Grim tidings for 2021

By Pete North - December 27, 2020

There’s no getting around it. From a strictly trade perspective the deal is bad. There is presently very little in the way of equivalence, particularly REACH which means the UK chemicals industry will take a hit.

That the deal eliminates tariffs is neither here nor there. The loss of “right of establishment” is of major importance. Without it, we cannot technically export to the Single Market. Enterprises established in the EU have to import. Procedurally, this makes a huge difference as you have to find a legal entity within the EU which is willing to take legal liability for your product once it enters into EU customs territory. It’s not as simple as setting up a shell company. Trade in goods is going to take a hammering.

Further, it is not yet known when the full array of third country controls will take effect – and we can assume a short grace period until facilities are operation, but soon enough it won’t even be worth attempting a channel crossing. As far as driver accompanied loads are concerned, this deal is only a marginal improvement on no deal. Though the deal potentially allows for further customs cooperation in the future, the interim outlook is pretty bleak for UK exporters.

Meanwhile we shall be subjected to the ritual whining about fish. The BXP morons will no doubt be spitting fury, though there was not a lot of point giving the British fleet added capacity that they could not readily absorb, at the cost of fisheries exports by the established fleet. I have no sympathy for the fish fetishists at all.

Wider reaction to the deal is thus far varied. The Observer and Guardian are predictably bitter about it but this is no reliable indicator because they’d write the same article whatever the deal. The view in the Tory press, however, is that Boris has done the impossible – and one expects he will enjoy a brief period of popularity until it hits home just how bad it is in practice. At which point he will blame the EU and try to sweep the rest under the Covid rug. The fact he handed over Northern Ireland to the EU will be quietly forgotten.

As to whether the ERG mullahs will back the deal, one suspects they will fall into line for now but then kick up a stink when the deal comes into force.
What we’re not going to see is anything like a credible analysis of the wider implications. The Times and Radio 4 will offer us the “insider gossip” on how the deal was done, allowing a new mythology to take root, followed by a string of lucrative serialisations of autobiographies.

In the interim sages on the right will tell us how the deal makes Scottish independence impossible now. I wouldn’t bet the farm on it. Just because something is complicated and economically inadvisable doesn’t mean people won’t vote for it if given the opportunity – especially under the continued maladministration of Johnson.

Where virtually everyone will get it wrong, the PM especially, is the belief that this marks the end of the negotiating process and we can now move on. In fact, it is the start of the next, more substantive phase. It probably won’t be until Johnson has ceased to be PM that there will be any significant progress.

As regards to the economic fallout, these things are difficult to quantify. Our services access is seriously diminished and the absence of a number of peripheral trade instruments will no doubt mean some nasty surprises nobody anticipated. The Observer thinks we’ll take a hit of around 4% of GDP – which smells about right to me, and though it’s a small number, it’s largely depends on which 4%. A rapid deflation of that size in the real economy is going to sting.

Again one feels compelled to point out that none of this was a foregone conclusion of Brexit, rather this is a consequence of Tory decision making based on some hugely flawed concepts of what modern trade entails. That we have travelled this path for half a decade now and the key politicians involved still haven’t grasped the concept of non-tariff barriers gives you some indication of what we are dealing with. How our politicians can maintain such astonishing levels of ignorance is a matter for an urgent national inquiry.

As regards the future, this mess can be salvaged, but I’m afraid it requires the removal of the Conservative Party and since Labour is in no danger of getting its act together any time soon, we can safely assume we’re looking at a lost decade of trade – especially since many of the problems associated with no-deal will come to pass regardless. Port chaos is not out of the question as they face multiple stresses.

Meanwhile, I think it safe to say we shall not see any sign the Covid vaccines are working for some time (if at all) and it is reasonable to assume wider and more stringent lockdowns in the near future. This may serve to mask the initial impacts of Brexit, particularly if France takes further infection control measures. For whatever intrigue and entertainment politics lacked in 2020, the new year is sure to make up for it.