will at the heart of the process; young men and women are rarely forced to marry someone against their wishes. The role of the parents has moved to that of being presiding deities, with one hand raised in blessing and the other hand immersed purposefully in the wallet. The need for some arrangement when it comes to marriage is a very real one, both here as well as in those cultures where arranged marriages are anathema. The blind date, being set up by friends, online dating, the speed date, reality swayamvar-type shows are all attempts to arrange ways that one can meet a potential spouse. Here the idea of love is being not-so-gently manufactured by contriving a spark that could turn into the cozy fire of domesticity. The arranged marriage of today is more clearly manufactured but it also offers a more certain outcome. Online matrimonial sites are full of young professionals seeking matches on their own, knowing that what is on the table here is not a date but the promise of marriage. In the West, the curiously antiquated notion that it is the prerogative of the man to propose marriage makes for a situation where the promise of marriage is tantalizingly withheld by one of the concerned parties for an indefinite period of time. Indeed, going by Hollywood movies, it would appear that to mention marriage too early in a relationship is a sure way of scaring off the man. So we have a situation where marriage is a mirage that shimmers on the horizon frequently, but materializes rarely. The mating process becomes a serial hunt with the man doing the pursuing to begin a relationship and the woman taking over the role in trying to convert it into something more lasting. At a more fundamental level, the idea that romantic love is the most suitable basis for a long-term relationship is not as automatic as it might appear. Marriage is the only significant kinship tie that we enter into by choice. We don't choose our parents, our relatives or our children — these are cards that are dealt out to us. For a long time, in a lot of cultures, and even now in some, marriage too is a relationship we do not personally control. This view of marriage works best in contexts where the idea of the individual is not fully developed. People live in a sticky collective and individuality is blurred. A young Saraswat Brahmin boy, earning in four figures was sufficient as a description and one such person was broadly substitutable with another. As the role of the individual increases and as dimensions of individuality get fleshed out in ever newer ways, marriage must account for these changes. The idea of romance makes the coming together of individuals seem like a natural event. Mutual attraction melts individuals together into a union. In contexts where communities fragment and finding mates as a task devolves to individuals, romance becomes a natural agent of marriage. The trouble is that while the device works very well in bringing people together, it is not intrinsically equipped to handle these individuals over time. For, the greater emphasis on the individual has also meant that personal needs and personal growth come to occupy a privileged position in every individual's life. Falling in love becomes infinitely easier than staying in it as individuals are no longer defined primarily by the roles they play in marriage. So we have a situation where people fall in and out of love more often, making the idea of romance as a basis of marriage not as socially productive as it used to be. Romantic love seeks to extend the present while the arranged marriage aims at securing the future. It keeps the headiness of romance at bay, and recognizes that romance and the sustenance of a socially constructed long-term contract like marriage do not necessarily converge. Of course, the arranged marriage has its own assumptions about what variables make this contract work and these too offer no guarantees. In a world where our present has become a poor indicator of our future, the idea of arranging marriages continues to hold charm. Whether it is cloaked in tradition as it is in India or in modernity as it is elsewhere, the institution of marriage needs some help. The expanded Indian view of the arranged marriage functions as a facilitated marriage search designed for individuals. Perhaps that is why convented matches from status families will continue to look for decent marriages, caste no bar.

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