Wednesday 11 March 2020

Budget day, EASA and a UK draft FTA expected next week

Less than four weeks into the job, our new Chancellor is set to deliver his first budget later today with a pledge to deliver the highest infrastructure spending (by the end of the parliament) since 1955.  Watch out for a lot of hyperbole, spin and dodgy claims. Sunak is bidding to become the Anthony Barber of the 21st century. The 'Barber boom' opened the spending taps under Heath in 1972 but it didn't make any difference, inflation took off and it was years before we got back on course.

As the Chancellor sets out his spending plans it will be a surreal moment and a difficult trick to pull off. Trying to convince the nation that good times are just around the corner as Covid-19 takes hold and we head for a no deal Brexit, is quite a challenge. 

By the end of the summer he may look a fool.  It's like carefully plotting a course in a small boat just as the met office issues an immediate hurricane warning in your sea area. The Treasury red book will make interesting reading with plenty of caveats.

The Bank of  England must see heavy weather ahead because this morning an emergency interest rate cut of 0.5% was announced. We are now at 0.25% and with nothing left in the armoury. Brace yourselves.

However, I want to return to the EASA decision made (or announced) by Shapps last week. I posted the other day that work must have been going on in the background already to prepare the CAA, but apparently not. This article in Aviation Week by Paul Everitt, the new CEO of the ADS group seems to make it clear that they thought they had assurances 'in recent weeks' from Gove and Zahawi that the government was 'open to EASA memberhip' and would be led by 'evidence'. I think it's clear where the evidence is pointing but Brexit Johnson has turned his face in the opposite direction. It is pure dogma.  Everitt claims:

"They [Gove and Zahawi] have spoken of their intention to consult industry on our future relationship with the EU. Before that consultation has begun, the Transport Secretary announced on Friday Mar. 6 that the UK will leave EASA and create its own regulatory system under the Civil Aviation Authority (CAA)."

This is not calculated to get people on side. Peter Foster tweets about it in a long thread:
Everitt points to the Swiss model of EASA membership as being the objective we should be seeking and Foster quotes an industry expert who points out we don't make complete planes nowadays, only parts of them - wings, landing gear, avionics, etc - and export them elsewhere for final assembly. To spring this on hundreds of companies with no alternative regulatory system in place is madness. Even to contemplate having our own regime is just pathetic nationalism that can only needlessly damage British aviation.

Foster's thread is focused on manufacturers but I noted later that an aircraft engineer named Andy Buchanan had replied to him about the pilots and engineers employed in the industry who are all licensed by the EASA and who are now seriously worried:
I believe this also applies to cabin crew.  The CAA will have a mountain to climb even to build a skeletal regulatory system by the end of the year which will be acceptable both to the FAA and to the EASA. Let's face it, the CAA were saying it was impossible three years ago, now they have about nine months!  It surely cannot be done.

Incidentally, someone (a Brexiteer I think) called Charlie Darwin on Twitter makes the same point that I did the other day, that this is just a negotiation tactic. He says vis-a-vis Foster: "Are you missing the point on purpose? The government are trying to remove leverage from the EU side in order to maximise the chance of getting the best deal possible. Longer term, when the dust has settled, these programs can be rejoined if beneficial."

I can see this might seem attractive, but I assume the EU will have cottoned on and in any case, if later we do ask to join various EU agencies, including the EASA, Brussels will make exactly the same demands that they would have done anyway but then all the damage will have been done. 

On Monday, Gove released a written statement about the first round of talks which included a hint we 'expect' to table a draft FTA before the start of the next round:-

"Discussions in some areas identified a degree of common understanding of the ground that future talks could cover. In other areas, notably fisheries, governance and dispute settlement, and the so-called “level playing field”, there were, as expected, significant differences.

"The next negotiating round will take place on 18 to 20 March in London. The UK expects to table a number of legal texts, including a draft FTA, beforehand"

This has received something of a mixed reaction among the trade commentariat. It's a highly unusual move. Apparently, in trade negotiations, individual chapters are sometimes drafted up by one side or the other as a way of setting the mark, making an offer for the other side to respond to. Producing a complete text is unheard of and I'm not sure Gove will actually do it.

Some think it might be a mistake since it gives a yardstick by which the success or otherwise of our negotiating skills might be measured at the end of the talks. If the final FTA is a long way from our first 'offer' the government is going to look pretty weak.

Others think the government believe the EU rang rings around us in the WA because they were more transparent, on the front foot and good at writing legal texts. This is an attempt by the UK to 'steer' the talks. Bearing in mind the EU has hundreds of skilled FTA negotiators and 40 years experience while we are complete novices, it takes a bit of chutzpah to table a draft agreement in front of Michel Barnier.

You might want to read this thread by Dmitry Grozoubinski for a possible explanation, which finishes:
The UK strategy could be nailing its trousers to the mast in as many ways as possible to present the EU with a "take it or leave it" deal, while furiously signalling the UK can live with either.

It's a risky approach, and one that leaves little room for actual negotiation.
I don't expect the EU to adopt any of it or respond to a 'take it or leave it' offer. But it will make interesting reading.

We need a FTA more than the EU, whether Gove realises it or not. As we get closer I expect trade bodies like the NFU, the SMMT, ADS, the CBI, BCC, Make UK, and others to raise their voices. I don't think any other opposition will be anywhere near as effective in making this government see sense.

If they do walk away from trade talks I do not believe they would survive a month.
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