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Brexit and free trade

by Frank Schnittger Sat Sep 17th, 2016 at 11:59:12 AM EST

For anyone still unsure of what complexities await the UK as it tries to negotiate a good Brexit agreement, Nick Clegg and Peter Sutherland, the founding Director-General of the World Trade Organisation, have produced a good outline. In summary, they find that:


  1. A free trade deal with the European Union will be impossible to agree within two years
  2. That, therefore, an interim deal will need to be agreed to avoid a dangerous and extended period of uncertainty for British companies
  3. And that a new trade deal will result in significantly more red tape for British companies exporting to the EU as British exporters will also have to comply with complex `rules of origin' which require UK exporters to obtain proof of origin certificates from their national customs authorities and are estimated to increase trade cost by four and 15 per cent.

And the above is only achievable with a great deal of good will and cooperation on the part of all 28 current members of the EU. Their 8 page report can be found here and is well worth a read in its own right.  Although primarily intended to describe the difficulties of negotiating a good Brexit deal which does as little harm as possible to the UK economy, it is also a systematic and detailed refutation of just about every claim made by the Leave campaign and by the UK Government ministers now leading the UK Brexit negotiating team.  In particular it describes the disastrous economic effects of the "hard Brexit" which will result if some sort of interim arrangements can't be agreed by the UK and all 27 remaining members of the EU on the expiration of the post A50 two year negotiating period.

Comments >> (116 comments)

Global tax competition and its reduction

by Frank Schnittger Fri Sep 2nd, 2016 at 12:52:52 PM EST

The Apple case has highlighted the degree to which major global corporates have been able to avoid paying any significant amount of corporate tax at all, never mind just taking advantage of relatively low headline tax rates like Ireland's 12.5% rate. In addition, even headline tax rates have been declining globally, and many countries operate complex systems of exemptions which means that the actual effective rate paid by corporates does not bear any relationship to the headline rate.

This distorts competition in a number of ways: It advantages the bigger multinational players at the expensive of smaller local businesses which cannot claim such exemptions. It encourages a race to the bottom in corporate taxation amongst countries competing for FDI. It reduces the tax take for cash strapped states seeking to maintain social services, and increases the power of wealthy corporates relative to to democratic states. It can be argued that this is the dominant engine driving the increase in global inequality more generally.

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Ireland to appeal Apple Ruling

by Frank Schnittger Tue Aug 30th, 2016 at 08:25:39 PM EST

The European Commission has made a ruling charging Ireland with giving illegal state aid to Apple and ordering Ireland to collect €13 Billion in back taxes due - a figure that represents c. 6% of Ireland's total national debt. Apple has a market valuation of $571bn, a cash pile of $230bn, and an expected $53 billion in free cash flow this year, making the ruling material but hardly terminal from a corporate point of view. Apple shares are down less than 1% on the day.

Irish Finance Minister Michael Noonan is recommending that the Irish government appeal the finding to the European Court. Yes, you read that right.  The Irish Finance Minister doesn't want the money. Apparently collecting the money would damage Ireland's ability to attract multi-nationals like Apple to Ireland in the first place.  Noonan is also concerned that the ruling might be seen to imply wrong-doing by Irish tax officials and that it represents an encroachment by the Commission of Ireland's sovereign right to determine its own tax policies.

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Will a Brexit agreement require ratification by 28 Member states?

by Frank Schnittger Thu Aug 18th, 2016 at 02:04:41 PM EST

Luis de Sousa raises an important point. Will a Brexit agreement require ratification by 28 Member states, or can it simply be agreed, by majority vote of the EU Council as provided for in Article 50 of the Lisbon Treaty? He quotes legal opinion to the effect that all 27 remaining member states would have to ratify any trading agreement post Brexit: EU Law Analysis: Article 50 TEU: The uses and abuses of the process of withdrawing from the EU

In this context, it should be noted that (contrary to what is sometimes asserted), there's no legal obligation for the remaining EU to sign a free trade agreement with the UK. The words `future relationship' assume that there would be some treaties between the UK and the EU post-Brexit, but do not specify what their content would be.


This point is politically significant because while the withdrawal arrangement would be negotiated by a qualified majority, most of the EU's free trade agreements are in practice `mixed agreements', i.e. requiring the consent of the EU institutions and ratification by all of the Member States. That's because those agreements usually contain rules going outside the scope of the EU's trade policy.  While it seems likely that in practice the remaining EU would be willing to enter into a trade agreement with the UK (see, for instance, the `gaming' exercise conducted by Open Europe), the unanimity requirement would complicate this.

In short, this legal opinion considers a Brexit agreement to consist of mainly transitional measures to facilitate the departure of the UK from the EU, which may or may not include special arrangements for ongoing free trade. I think we are in danger of confusing the process by which an exit agreement between the UK and EU might be reached, and the content of what it might contain.

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Is Brexit without invoking Article 50 possible?

by Frank Schnittger Sat Aug 6th, 2016 at 11:49:22 AM EST

In a long an spirited discussion over The Brexit Negotiation Process, Colman made a point which has not been adequately addressed:

Colman:

Brexit without article 50 is also possible.

So is some sort of face-saving operation for the UK (which would, if it was anti-immigrant, fit nicely into the agenda of a lot of EU leaders).

Is this really the case?

A few preliminary points need to be made:

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Ireland's Post Brexit strategy

by Frank Schnittger Wed Aug 3rd, 2016 at 03:13:21 PM EST

The Brexit vote has already had an effect on consumer confidence and investor sentiment in the UK with the Governor of the Bank of England warning of the likelihood of at least a technical recession in the near term. A prolonged period of uncertainty is unlikely to improve that outlook in the medium term, but at least the UK can use Sterling devaluation, monetary policy easing, and reduced rates of corporate tax to mitigate its worst effects in the short term. That is, however, of no comfort to Irish exporters to the UK who are heavily dependent on the UK market - especially the small and medium sized indigenous sectors of the economy.

Indeed the whole Irish economy is heavily integrated with the UK economy although that dependency has reduced markedly since entry into the EU. Exports to the UK currently amount to c. 14% of total exports  with the USA, Belgium and Germany accounting for 20%, 13% and 8% respectively. An official report for the Irish Government has estimated that Brexit could result in an average 20% reduction in trade flows between Ireland and the UK and the OECD has estimated that Ireland's GDP will be reduced by 1.2% as a result.

That official report is also pessimistic that Ireland can make up the difference by increasing its share of FDI that would otherwise have gone to the UK.  Despite the proclamations of popular economists like David McWilliams that "Brand Britain is ours for the taking", it estimates that the ability of Dublin to attract business from London will be limited by Sterling devaluation, reduced UK corporate tax rates, and a shortage of suitable office space, housing and schools in the greater Dublin area. Nevertheless, the shape of the Irish government and corporate response to the Brexit crisis (or opportunity) is now becoming clear:

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The Brexit Negotiation Process

by Frank Schnittger Thu Jul 28th, 2016 at 03:56:41 PM EST

A reader who wishes to remain anonymous writes (By email):

Is it yet clear what the process for British Exit is and what is to be negotiated?" UK politicians seem to depict a different view of what is involved than the EU Commission. I think the answer is important and is not being given enough attention in the UK.

Cecila Malmstrom (EU Commissioner for Trade) has stated that the process is two stage and sequential. First UK leaves completely to third country status and WTO rules.  Then, UK can begin to negotiate its future relationship, i.e. the terms of access to the single market is what some, but not all, Tory politicians think is necessary.  [UK can either negotiate that break cleanly within two years of A50 or it happens at the end of that unless extended by unanimous agreement.]

Paragraphs 3 and 4 of the official statement following the 29th June meeting of the 27 seems to support this view though the statement is not intended to clarify that Malmstrom view.

  1. Once the [A50] notification has been received, the European Council will adopt guidelines for the negotiations of an agreement with the UK. In the further process the European Commission and the European Parliament will play their full role in accordance with the Treaties.

  2. In the future, we hope to have the UK as a close partner of the EU and we look forward to the UK stating its intentions in this respect. Any agreement, which will be concluded with the UK as a third country, will have to be based on a balance of rights and obligations. Access to the Single Market requires acceptance of all four freedoms. [My emphasis]

Again delusion sets in amongst the Tories when they think UK is going to control movement but have full access with all the existing benefits. [I am aware that Switzerland has failed to come up with such a deal and is running out of time to resolve its position following the Feb 2014 Swiss referendum].

Liam Fox [UK International Trade Secretary] has described Malmstrom's view as "bizarre, stupid, preposterous and ridiculous" according to the Guardian.

It would be interesting to find out if Juncker, Tusk and Michel Barnier take the same position as Malmstrom. But I don't think I am in a position to ask them. Perhaps you are or know someone who can?

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RIP: Finbarr Flood 1938-2016

by Frank Schnittger Mon Jul 25th, 2016 at 08:56:45 PM EST


Finbarr Flood was one of my first bosses in Guinness and taught me much of what I have learned about surviving in big business. He had joined the company as a messenger boy aged 14 and also played semi-professional soccer as a goal-keeper in both Ireland and Scotland. Having risen through the ranks to become Managing Director, he left to pursue a further career as Chairman of the Irish Labour Court, Chairman of Shelbourne Football Club, and Chair of a number of city rejuvenation projects.  Having left school at 14 he was extremely chuffed to receive an honorary Doctorate from the Dublin Institute of Technology and to become an adjunct Professor to Trinity College Dublin.

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Brexit and a United Ireland.

by Frank Schnittger Tue Jul 19th, 2016 at 02:44:45 PM EST

The 1998 Good Friday Agreement is an international Treaty between the UK and the Republic of Ireland lodged with the United Nations.  It was incorporated into the Irish Constitution by a referendum which was carried by a 94% yes vote.  It was also approved by a 71% majority vote in a referendum in Northern Ireland and sets up a number of internal Northern Ireland, North South, and British Irish institutions.

The Good Friday agreement was predicated on both Ireland and the United Kingdom being members of the European Union and the EU has played an active role in facilitating the peace process by supporting peace and reconciliation in the border regions. Peace IV has just been approved and has earmarked some €269m to this end. Any re-emergence of a "hard border" with customs and immigration controls will jeopardise the much improved community relations within Northern Ireland which are dependent, in part, on much closer North-south integration, at least as far as the Nationalist community is concerned.

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Tories do ruthless so well...but Boris?

by Frank Schnittger Thu Jul 14th, 2016 at 11:59:02 AM EST

With Labour stuck in what seems like an interminable leadership struggle, the Tories are wasting no time putting together a new order post Brexit.  Within days of losing the Brexit referendum, Prime Minister David Cameron is gone, replaced by Theresa May, and she has just sacked more cabinet ministers in a few hours than Cameron did in his 6 years in Office.

George Osborne, Michel Gove, Oliver Letwin, John Whittingdale, Teresa Villiers and Nicky Morgan have all been sacked while devout Christian and leadership candidate, Stephen Crabb, has resigned apparently for sexting a women who is not his wife. Presumably Johnson and Gove cold not have been expected to serve in the same Cabinet after the latter stabbed Johnson in the front...

But it is the early appointments she has made which are the more interesting: She has put three of the top Brexiteers in charge of foreign relations: Boris Johnson as Foreign Secretary, Liam Fox in charge of a new Department for international Trade, and David Davis in charge of the Brexit negotiations themselves. None will appeal to the Europeans. Boris Johnson is hated for his persistent lies, and his appointment has been the subject of much derision worldwide.

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Irish economy grew by 26% in 2015?

by Frank Schnittger Tue Jul 12th, 2016 at 02:52:50 PM EST

The Irish Central Statistics office has just revised Ireland's GDP for 2015 up from €215 to €255n Billion. GDP growth for 2015 has been revised upwards from an already high 7.8% to 26.3% with the GNP growth rate coming in at 18.7%.  Ireland is a small, open economy and the actions of a few gigantic multinationals can throw the national accounts into total disarray. Apparently:

Crazy growth figures bear scant relationship to reality

A handful of companies in the tech sector relocated their IP assets or patents here last year amid the global clampdown on multinational tax avoidance.

This had the affect of transferring billions in capital assets to Ireland inc and boosting the measured level of investment.

These companies are also involved in contract manufacturing, whereby they engage third-party companies abroad to manufacture products on their behalf.

However, the exports which never touch down here are reflected in our trade balance. Hence the 102 per cent growth in net exports last year.

Another reason for the inflated figures relates to an aircraft leasing company, which redomicilled its entire multibillion euro balance sheet to Ireland in 2015.


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Chilcot and Brexit

by Frank Schnittger Fri Jul 8th, 2016 at 02:03:52 PM EST

Tony Blair and the Chilcot report

Sir, - The Chilcot report has found that the public were misled, expert warnings were ignored, and that there was inadequate planning.

Too bad its publication was delayed until after the Brexit debacle, another historic mistake that could have been avoided had warnings been heeded. - Yours, etc,

FRANK SCHNITTGER,

Discuss...

Comments >> (12 comments)

Charities sector in Ireland in crisis

by Frank Schnittger Thu Jul 7th, 2016 at 11:59:17 AM EST

Console scandal creates fresh difficulties for charities - Independent.ie

I am a director and honorary treasurer of a number of charities. I give of my time freely and without compensation. I am glad to do so and feel honoured to have the opportunity to be of assistance.

But I am also a hostage to fortune. I rely entirely on the salaried staff to provide me with accurate information so the board can make wise decisions.

One of the fall-outs of the scandals in the Central Rehabilitation Clinic, and now in Console, is that charitable donations have declined precipitously. Another less publicised consequence is that it is increasingly difficult to find anyone with suitable skills to volunteer to serve on the board of charities.

I have offered my resignation on several occasions because I feel it is time to give others the opportunity to serve, and yet there are never any replacements available. The responsibilities of directors are increasingly onerous under both company law and the Charities Act. Few people feel they have the time or expertise to take them on.

Others may feel discouraged by the prospect of finding themselves at the centre of a scandal should some irregularities be discovered in the running of their organisation.

Not many people have the skills of a forensic accountant to uncover those irregularities by themselves.

As a result, the voluntary and community sector in Ireland is in freefall. Those charities which have not closed have generally downsized substantially in recent years.

It would be a pity if our rich tradition of voluntary work were to die out substantially because of the scandals at a few major charities. I urge people not tar all charities with the same brush.

Frank Schnittger, Blessington, Co Wicklow

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Corbyn becomes a British and European hero...

by Frank Schnittger Tue Jul 5th, 2016 at 05:24:48 PM EST

With Michael Gove increasingly being seen as the truly loathsome creature that he is, it looks as if Andrea Leadsom may become the main challenger to Teresa May from within the Brexit campaign. She has just secured the support of no less a luminary than Boris Johnson who is very popular with the Tory Party members who will make the final choice.  If she succeeds in winning the Tory leadership, I doubt that George Osborne - who reportedly blocked her promotion to Cabinet - will agree to join her Government in any position whatsoever.  Indeed, he may well go on to lead a rebellion against an Article 50 invocation in Westminster Parliament.  

Should the new Tory Prime Minster, be it May or Leadsom, fail to secure parliamentary backing for an Article 50 invocation they may have no option but to call a general election,  which will effectively become a second referendum on Brexit, and each party will then have to set out a clear policy on the EU.

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Clear Leadership from the EU

by Frank Schnittger Mon Jun 27th, 2016 at 12:33:10 AM EST

Not so long ago any article touting the EU as an example of clear leadership would have been heading for the spike anywhere except perhaps on The Onion or the Waterford Whisperer - see current lead on "thousands of British refugees make dangerous journey across the Irish Sea"...  

However the Brexit campaign has all the trappings of a train wreck as far as the UK is concerned, and for once the EU is acting quickly, clearly, and with one voice. As Bernard has documented, EU leaders are pressing for a quick resolution. In effect, they are saying that there is only one process, Article 50, by which a member state may leave the EU, and all else is hot air and silly manoeuvring.  Without the invocation of article 50, the Brexit referendum was an entirely internal UK affair of no legal consequence within the EU.

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Reversing Brexit?

by Frank Schnittger Sat Jun 25th, 2016 at 12:42:05 PM EST

With signs of buyer's remorse already becoming widespread, Simon Wren-Lewis tries to think through how the result of the Brexit referendum might be reversed:
mainly macro: Just how bad will Brexit be, and can it be undone?

But a second referendum would not be necessary if, as a result of Cameron's resignation, the UK fought a general election where the winning side explicitly campaigned not to invoke Article 50. This general election would become the second referendum.
For this to happen three rather difficult but not impossible things have to happen. The first is that the Labour leadership need to stop talking about `respecting the will of the people' and focus on how the Leave side are already owning up to their lies and false promises. The second, and perhaps most difficult, is that Labour need to form a united front on the basis of a Remain ticket, involving the LibDems, Greens and SNP. This is the only way the Conservatives and most of the tabloid press will be defeated. Third, the new Conservative leader has to be forced to hold a general election before Article 50 is invoked.

I have responded with the following comment (awaiting moderation and not yet published):

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Brexit Open Thread - the count continues...

by Frank Schnittger Fri Jun 24th, 2016 at 01:37:21 AM EST

Please use this open thread to discuss the referendum results. The Guardian live results are here.

At the time of writing, 3.30am CET, the leave camp appears to be building up a slight overall lead, with large leads in areas of England outside London, and with central London, Scotland and Northern Ireland voting decisively to remain.

Sterling has just had its largest fall since the 2008 financial crisis, and the bookies have switched their odds from predicting a remain victory to backing a leave victory. The turnout appears to have been quite high, about 70%, and that is with over a million new voters registering to vote since the general election.

Will this result in new referenda in Scotland and Northern Ireland? Is Cameron toast? Let the games begin...

Comments >> (72 comments)

Brexit Open Thread - the count continues...

by Frank Schnittger Fri Jun 24th, 2016 at 01:35:05 AM EST

Please use this open thread to discuss the referendum results.

At the time of writing, 3.30am CET, the leave camp appears to be building up a slight overall lead, with large leads in areas of England outside London, and with central London, Scotland and Northern Ireland voting decisively to remain.  Sterling has just had its largest fall since the 2008 financial crisis, and the bookies have switched their odds from predicting a remain victory to backing a leave victory.

Let the games begin...

The UK and the EU democratic deficit

by Frank Schnittger Thu Jun 23rd, 2016 at 12:43:24 PM EST

The Leave campaign in the Brexit referendum have employed two main arguments in their campaign: The fear of uncontrolled immigration into the UK and the need to take back control from "faceless bureaucrats in Brussels". Little matter that 60% of foreign born residents of the UK are not from the EU and that the total foreign born population comes in at 13% of the total -- the same as US and Germany -- and lower than both Norway and Switzerland, which are not in the EU.

But it is to the second meme that I want to turn my attention, one conceded by many on both left and right of the Remain side: the alleged domination by faceless bureaucrats in Brussels.  Let us leave aside, for the moment, the oddity that the charges of a lack of democratic accountability are coming from the only major EU member with an entirely unelected upper chamber of parliament.

Is it true that nations joining the EU have to shed a lot of democracy in the process? A lot is made, for instance, of the three occasions on which a referendum on essentially the same Treaty was run twice "until the electorate gave the right answer"... as if this somehow undermined the democratic legitimacy of the EU. However the UK also voted, in a Referendum in 1975, on the question of EU membership.  So why is the current referendum any more legitimate?  

In fact the EU membership is the only question on which voters have been given a direct say by way of  a UK wide referendum:  all other questions having been decided by way of the "Sovereign" Westminster Parliament including the unelected House of Lords. It seems to me that membership of the EU has more democratic accountability than any other decisions made by the UK.

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The Killing of Jo Cox

by Frank Schnittger Fri Jun 17th, 2016 at 07:04:40 AM EST


Nigel Farage gesticulates in front of an anti-immigration poster entitled Breaking Point. Well, Thomas Mair broke all right. The question is, was he incited?

Jo Cox: an attack on humanity, idealism and democracy

The slide from civilisation to barbarism is shorter than we might like to imagine. Every violent crime taints the ideal of an orderly society, but when that crime is committed against the people who are peacefully selected to write the rules, then the affront is that much more profound.


The killing, by stabbing and repeated shooting in the street, of Jo Cox is, in the first instance, an exceptionally heinous villainy. She was the mother of two very young children, who will now have to grow up without her. It is also, however, in a very real sense, an attack on democracy.

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News and Views

 19 - 25 September 2016

by Bjinse - Sep 20, 33 comments

Your take on today's news media

 12 - 18 September 2016

by Bjinse - Sep 12, 29 comments

Your take on today's news media

 Open Thread 19 - 25 September

by Bjinse - Sep 20, 10 comments

Here's another nice thread you've gotten me into

 Open Thread 12 - 18 September

by Bjinse - Sep 12, 23 comments

If you want something, go thread it

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