Free trade agreement.

[Corcory]

People keep going on about the fact that we can't be in the single market without agreeing to freedom of movement but why can't we negotiate a free trade agreement like the other countries in the world that are not in the EU?

According to one of the 'Brexit 8' economists (Minford) we should just do away with import tariffs entirely, in which case all the talk about retaining Japanese manufacturers is moot as he totally writes off ALL UK manufacturing.

Another of the 8 (Congden) thinks we shouldn't give up on UK manufacturing, but should just do away with labour and climate change directives instead, so companies will be persuaded to stay by being able to do whatever the hell they want.

The remaining 6 suggest staying in the Single Market and not restricting immigration. Hmm.

I'm not sure If Leave ever settled on one of those 8 endorsements they managed to cobble together out of all of the economists in the world...

It's clear that noone has a clue yet about anything useful, but that Davis, Fox and Johnson are even more dangerously, evangelically stupid / ambitious than previously feared. And apparently global economics and trade are super simple fields which any Tom, Dick and Harriet can sort out with a flippant, 'Well we can just blah, blah {whatever the hell we please because anything that doesn't suit us is silly and the rest of the world will do as they're told}'.

Thought I should add this.

I sincerely apologise if there is any Japanese people who is offended by the use of the J word above.

Topsy Actually the term Brit is used in an offensive way in some parts of the world, where our history has left the prejudice that we are arrogant and entitled, if you could read some Chinese Internet forums for instance it is short hand for that stereotype. Indeed they also refer to us as gweilos, which literally means white ghost (and ghost is also a particularly derogatory term in Chinese culture) and which has a history of racially deprecatory use. Of course given that I come from a first world nation that has enjoyed power and privilege and have rarely experienced racism I can shrug that off without taking offence and use both terms ironically of myself. However given that Japan is struggling to come to terms with it's own history, a history during which your term emerged as one of hate and derision, and that we Brits do not exactly have a sparking record in terms of our racial attitude to Asians, manifesting our illusions of superiority perhaps you can see that we should be as courteous and sensitive towards the Japanese people as they would be to us (especially because courtesy and sensitivity are very strongly valued in their culture). Does that enlighten you?

Where did you get your 10%figure ? The city is not an homogenous mass you know. Some activities will not be affected by Brexit, some will even see greater opportunity especially if there is deregulation. Those tend to be the ones who would benefit from the UK becoming a low tax playground for the super rich and crooks and oligarchs. However the biggest part of the city, the part that handles the investment needs of individuals, companies and countries that is the part that gains a competitive advantage from being able to operate in the EU without barriers, and that is at risk, and by more than 10%. As Night highlights it is not in the City's interest to broadcast their plans but from Hammonds recent words it is clear the message has got through to him about the risk to UK tax revenues if not to the idiot Brexiteers blinded by their own dogma. Can you not see the regional pattern, the world financial centres are in New York serving the world's largest economy and its near neighbours in their time zone, Hong Kong that has grown on the back of serving as a gateway to the world's second largest economy (with the added benefit of rule of law, in the past at least) and region in their time zone and spanning both time zones (just about but in a very long day that does not allow for golf days) London serving as a gateway to the economies of Europe. Once we cannot do that then the currently subsidiary regional centres in Frankfurt, Paris, Dublin etc gain that competitive advantage and companies move jobs and their business there. And if the financial services sector by even 10% London's economy shrinks by a lot more.

The world similarly trades in regional blocks for goods as well as services and China is in a de facto Asian trading block as is the US, that is alongside actual political and economic alliances like MERCOSUR and ASEAN.

China has indeed risen on the back of hard work, and a managed economy, and that has delivered a growing middle class and an increase in average incomes, in almost direct correlation to the fall in average income in the west. They are still some way off that average income though, and still have some way to go before their economy is as developed as ours is. Do you not see that if their trajectory is up, finding new ways to compete as it evolves, that ours without the benefits of our own regional economic alliances and consequent sources of competitive advantage, and collective bargaining power, is downwards......... They certainly see it that way, they prefered that the UK stays in Europe because it means they can deal with it collectively and they want a strong Europe economically to balance out power in the world. However they see Brexit as an opportunity, and indeed proof that democracy is the enemy of good stable government.

"Johnson"?

Not surprised you feel the need to apologise.

Most of us are hanging our heads in shame.

Are you aware that the US is extremely nepotistic in terms of research? It's very hard to make in roads into US research networks if you're based in the uk, that's why we have benefited from making stronger networks with European groups. I have worked in fields where we formed a European research network precisely to combat the problem of going up against scientists in the states where they all know each other and so are more inclined to let their friends papers be published (scientific research works primarily via peer review). Not being a part of those networks will make it harder, not easier, to compete with the US (and increasingly China). If I was still in my 20s, I would definitely be heading abroad for my next post doctoral position.

wwrondo

I realise some of these words could cause offense to some (while others don't care, see it in a funny way etc) and hence the apology and agreement not to use them. Your "I" Brexiter words would have the same negative qualities though.

Back to the topic.

If you google UK Financial services GVA you will get numbers like 8% or so. I remember seeing 9% at some point but I round it up to 10% - such measurements are not precise anyway.

As you said, the City is not uniform and so some areas will be affected more while other's less. We live in a world where call centres are in India Phillipines and a CEO issues orders from his private jet crossing the Atlantic, the real works are then performed where the competencies are.

Investments euros go where the profits are although a marketing/relationship office will need to be in the client city as it is now. Despite a single market, many banks still choose to position their offices close to clients - the idea that a single market can be fully accessed from a office in Dublin or London has never been a realistic one. Once the businesses are obtained and the real work begins, the works are sent to where the competencies are - NY, London, Shanghai, Kuala Lumpur, Manila etc. London is now both relatively cheap and less regulated. Works will go there.

Some Euro Clearing jobs will have to be in Dublin (boring city) but I accept some jobs will be affected.

There are only 2 global financial centres that is NY and London with HK/SG coming close by, and then Dubai, Shanghai, Frankfurt, Tokyo. Another pattern other than the regional gateway is that these are all English law jurisdictions which follows the Anglo-Saxons capitalism.

The more than half of London that is currently serving RoW and UK Domestic needs will be rather unaffected.

The world still trades in regional block but the trend is to move away from that. Shipping is awash with capacities. UK trade with EU as a % of total trade has been falling steadily.

I am afraid I have opposite view to you regarding the EU block. It is a block riddle with internal conflicts and cultural differences which mix business with politics and will likely to be more of a hindrance than 'help'.

Does China really has our interest at heart and want the EU to balance against her own rise? I am not convinced.

There is a paper by Ashurts (page 26)

www.ashurst.com/doc.aspx?id_Content=12909

That gives a few case studies about impact level. ( It was produced before the vote).

Frankfurt is the place that will most likely end up with Euro clearing through the Deutsche Boerse/LSE merger.

I'm not sure why you're so cavalier about losing clearing as it's one of the city's top moneyspinners - processing over $1 trillion worth of trades per day. LCH Clearnet cleared $532.8 trillion of swaps last year, with clearing fees of €368.8m

The UK government fought a 4 year court case, costing millions of pounds to ensure the function remained in the UK. The impact of the loss of this to the city is the same in 2016 as it was in 2011 - 2015.

Does China really has our interest at heart and want the EU to balance against her own rise? I am not convinced.

From what perspective do you make that judgement Topsy , certainly not a Chinese one, and we are certainly going to have to get better at understanding other cultural perspectives if we are going to market to them effectively, something we are pretty woeful at.

Xi is President by dint of two things, delivering increased prosperity and stability, but not in that order. In all the Confucian societies in Asia stability and harmony are the most important values, just read anything coming out of Singapore, Malaysia (which has a Confucian elite), South Korea as well as China. Of course there are only two world political figures who were for Brexit , Putin and Trump, but Xi plays the role of a Confucian sage emperor so of course it is very important that his pronouncement always endorse stability, even when concerning the South China Sea it is a bit hard to see how he can maintain that stance (by claiming the mandate of far history basically)

So he repeatedly endorsed Eurropean unity and integration and continues to, here's comment on Brexit from the CCp mouthpiece europe.chinadaily.com.cn/epaper/2016-07/08/content_26011036.htm

And from another perspective

The red of the world really do think we have gone mad

Sorry the link globalriskinsights.com/2016/07/brexit-and-china/

The rest of the world, including the red bits 🙂

Re Howard Flight's comments on equivalence in HelloKitty's post - they're bizarrely presumptuous.

As you say Mifid II only covers certain areas, key areas like asset management, UCITS, corporate loans, insurers, cross-border private banking etc are left out.

It's a moot point whether the UK can fully capitalise on Mifid. Currently the UK meets equivalence standards because we're in the single market. But we can't count on equivalence as Charlie Bean has warned. Unlike passporting, equivalence can be revoked. And maintaining it will be difficult. Switzerland (which does not have single market access for financial services despite negotiating for 10 years) has problems with equivalence due to the fast-changing financial regulations - all of which to be re-negotiated.

There's no way of knowing how it will work - comparable EU laws on hedge funds etc - AIFMD - have not worked well.

whatwouldrondo

Thanks for the link but I think (the politics part) is getting away from the topic so I will leave it there.

Commercially - I agree we have lots to learn about how to do business with China. ( Probably just being fleeced on Hinkley Point )

ManonLescaut

May I ask what is the total trade volume for trades that are priced in Euros?

We are clearing dollar denominated trades even we are not in the US.

So I suppose only a fraction of the $532T has to happen inside the eurozone.

Topsy both links were outside views of Britains trading future in general and the crucial need to maintain the EU passport as a foundation In particular.

wwrondo

Ok.. now I got a chance to read them.

The "Brexit and China: Xi is not amused" (2nd globalriskinsight link ) pretty much says

(i) How dare you do a Brexit as we need UK to do our bidding inside the EU. (This is consistent with China looking after China's interest, makes sense)

(ii) We want to use UK as a hub. I would partially call them on it. As with some Japanese companies, Hua Wei (as mentioned in the chinadaily link) is already HQ in Netherland (and then route profit via some other Dutch connected tax efficient entities I would imagine). Others has their HQ in Dublin. Their UK operation is in the UK to take advantage of the UK market or the UK regulation and human resources environment and not really so much as a 'stepping stone' into the EU.

(iii) It says UK has nothing to offer other than financial services. This is not quite true as manufacturing remains around 20% of the GDP with world class exports in jet engines, chips, pharma etc.

(iv) Then they say we like your education services and tourism and shopping services so we will continue to be your friend. Sounds good.

Then the China Daily link says:
"attracted by Britain's openness to foreign investment, its flexible labor market, its strong legal system and English language, and London's global leadership in financial services - enhanced by British membership of the EU".

So again, they are here because UK business environment is attractive. If no FTA there will be some barriers. The question is then whether the fairly low WTO MFN tariffs is enough to put them off - I doubt it especially they already has Dublin/Dutch (plus the tax sandwiches) to do their biddings.

I'd be happy to see us leave the single market. Dyson's comments about this are interesting - saying even if there are tariffs, they are low and the impact will be limited.

China have been publicly scathing about Brexit. Much more so than I had expected them to be. It has been used as internal propaganda against democratic processes with the reasoning that large groups of people are liable to make stupid and damaging choices contrary to national interest.

As a pp said, the modern Chinese way is to put stability and economic prosperity first, so it's commonly been seen as utter madness. Obviously, the leadership want a good economic relationship with the UK/EU. The Cameron government put a lot of effort into attracting Chinese investment as well as encouraging trade. A big element of this for China is/was the conduit into the EU which is something they don't want to see change.

The Japanese government responded in panic mode whith emergency caninet meetings and outward horror (again I was surprised at how overt they were). They are clearly setting out their stall now and I don't think they will be swayed by people on the internet saying that all British people will just buy locally produced Japanese cars instead.

Malaysia was quite positive and had lots of nice things to say about the UK, so maybe we need to go fishing for our opportunities there...

Two things which seem to constantly be brushed over:

1. The UK has (had) an enormous amount of foreign direct investment and a lot of that was predicated on it being an opening to the EU. I don't know what the loss will ultimately be yet as that depends on the outcome of the negotiations, but it won't be easy to compensate for.

1. Trade agreements - we'll just get loads of amazing trade agreements with far flung countries. Obviously, that's a logistical nightmare, both in terms of negotiating said agreements and building cost effective distribution channels. We are also going to be negotiating from an incredibly weak starting point. Everyone knows it and knows what it will mean.

Topsy do not mistake the China Daily article giving us some face for potential for that turning into money. I really do not think that a future as a bargain basement for property, a centre for money laundering and marketing ourselves as Hogwarts is going to deliver the "glorious future" the Brexiteers have in mind.

Or indeed a place where a vacuum salesman who moved his actual manufacturing to Eastern Europe can thive *WinchesterWoman"

The question is then whether the fairly low WTO MFN tariffs is enough to put them off

Tariffs are not the only, or even the main, issue for exporters.

Do you have any direct experience of working in an export oriented environment? I can't speak for the financial services side, because it's not my area of expertise, but from the manufacturing point of view I can tell you that NTBs are a really big concern.

As I said in my previous post, this idea that we can just "export to China and the USA" is pie in the sky. In the last twenty years, probably the single most important business trend in many industries has been the drive to locate your manufacturing capacity close to your end markets. Nissans and Toyotas sold in the west were once made in Japan; now the Japanese car companies have huge transplants in all their major markets.

The vacuum salesman moved his production to Malaysia.

As to Malaysia making enthusiastic noises about post-Brexit opportunities... I've said it before and I'll say it again, countries who seem keen on free trade agreements with the UK by and large want to sell us stuff. They don't intend to buy anything like the same amount from us.

What do manufacturing goods do we have left to sell?

The Tory Richard Graham thinks that we can sell Africa financial advice in return for cheap food from them. Truthfully, I can't see the majority of sub-Saharan Africans wanting such advice.

There are lots of things that we make that we sell BECAUSE they are made in the UK. Whisky in Scotland, high end cars, Harris tweed, anything that has to be made in the area it comes from and or has cache because it is made in Britain. We should exploit this. Craft Gin is becoming very popular!

All luxury goods though Corcory. I meant high volume manufacturing goods.