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That new role for the UK? January 27, 2017

Posted by WorldbyStorm in Uncategorized.
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The SPB editorial asks a question long raised on this site here, ‘is Britain aiming to become the new Ireland?’. The editorial shares the concern of many of us in relation to T. May’s speech last week. Her wish in regard to the CTA seems as much aspirational as anything. And then there’s the point she made about ‘changing Britain’s economic model’ in relation to ‘competitive tax rates and policies that would attract the world’s best companies and biggest investors to Britain’.

As the SBP notes:

The danger is clear. If Britain with its greater population, greater scale and greater congregation of skills – not to mention its greater name recognition and international outlook, – decides to imitate Ireland it will dwarf Ireland.

And yet I wonder if this overstates matters. The SPB notes that the situation with Trump in the White House changes the situation for Ireland. His express wish to pull jobs and companies back to the US has to be bad news for us. But if Britain tries to emulate the ROI will there be space for it to do so? Hammond was roundly mocked for his line that Britain might try to emulate Singapore, and rightly so – a small city state is simply not scaleable to a state the size of the UK. It seems to me that these different dynamics seem to impinge negatively on one another. A free trade UK hits the road just as the US pulls up the drawbridge. Furthermore an UK attempting to be ‘the new Ireland’ may find itself now that it is to lock itself outside the EU in a position where Ireland can claw some of its business and it has limited access to EU markets.

None of this is good news for Ireland, and I think the SBP is absolutely correct to suggest that ‘Ireland needs a new plan’. But the grim truth is that as with aspects of Brexit Irish leverage is very limited indeed.

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Comments»

1. ivorthorne - January 27, 2017

Can the UK adopt an Irish economic model when it is outside the EU? Isn’t that a pretty crucial component of the model?

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GW - January 27, 2017

No – especially, as is likely, the UK post-Brexit with have no trade agreements with the EU. And yes, it is.

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2. GW - January 27, 2017

The idea that the UK can negotiate a favourable or even equitable trade agreement with the Trumpist US is another Brexiteer mirage as Naked Capitalism points out here.

Yves Smith notes:

Trump has put the US on a mercantilist footing. The UK is an exporter to the US. The US is bigger than the UK. On top of that, the UK is desperate and under time pressure. Either one puts a negotiator in a weaker position; the two in combination are deadly.

Also it’s politically unlikely that Little Britain will be given an extension of the two-year deadline once May triggers Article 50.

The post lists further disadvantages for Brexit Britain:

Lack of adequate staffing to man the Brexit talks thanks to years of budget-cutting. Where can they possibly find more bodies to handle bi-lateral trade talks in parallel? The specialists at the big-ticket accounting an law firms are too narrow to be very good. Worse I am hearing private reports that extremely experienced experts cross-European law who’ve put out feelers regarding Brexit gigs have been ignored…and were quickly snapped up by the EU side.

Near-impossiblity of getting any new trade deal in place in two years1. And contrary to what the press keeps saying, there is no default to the WTO. That has to be negotiated like any other trade and services deal. The WTO has said it will not give the UK priority.

Risk that the EU will bar the UK from undertaking other trade talks before it has completed its exit. By treaty, the UK cannot negotiate other trade pacts until it is out of the EU. The EU has incentives to enforce this rule. Does it have the means?

Certain damage to important UK export sectors. European countries would love to take a piece out of the City. The ECB already tried to get Euroclearing moved to the Eurozone. The only thing that prevented that was an ECJ ruling that said the ECB could not discriminate against a member of the EU> France has already started making rules to expedite getting Euroclearing on the Continent. UK banks continue to announce plans to relocate staff to Europe, and every bank of any size is scouting for office space Another important export business for the UK is aircraft parts manufacture for Airbus. All that activity will be migrated to European parts-makers once Brexit has commenced.

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FergusD - January 27, 2017

Will Brexit spell the end of the UK’s contribution to Airbus? Is Airbus not an independent entity, not part of EU structure? JUst wondering. A mess. Of course Rolls-Royce sell loads of engines to Airbus, while not being part of Airbus. I wonder how that will pan out?

Actually Wikipedia indicates that there are no UK members of the company, so BAe is just a supplier I suppose.

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FergusD - January 27, 2017

Oh, and Airbus is a “Societas Europaea (SE)”, so incorporated as an EU commercial entity. A true multi-national (in ownership, not just scope). Interesting. An EU success story?

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Michael Carley - January 27, 2017

Airbus is not part of the EU, but is a division of EADS. BAE Systems is not part of Airbus, having sold its stake about ten years ago. The `Airbus’ in the UK is part of the European Airbus and has remained in the UK even though there is no UK stake in the company.

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GW - January 27, 2017

I think part of the point is that in building anything as complicated as a plane, parts go too and from various specialist manufacturing, finishing and testing outfits. Often located in different countries.

Once LB has left the EU these are crossing a customs barrier. The incentive will be to establish suppliers without extra costs and paperwork.

That said AFAIK there is no jet-engine builder as capable as RR in the EU. Any other parts and processes, would, I imagine, be up for grabs.

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Michael Carley - January 27, 2017

A lot of Airbus suppliers and (risk-sharing) partners are outside the EU even now, for example, in the US:

http://www.airbus.com/company/americas/us/industrial-partners/

and they have final assembly lines in Europe, China, and the US:

http://www.airbus.com/company/

so they should have no trouble dealing with wings made outside the EU (large parts are already made outside Europe).

As for engines, they would have no trouble importing RR and they already offer PW and CFM engines on some models, so if they really did want to cut out RR, they probably could.

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3. CL - January 27, 2017

With Britain outside the EU, Ireland will be a more attractive location for firms now based in Britain.

‘Japan sees Dublin as a source of intelligence on Brexit but also as a potential destination for its companies.’
http://www.irishtimes.com/news/politics/japan-seeks-closer-ties-with-ireland-after-brexit-1.2931719

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