03.11.2016

Demands of capital will triumph

Eddie Ford says that, while Theresa May speaks about a hard Brexit for domestic advantage, what she will deliver will either be a soft Brexit or no Brexit at all

Previously threatening to quit the country due to Brexit uncertainty, Nissan announced on October 27 that it was going to build two more models at its Sunderland plant - averting “catastrophic consequences” for the local and wider economy.¹ This means that over 7,000 jobs at the actual factory will be protected, not to mention the tens of thousands further down the supply chain. A senior Nissan official said there were ambitious plans to turn the factory into a “super plant” producing 600,000 cars. Perhaps ironically, Sunderland came out 61% in favour of ‘leave’.

Obviously, this is a big feather in the cap of the British government - Theresa May declaring that the Nissan decision was a “recognition that the government is committed to creating and supporting the right conditions for the automotive industry, so it continues to grow - now and in the future”. Some have cited the announcement as proof that a post-Brexit economy is perfectly viable, and could even “boom”. They also pointed to recent figures from the office for national statistics showing that GDP grew by 0.5% in the third quarter, down from 0.7% in the previous three months, but well ahead of City forecasts of 0.3%.²

But the celebrations are immediately tempered with puzzlement - or suspicion - as to why Nissan made this decision: do they know something we don’t? Fairly obviously, Nissan did not want to relocate - physically uprooting the machinery to Spain or Russia (where it has other factories) and reproducing the workforce needed for such an operation is a daunting prospect.

Nissan had previously said that future investment depended on a guarantee of “compensation” if a post-Brexit UK found itself outside the European customs union and therefore had to pay a tariff on car exports as per World Trade Organisation rules - which could be up to 10%.³ Needless to say, this would make the company completely uncompetitive, as most of the Sunderland cars go to Europe (57.5% of the 1.2 million cars exported from the UK last year went to the European Union). We know that Nissan’s chief executive, Carlos Ghosn, had been having “daily conversations” with May and government ministers since June 23 - last week finally getting the “support and assurances” he required.

What deal?

But what deal or promises were made? Slightly absurdly, for four days the business secretary, Greg Clark, refused to give a straight answer - merely saying in a House of Commons statement that the government’s “letter of comfort” to Nissan contained “sensitive” commercial details, but had assured Nissan that the UK would be seeking trade that was “free and unencumbered by impediments” for the motor industry after Brexit.⁴ Clark went on to say that there was “no cheque book” or “sweetener” involved in the reassurances given to Nissan - a scandalous suggestion.

Inevitably though, the pressure became too much and Clark relented - not that it left us much wiser. Apparently, Nissan was convinced to stay in the UK with a “promise” of no tariffs or extra bureaucratic burdens on the car industry post-Brexit - there would be a “continuation” of funds for training, skills, scientific research, and regional relocation grants. Clark later told the BBC’s Andrew Marr show (a far more important political forum than parliament these days) that the government’s objective would be to “ensure we have continued access to the markets in Europe and vice versa without tariffs and bureaucratic impediments, and that is how we will approach those negotiations”.

This clearly implies that the UK is seeking to remain within the EU’s custom union, or retain some form of access to the single market - thus Nissan will not have to pay any tariffs or surcharges - something further signalled last week by the government business spokeswoman in the Lords, Lady Manzoor, who declared that it was “possible to be in a customs union and still strike trade deals”. Logically enough, Vince Cable, a former business secretary, thought the Nissan assurances meant that Britain will stay in the customs union as the “only way” that big supply chain companies like Nissan are going to “commit themselves” to Britain is if they are given “guarantees they are not going to be caught up in rules of origin problems, which is what happens if you leave the customs union”. Cable added that if you stay in the customs union then “what is the role” or purpose of Dr Liam Fox, because it means “you no longer have an independent trade policy”.

Alternatively, the British government is planning to pay Nissan the 10% tariff or whatever. Yet both paths are fraught with difficulties - indeed, it is extremely hard to see how either option could work out in practice. A government subsidy to Nissan would be a clear violation of competition rules, hence looks like a non-starter - the EU would never accept it, leading to the conclusion that the British government is hoping to remain part of the customs union/single market. But May is currently committed, at least in rhetoric, to a hard Brexit agenda of ending the free movement of peoples and ‘freeing’ Britain from the tyrannical oversight of the European court of justice - a combination that Brussels politicians have repeatedly said is unachievable: it is one or the other, Theresa - make your mind up. As Will Hutton writes in The Observer, gaining control of EU immigration is a matter of “political necessity” for Theresa May”, but “how can that be squared with ongoing membership of the customs union that defines the single market and which requires acceptance of free movement?” He pointed out that “concessions can only be minimal without wrecking the EU’s core structures” (October 2).

Then what about Ford, Honda, Toyota, General Motors, etc - why should Nissan get special treatment? That obviously would not be fair. After all, Ford has been in the country since 1911 - Nissan are mere Johnny-come-latelies.⁵ Surely these car companies too will want “support and assurances” from the government. Echoing these concerns and worries, the Society of Motor Manufacturers and Traders has called on Theresa May to step in to preserve the livelihoods of 814,000 people that rely on the sector for employment. It argued that the government “must do all it can to maintain the competitiveness of the UK automotive sector, which has been hugely successful in boosting exports, creating jobs and generating economic growth in recent years”.

Another unavoidable implication of the government’s reassurances to Nissan is that it could apply to other major sectors of the UK - such as aerospace, pharmaceutical and chemical companies, and so on. The Liberal Democrat spokesman on Brexit, Nick Clegg, has raised the prospect that the UK might have to continue paying billions into the EU budget in order to secure “preferential trading terms” with the single market for certain industries or all of them. Similarly, Clegg, though welcoming the Nissan news, has written to Greg Clark warning that a series of sector-by-sector deals could cost the taxpayer “colossal amounts of money” in subsidies - he asked the business secretary whether the assurances were “part of a planned strategy with a desired endpoint, or a one-off concession which shows those that shout the loudest get the best deal from ministers”.

Of course, we all know about the reassurances that are being actively sought by the City of London over passporting (ie, the right for a firm registered in the European Economic Area to do business in any other EEA state without needing further authorisation in each country). Sadiq Khan, London mayor and wannabe Labour leader, gave a speech on October 27 at the City of London Corporation’s annual dinner urging the government to “prioritise” the City’s EU passporting rights. Indeed, the City basically began its Big Bang on the basis of securing Eurobonds - making it the financial gateway to the rest of Europe, a role it has kept ever since. So they will be demanding plenty of “support and assurances” - if not, we all recall the recent threats from the British Bankers Association about its members moving to Paris or Frankfurt.

Responding to such talk, John McDonnell has said he is also determined to protect financial services, but would not prioritise a “bankers’ Brexit” over other industries, as it “sends out messages to the rest of our economy that special deals are being cooked up” - Labour “will fight for every job” in the financial services sector, but it “cannot be done in a chaotic way”. Predictably, Unite has called on the government to support other carmakers, because they are a “source for decent jobs, skills and innovation” - therefore it is “vital” that the government “supports the car industry and secures tariff-free access to the single market to ensure other manufacturers follow Nissan’s lead and invest in the UK car industry”.

Neatly summing up the situation, Simon Jenkins in The Guardianthinks we can be “sure” that Nissan’s “sweetheart deal” will be “neither the first nor the last” - similar deals are “rumoured to be busting out all over Planet Brexit” (October 28). The farmers have “allegedly been given assurances” that the migrant worker schemes on which their harvests depend will be protected, while bank executives have been told over sumptuous ministerial lunches that “there is no question of obstacles to the free movement of their staffs” around Europe, As for care homes, NHS hospitals, the construction industry, tourism, hotel industry, universities, etc, they are “all beating paths to Whitehall’s doors”, waiting for the “same soothing words” as Nissan has received - otherwise “all hell will break loose”.

Obstacles

We in the CPGB still think that the probability of an actual Brexit is not very high - something reaffirmed by the Nissan deal. On the one hand, May is promising hard Brexit and no more free movement - on the other, she is giving ‘reassurances’ to Nissan, with no doubt many more to come. These messages are not just mixed: they are in direct conflict. If Britain wants to remain in the customs union and retain access to the single market, then it has to accept the free movement of labour - Brussels will not budge on this point, as any concessions would threaten the entire EU project. Theresa May must know this. What is she going to do?

The EU-Canada trade deal shows the trouble that potentially lies ahead for the British government, the region of Wallonia in Belgium almost scuppering a tortuous-seven year process. If a tiny region like that can throw a spanner in the works, then what about Cyprus and Malta? Or, more to the point - since small countries like that can be easily bribed or intimidated - how about Bulgaria or Romania, or Poland, which has 800,000 citizens living in the UK? What if it insists on the free movement of peoples as the precondition for all future talks on article 50 and Brexit? Putting it very mildly, it would hardly be fair if Britain could keep access to the European single market, yet a Polish citizen could not move to the UK to be nearer his elder sister or brother.

Throwing up another possible obstacle, Danuta Hübner - a former Polish minister who became the country’s first European commissioner - has gone on record saying it would not be possible for the UK to conclude a trade deal while still an EU member.⁶ Now an MEP, she chairs the European parliament’s constitutional affairs committee, which will be responsible for vetting any post-Brexit free-trade agreement with the UK. In an interview with TheGuardian, she stressed that negotiations on Britain’s EU exit under article 50 would be on a different track to talks on the future relationship:

Formally you cannot conclude or even negotiate the agreement that belongs to a third-country situation while you are still a member. Article 50 is only about withdrawal and only when you are out can [you] negotiate another agreement.

Hübner was also clear that the British withdrawal agreement would have to specify whether the UK was heading for hard or soft Brexit. She pointed out that article 50 states that the exit agreement shall take into account “the framework for [the departing state’s] future relationship with the union”. Furthermore, significantly, she was absolutely adamant that the European parliament will be one of the staunchest defenders of the principle of free movement of people - “We are working to facilitate free movement, not to block it and to limit it, so I don’t see much chance in looking for restrictions.”

Meanwhile, a group of senior academics has warned that the Brexit process is such a complex challenge it could “overwhelm” politicians.⁷ In their The UK in a changing Europe report, they write that Brexit has the “potential to test the UK’s constitutional settlement, legal framework, political process and bureaucratic capacities to their limits - and possibly beyond”. The group of experts, commissioned by the Political Studies Association and led by professor Anand Menon of King’s College London, believe that identifying and transposing the legislation to be included in May’s great repeal bill - and then deciding what to keep and what to ditch - will be a “daunting task” for civil servants. They also caution that, while article 50 concerns the terms of a divorce with the rest of the EU (including what share of EU liabilities the UK should take on, for example), it is “unclear” whether the process “can allow for parallel negotiations on Britain’s future status”. Professor Menon also comments that an “irritating aspect” of the current debate is “the tendency of Brexiters to accuse those who warn of difficulties of ‘talking Britain down’” - finding it a “pathetic argument”. He asks: “Since when was rational debate a bad thing? Forewarned, surely, is forearmed.”

By any reasonable expectation or judgement, Brexit is not going to work - or even happen at all. If May did go for a hard Brexit that saw an exit from the customs union and no special dispensations for Nissan, Ford, the City, big pharma, farming, etc, then that would produce massive economic dislocation and turmoil. Popular opinion will change, as we are already beginning to see, and a new post-2017 parliament with a massive Tory majority might eventually vote to stay within the EU - or hold another referendum under very different conditions from way back in 2016, this time getting the right answer.

eddie.ford@weeklyworker.co.uk

Notes

1. www.theguardian.com/business/2016/oct/27/nissan-decision-to-stay-in-sunderland-averts-catastrophic-consequences.

2. www.theguardian.com/business/2016/oct/27/uk-economy-defies-brexit-slowdown-fears.

3. www.theguardian.com/business/2016/sep/30/nissan-hard-brexit-compensation-new-uk-investment-tariffs.

4. www.bbc.co.uk/news/uk-politics-37827209.

5. https://en.wikipedia.org/wiki/Ford_of_Britain.

6. www.theguardian.com/politics/2016/nov/01/liam-fox-pre-brexit-deal-setback-european-union.

7. www.theguardian.com/politics/2016/nov/02/brexit-politicians-senior-academics-the-uk-in-a-changing-europe.