The economic consequences of Brexit (Vol 3)

The economic consequences of Brexit (Vol 3)

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Sway

26,482 posts

196 months

Saturday 25th August 2018
quotequote all
Tuna said:
silentbrown said:
It doesn't need to be "significant". And I assume it's a choice of the the EU (in my example): If they feel the terms we agree with SK are more favourable than their current terms they can choose to adopt them. If they don't, they don't. The terms are each-way, so if we agree a better deal with the EU than SK currently have, then SK can ask to trade with the EU on those same terms.

There are plenty of exemptions, but the principle's fairly clear.

Disputes would be handled by WTO, at a guess.
Isn't this the case with all WTO members anyway? MFN applies across the board, not just especially for Brexit. It doesn't prevent agreements being made, and doesn't enforce complete uniformity between all agreements, just that when we impose restrictions on other countries (such as import tariffs) we must do so fairly.
Indeed.

The obvious point is that if these things are so interconnected - why have we never heard of renegotiation or amendments to previous FTAs when things like CETA have been signed?

Because it hasn't been necessary.

MFN clauses relate to MFN trading - which is to say, the typical trading conducted under WTO terms without a specific agreement in place.

As most FTAs (including the ones quoted) are not absolutely comprehensive, some goods will still attract tariffs - some at MFN external tariff rates, some at preferential but not zero rates.

MFN clauses ensure that, in the unlikely and as far as I'm aware bloody rare occurrencies where a commodity code is listed in a FTA at a non-zero rate (but lower than then MFN external rates set), and subsequently a nation lowers their external MFN rate to an even lower point, the FTA is automatically updated to reflect the lowest applicable rate between MFN and FTA.

silentbrown

8,918 posts

118 months

Saturday 25th August 2018
quotequote all
Sway said:
MFN clauses relate to MFN trading - which is to say, the typical trading conducted under WTO terms without a specific agreement in place.
I think you're wrong. This is different. Read section 4B here from my first link. http://blogs.sussex.ac.uk/uktpo/files/2017/12/PBri...
(If you think they've misinterpreted it all, tell them!)

Sway said:
why have we never heard of renegotiation or amendments to previous FTAs when things like CETA have been signed?
At a guess, because the negotiators are aware of terms of their existing FTAs so won't grant better terms than those already agreed with countries/blocs that they have MFN clauses with. "sorry, we can't drop tariffs on kumquats below 5% without also offering those lower tariffs to partners X,Y,Z".

@Davepoth - Indeed, it seems in that FTA it's limited to services and establishment/investing, and there are plenty of exemptions. It will just restrict those areas where we can have a "more favourable" FTA with someone like SK, rather than make it impossible.

voyds9

8,489 posts

285 months

Saturday 25th August 2018
quotequote all
silentbrown said:
davepoth said:
I can't find any other clause in the FTA that looks relevant. However, I believe this clause means that if Korea reduces its MFN duty rates (which are the duty rates it levies on goods from WTO member countries with which it doesn't have an FTA) below the rates agreed with the EU, then the lower rate will apply.

My understanding would be therefore be that if Korea greed a rate below the EU rate as part of an FTA it wouldn't change the MFN rate, so the EU would not automatically gain from it.
No, I think it's stuff like article 7.8. and 7.14

EU-Korea FTA said:
1. With respect to any measures covered by this Section
affecting the cross-border supply of services, unless otherwise
provided for in this Article, each Party shall accord to services
and service suppliers of the other Party treatment no less
favourable than that it accords to like services and service
suppliers of any third country in the context of an economic
integration agreement signed after the entry into force of this
Agreement.
So, only services and not goods?

silentbrown

8,918 posts

118 months

Saturday 25th August 2018
quotequote all
voyds9 said:
So, only services and not goods?
Not goods, although there seems to be a similar clause specifically for vehicle emissions restrictions. i.e. SK can't accept vehicles from a 3rd party with looser emissions requirements.

All FTAs are different. That's just the EU-SK one. CETA has similar terms, I think.

davepoth

29,395 posts

201 months

Saturday 25th August 2018
quotequote all
silentbrown said:
Sway said:
MFN clauses relate to MFN trading - which is to say, the typical trading conducted under WTO terms without a specific agreement in place.
I think you're wrong. This is different. Read section 4B here from my first link. http://blogs.sussex.ac.uk/uktpo/files/2017/12/PBri...
(If you think they've misinterpreted it all, tell them!)
It's a bit misleading IMO. MFN means something very specific in international trade in terms of WTO duty rates - I'd argue it's a term of art.

This paper applies the "most favoured nation" concept (that of a country with the best deal) to services in a way I've not seen previously, does so using the same abbreviation the WTO (and most other people) apply to something else, and doesn't explain what it's done.

silentbrown

8,918 posts

118 months

Saturday 25th August 2018
quotequote all
davepoth said:
It's a bit misleading IMO. MFN means something very specific in international trade in terms of WTO duty rates - I'd argue it's a term of art.

This paper applies the "most favoured nation" concept (that of a country with the best deal) to services in a way I've not seen previously, does so using the same abbreviation the WTO (and most other people) apply to something else, and doesn't explain what it's done.
I'd agree - but given that article 7.8 is entitled "MFN Treatment" it's probably not the fault of the paper. More clarification would have helped.

A better description of it here. https://www.insidebrexitlaw.com/blog/the-mfn-claus...

brexitlaw said:
The inclusion of the MFN in preferential trade agreements, such as the FTA, however serves a different purpose. Its inclusion is to protect the interests of the parties to the agreement by locking-in the preferential market access and other benefits to avoid the erosion of those benefits through one country subsequently granting more liberalised concessions to other countries. In that way, parties to the original FTA also ensure that they will benefit from any trade concessions that the other party might grant in the future, at least in respect of the areas covered by the prior agreement.

davepoth

29,395 posts

201 months

Sunday 26th August 2018
quotequote all
silentbrown said:
davepoth said:
It's a bit misleading IMO. MFN means something very specific in international trade in terms of WTO duty rates - I'd argue it's a term of art.

This paper applies the "most favoured nation" concept (that of a country with the best deal) to services in a way I've not seen previously, does so using the same abbreviation the WTO (and most other people) apply to something else, and doesn't explain what it's done.
I'd agree - but given that article 7.8 is entitled "MFN Treatment" it's probably not the fault of the paper. More clarification would have helped.

A better description of it here. https://www.insidebrexitlaw.com/blog/the-mfn-claus...

brexitlaw said:
The inclusion of the MFN in preferential trade agreements, such as the FTA, however serves a different purpose. Its inclusion is to protect the interests of the parties to the agreement by locking-in the preferential market access and other benefits to avoid the erosion of those benefits through one country subsequently granting more liberalised concessions to other countries. In that way, parties to the original FTA also ensure that they will benefit from any trade concessions that the other party might grant in the future, at least in respect of the areas covered by the prior agreement.
I agree, that's a much better description of it. Interesting that they chose to come at it from the standpoint of the UK/EU deal and how that will affect the EU's 3rd country deals - I'd think that since the UK and EU share a border the "regional trade agreement" exclusions in the FTAs would be used so that the EU didn't have to extend those freedoms. It's somewhat moot anyway, since I don't think we're going to get much more than Canada did, once all is said and done...

loafer123

15,488 posts

217 months

Sunday 26th August 2018
quotequote all

This is interesting;

https://uk.reuters.com/article/us-britain-eu-banks...

In summary, regulatory capital requirements have been held down by EU rules allowing risky EU government bonds to be held with the same zero loss assumptions as safe ones.

When we leave the EU, the U.K. will require capital to be held against EU government bonds like other 3rd party countries.

What does this mean? It increases the amount of capital that EU banks will need to hold and therefore probably drives business back to the EU, but for a good reason, because the current rules are a falsehood, protecting weak EU banks and economies.

However, if they do so, the EU banking sector will be regarded as further weakened in an international context, and the safety of the U.K. sector reinforced.

The Dangerous Elk

4,642 posts

79 months

Sunday 26th August 2018
quotequote all
Since when has the Eu cared about that , they have Germany as a guarantor.

davepoth

29,395 posts

201 months

Sunday 26th August 2018
quotequote all
loafer123 said:
What does this mean? It increases the amount of capital that EU banks will need to hold and therefore probably drives business back to the EU, but for a good reason, because the current rules are a falsehood, protecting weak EU banks and economies.

However, if they do so, the EU banking sector will be regarded as further weakened in an international context, and the safety of the U.K. sector reinforced.
London is such a massive market that the banks will suck up a lot of these extra capital requirements, because they need access to the liquidity and the economies of scale that it brings.

It has the potential to inflict major financial pain on the EU's weaker economies though, and a few of them are already teetering on the brink.

My guess is that this is a negotiating ploy. Imagine Phil Hammond doing the "Do you feel lucky, punk?" speech from Dirty Harry and you won't be a million miles off. biggrin

SpeckledJim

31,608 posts

255 months

Sunday 26th August 2018
quotequote all
A “favoured nations” clause in, for example, an actor’s contract guarantees that the actor won’t earn less than any other actor in the production.

I think that’s the origin of the confusion.

“Most Favoured Nation” being a specific WTO term, but ‘favoured nations’ being the sort of thing we’re talking about in the relative strengths of these trade deals.

Murph7355

37,881 posts

258 months

Sunday 26th August 2018
quotequote all
davepoth said:
...
My guess is that this is a negotiating ploy. Imagine Phil Hammond doing the "Do you feel lucky, punk?" speech from Dirty Harry and you won't be a million miles off. biggrin
If only it was possible to imagine Hammond in that role.

I find it far easier to imagine him pulling his pants down, bending over and handing his negotiating counterpart a tub of Vaseline he just bought. And then giving the counterpart their bus fare home.

Mrr T

12,371 posts

267 months

Sunday 26th August 2018
quotequote all
loafer123 said:
This is interesting;

https://uk.reuters.com/article/us-britain-eu-banks...

In summary, regulatory capital requirements have been held down by EU rules allowing risky EU government bonds to be held with the same zero loss assumptions as safe ones.

When we leave the EU, the U.K. will require capital to be held against EU government bonds like other 3rd party countries.o

What does this mean? It increases the amount of capital that EU banks will need to hold and therefore probably drives business back to the EU, but for a good reason, because the current rules are a falsehood, protecting weak EU banks and economies.

However, if they do so, the EU banking sector will be regarded as further weakened in an international context, and the safety of the U.K. sector reinforced.
If you are interested in more detail

https://www.bis.org/publ/qtrpdf/r_qt1312v.htm

What it really means is branch/subs of EU banks in the UK will not hold much EU gov debt post brexit. Since they do not hold much now no real effect.


loafer123

15,488 posts

217 months

Sunday 26th August 2018
quotequote all
Mrr T said:
loafer123 said:
This is interesting;

https://uk.reuters.com/article/us-britain-eu-banks...

In summary, regulatory capital requirements have been held down by EU rules allowing risky EU government bonds to be held with the same zero loss assumptions as safe ones.

When we leave the EU, the U.K. will require capital to be held against EU government bonds like other 3rd party countries.o

What does this mean? It increases the amount of capital that EU banks will need to hold and therefore probably drives business back to the EU, but for a good reason, because the current rules are a falsehood, protecting weak EU banks and economies.

However, if they do so, the EU banking sector will be regarded as further weakened in an international context, and the safety of the U.K. sector reinforced.
If you are interested in more detail

https://www.bis.org/publ/qtrpdf/r_qt1312v.htm

What it really means is branch/subs of EU banks in the UK will not hold much EU gov debt post brexit. Since they do not hold much now no real effect.
Thanks.

To the extent the EU branches are relying upon their parent capital, rather than a locally regulated sub with its own capital, it will make a decent difference.

Is Deutsche Bank locally capitalised in the UK, for example?

PurpleMoonlight

22,362 posts

159 months

Tuesday 28th August 2018
quotequote all
May plans to turn the 'aid' budget into a 'bribe' budget.

http://www.dailymail.co.uk/news/article-6102581/Ma...


stongle

5,910 posts

164 months

Tuesday 28th August 2018
quotequote all
loafer123 said:
Mrr T said:
loafer123 said:
This is interesting;

https://uk.reuters.com/article/us-britain-eu-banks...

In summary, regulatory capital requirements have been held down by EU rules allowing risky EU government bonds to be held with the same zero loss assumptions as safe ones.

When we leave the EU, the U.K. will require capital to be held against EU government bonds like other 3rd party countries.o

What does this mean? It increases the amount of capital that EU banks will need to hold and therefore probably drives business back to the EU, but for a good reason, because the current rules are a falsehood, protecting weak EU banks and economies.

However, if they do so, the EU banking sector will be regarded as further weakened in an international context, and the safety of the U.K. sector reinforced.
If you are interested in more detail

https://www.bis.org/publ/qtrpdf/r_qt1312v.htm

What it really means is branch/subs of EU banks in the UK will not hold much EU gov debt post brexit. Since they do not hold much now no real effect.
Thanks.

To the extent the EU branches are relying upon their parent capital, rather than a locally regulated sub with its own capital, it will make a decent difference.

Is Deutsche Bank locally capitalised in the UK, for example?
It's been known for a longtime and detailed in the earlier version of this thread. EU banks already have much worse leverage ratios than all other developed nations, and the EC needs to game this further. They are behind on adoption of IFRS9 - which requires market risk capital adjustments for AFS (Available For Sale capital or liquidity), buffers, and worse still pushing to lower SLR.

Under IFRS9 market risk and volatility capital add on, some EU banks technically didn't survive the BREXIT vote (the same period the LCH was calling an additional £14bn in intraday Margin).

The ECB also allows banks to assign the same liquidity value to Romanian govt debt as Bunds for liquidity valuation. It's a total joke.

Herein lies the quandary for post BREXIT FS (passporting is a sideshow). The bank resolution and recovery rules there are illegal for most other non EU countries so what you will get is major banks retaining tradingin London and limited rat runs into Europe.

At the surface cutting capital requirements does save cost for banks, but it also eradicated any loss absorption means. As such they are riskier institutions. Which means over time they will be charged more to borrow. The major outcome from the Financial crisis delivered in BASLE3 is private sector support for public sector spending spree (mandatory holding of Govt debt). Reinforcing this linkage (EU in particular), weakens your banking sector when you have a peripheral debt crisis and no forgiveness from Germany. Add in localised bail in rules (Italy), and the EU banking sector is at best a basket case at worse a ticking bomb.

[footnote]

Edited by stongle on Tuesday 28th August 07:13

Vanden Saab

14,255 posts

76 months

Tuesday 28th August 2018
quotequote all
PurpleMoonlight said:
May plans to turn the 'aid' budget into a 'bribe' budget.

http://www.dailymail.co.uk/news/article-6102581/Ma...
Are you, as you have posted the link, seriously suggesting that prior to Brexit the "aid" budget has never been used in this way?

PurpleMoonlight

22,362 posts

159 months

Tuesday 28th August 2018
quotequote all
Vanden Saab said:
Are you, as you have posted the link, seriously suggesting that prior to Brexit the "aid" budget has never been used in this way?
I would hope not, otherwise it's dishonestly attributing the funds as aid.

The Dangerous Elk

4,642 posts

79 months

Tuesday 28th August 2018
quotequote all
PurpleMoonlight said:
I would hope not, otherwise it's dishonestly attributing the funds as aid.
Really, is your dogma getting in the way of critical thinking |?

Aid can be used (and is) to generate/enable production due to trade being a requirement of receiving Aid.

Trade is good it keeps people alive and allows a country to grow in wealth and structure, this thus reduces the need for long term aid which can then be transferred to the next project.
Aid alone (without strings) can and has often maintained poverty/reliance on aid.

PurpleMoonlight

22,362 posts

159 months

Tuesday 28th August 2018
quotequote all
The Dangerous Elk said:
Really, is your dogma getting in the way of critical thinking |?

Aid can be used (and is) to generate/enable production due to trade being a requirement of receiving Aid.

Trade is good it keeps people alive and allows a country to grow in wealth and structure, this thus reduces the need for long term aid which can then be transferred to the next project.
Aid alone (without strings) can and has often maintained poverty/reliance on aid.
Using aid to 'teach a man to fish' is fine.

Using aid to 'teach a man to fish providing he sells us the fish' isn't.