Johnson to push at G7 for Osborne as IMF chief

LONDON — Prime Minister Boris Johnson will lobby for former Chancellor George Osborne to be the next leader of the International Monetary Fund at this weekend’s G7 summit, according to a U.K. official.

Downing Street wants to nominate a candidate to replace Christine Lagarde as IMF managing director and, while Osborne has not been announced as the preferred choice, an official familiar with the government’s strategy said Johnson would have discussions at the G7 about his potential candidacy.

The EU has already chosen to endorse Kristalina Georgieva, the World Bank‘s chief executive. Nominations close on September 6. The U.K. official said there had been concerns the EU “rushed” the decision to nominate the Bulgarian, but any move to install a Briton would also be viewed as a deliberate bid to assert U.K. influence on the global stage after Brexit.

Osborne was chancellor from 2010 to 2016 and right-hand man to then-Prime Minister David Cameron. He has been editor of the London Evening Standard newspaper since May 2017, after being sacked as chancellor by Theresa May in one of her first acts as prime minister. Under his editorship the newspaper has argued against a hard Brexit that could be damaging for London’s financial services sector. However, the paper backed Johnson in the Conservative leadership contest, despite his advocating for Brexit to happen on October 31, with or without a deal.

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The future of UK services trade is unlikely to be bright, whatever form Brexit takes

When it comes to trade in services, leaving the Single Market will result in increased regulatory costs and could have significant effects on the volume and composition of UK services exports, writes Olga Pindyuk.

In the Brexit debate, trade in services has been largely overlooked in favour of trade in goods. This is despite the UK being the second biggest exporter of services in the world and having one of the highest shares in total exports among leading economies (Figure 1). Moreover, the EU is a major market for UK services, having accounted for about 49% of the country’s total services exports in 2017.

When talking about sector specialisation of services exporters, London as the UK’s financial hub comes to mind. But the UK is competitive in a broad range of services, with ‘other business services’ – a combination of legal, accounting, management consulting, and public relations services – being most prominent in cross-border trade, having accounted for 33.5% of the sector’s total exports in 2016 according to WTO data. The second biggest subsector is architectural, engineering, scientific, and other technical services (14.6%), followed by advertising, market research, and public opinion polling services (10.1%). In the transport sector, air transport accounts for almost two-thirds of exports.

As a member of the Single Market, the UK has access to a market of over 500 million consumers, to the free flow of data between EU members, and to passporting rights, which allow financial companies to sell services in any EU country without having to set up a branch there. In other words, the Single Market allows the UK to supply more services through cross-border trade rather than through costly commercial presence. Passporting rights are also a very important reason why the UK has been used as an EU base by US and Japanese financial firms.

Important for the professional services sector is also the free movement of people. For example, UK companies can employ European staff in the UK or send their workers on trips to the EU to consult clients, provide technical support to users of their products, broker and draft contracts, and so on. As migration concerns were crucial for the Brexit vote, movement restrictions are probably the most binding constraint on the government, making free movement unlikely to be a part of any deal, which significantly limits the options available for the services trade.

If the UK opts for a divorce that precludes it from participation in the Single Market in services, it will inevitably face increased regulatory costs: relevant providers in the UK will face heterogenous regulations in each Member State, which implies an increase in trading costs. With a rise in cross-border trade barriers there would also be a relative increase in the proportion of services provided via a more costly commercial presence within the EU. The process has already started due to the political uncertainty that has surrounded Brexit since 2016, and has so far been most visible in the financial sector where more than 250 firms have moved or are moving business elsewhere.

The biggest losses would take place if the country crashed out of the EU without any agreement and had to trade with the bloc on WTO terms, which envisage a very limited scope of liberalisation under the General Agreement on Trade in Services. Even concluding a free trade agreement with the EU will result in a significant rise in the barriers to services trade – the EU’s recent agreement with South Korea and Japan, for example, does not address regulatory issues around authorisations and licensing, with processes varying between Member States.

It is nonetheless possible that Brexit could result in more advanced services liberalisation than previous EU agreements. But in order to achieve this, any preferential access to the EU market that the UK might seek will need to be part of a comprehensive agreement, otherwise the EU may be obliged to extend more favourable conditions to its other trading partners according to the most favoured nation principle. Politically feasible options of such an agreement are deals similar to the Comprehensive Economic and Trade Agreement or CETA+, which offer limited scope of liberalisation. The UK could possibly secure mutual recognition that would cover some professional qualifications and licensing for various sectors. Still, the scope of a deal will most likely be limited.

Comparison of the values of the OECD Services Trade Restriction Index for intra- and extra-EEA trade (Figure 2) shows that countries outside the Single Market face the highest barriers to trade with EEA members in air transport and a range of professional services: legal, accounting, architecture, and engineering. It is in these sectors that the UK is likely to experience the highest increase in trade costs.

The US is the most important market for UK services exporters outside the EU (20.5% of total services exports in 2017), but substantial reorientation of British services exports to this and other non-EU markets is unlikely as geography matters to services trade almost as much as to trade in goods. This is due to factors such as the need of face-to-face interactions, the inconvenience of operating in different time zones and so on, all of which tend to result in services exports being quite localised geographically.

Just how severely Brexit will affect the services trade will depend on the form it takes; however, it seems increasingly likely that under all feasible options the UK will face increased regulatory costs.

This post represents the views of the author and not those of the Brexit blog, nor the LSE. The full report on which the above draws can be read here. The post appeared first on LSE British Politics and Policy. Featured image credit: Pixabay (Public Domain).

Olga Pindyuk is an Economist at the Vienna Institute for International Economic Studies.

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1 million EU citizens granted right to reside in UK after Brexit

About 1 million of the roughly 3 million EU27 citizens living in the U.K. have obtained the right to reside in the country after Brexit through the British government’s new EU settlement scheme.

According to figures released by the Home Office today, 951,700 citizens from European Economic Area countries and Switzerland had obtained settled or pre-settled status (for those who will have been living in the country for five years by December 30, 2020) as of July 31. Home Office Minister Brandon Lewis said registrations hit 1 million in August.

The British government launched the scheme at the end of March to ensure citizens of other EU countries living in the country continue to have the right to live, work and have access to public services in the U.K. after Brexit. The scheme is set to replace the permanent residency program, and all Europeans who arrive in Britain before Brexit day would be eligible to apply.

Almost 150,000 Europeans obtained settled status in the month of July alone, as the government stepped up its preparations to leave the EU without a deal.

The highest number of applications received were from Polish (179,800), Romanian (141,200) and Italian (121,600) nationals.

The Home Office is urging Europeans to apply to the scheme by December 31, 2020 if the U.K. leaves the EU without a deal, and by June 30, 2021 if a Brexit deal is ratified.

Catherine Barnard, a professor of EU law and employment law at the University of Cambridge, said that low-skilled workers such as fruit-pickers, who work for multiple U.K. employers, are less likely to apply to the scheme.

“The good news is that people are applying to settled status and actually those who have secured work histories are finding it a relatively easy process,” she said.

“The bad side that is that of course the majority still haven’t done it and, in my experience talking with EU nationals, some of them don’t appreciate the significance of having to do it. Others who have got very incomplete work histories are worried about being able to prove that they’ve got settled status.”

A spokesman for the Home Office said that the figures are “very positive” and Europeans still have “quite a long time” to apply.

Lewis said the scheme is designed to make it “straightforward” for Europeans and their family members to stay in the country after Britain leaves the EU.

“EU citizens have made incredible contributions to our country — which is why I’m so pleased that over one million people have been granted status, enshrining their rights in law,” he said.

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Trump envoy: US would ‘enthusiastically’ back no-deal Brexit

America would “enthusiastically” support a no-deal Brexit, U.S. National Security Adviser John Bolton said on Monday during a visit to London.

“If that’s the decision of the British government, we will support it enthusiastically, and that’s what I’m trying to convey,” Bolton told reporters on the first day of his two-day visit to the British capital, according to the Guardian. “We’re with you, we’re with you.”

He said the U.S. would consider striking sector-specific deals ahead of a full-scale trade pact.

“The ultimate end result is a comprehensive trade agreement covering all trading goods and services,” Bolton said. “But to get to that you could do it sector by sector, and you can do it in a modular fashion. In other words, you can carve out some areas where it might be possible to reach a bilateral agreement very quickly, very straightforwardly.”

Bolton also took aim at Brussels, saying: “The fashion in the European Union is when the people vote the wrong way from the way the elites want to go, is to make the peasants vote again and again until they get it right. There was a vote — everyone knew what the issues were. It is hard to imagine that anyone in this country did not know what was at stake. The result is the way it was. That’s democracy.”

He added: “Britain’s success in successfully exiting the European Union will be a statement about democratic rule and constitutional government. That’s important for Britain. But it’s important for the United States, too. So we see a successful exit as being very much in our interest, and there’s no quid pro quo on any of these issues.”

Bolton also said he couldn’t see a threat to the Good Friday Agreement as a result of Brexit, the Guardian wrote.

Bolton was expected to urge Britain to align more closely with America’s stance on Iran and on Huawei’s involvement in 5G telecoms networks, but he told reporters that Washington understood Brexit was the priority, given Britain’s Prime Minister Boris Johnson had promised to exit the EU by October 31.

“The U.S. government fully understands that in the next 80 days the U.K. government has a singular focus on the Brexit issue, so that we’re not pushing for anything on these broad and complex questions,” he told reporters.

The comments came after Johnson joined a meeting with Bolton and senior officials on Monday.

Bolton said Johnson’s relationship with U.S. President Donald Trump had “got off to a roaring start,” with the two having shared multiple phone calls since he assumed the British prime ministership. Their most recent conversation was on Monday, when Trump “expressed his appreciation for the United Kingdom’s steadfast partnership in addressing global challenges,” according to the White House readout of the call, and said he “looks forward” to meeting Johnson “personally in the near future.” Trump and Johnson are both expected to attend the G7 summit in Biarritz, France at the end of the month.

This article is from POLITICO Pro: POLITICO’s premium policy service. To discover why thousands of professionals rely on Pro every day, email pro@politico.eu for a complimentary trial.

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UK faces pressure over Brexit stance as economy dips

LONDON — The British government faces fresh pressure to contain the economic fallout of a possible no-deal Brexit after statistics Friday showed the country on the edge of a recession.

The U.K. economy contracted by 0.2 percent from April through June, its first quarterly decline since 2012, the Office for National Statistics said. Economists typically define a recession as two contractions in a row.

Chancellor of the Exchequer Sajid Javid played down the figures in a statement, pointing to “growth slowing in many countries.” He restated government policy that the UK would leave the EU at the end of October with an agreement or not.

But analysts said not all of the trend was down to trade tensions and more general weakness across the region.

“Today’s negative growth figures reflect a combination of Brexit uncertainty and global economic slowdown, with both challenges set to persist over the near term,” said Matthew Whittaker, deputy chief executive at the Resolution Foundation, a think tank. “That doesn’t mean we’re necessarily heading for recession, but the risk is certainly heightened right now.”

Capital Economics said in a note, “The U.K. should avoid a recession … unless there’s a no deal Brexit.”

The statistics point to weak manufacturing coupled with an end to Brexit-related stockpiling, which outweighed otherwise strong consumer demand. The services sub-sector was the sole growth area, gaining 0.1 percent.

Elizabeth Martins, HSBC economist, said that “the global story thus far has largely affected the manufacturing sector, not the service sector. So, for the latter to be looking so weak in the U.K. is worrying.”

“Whatever happens on October 31, the government needs to give business leaders a significant shot in the arm to return investment and productivity growth to the country after a prolonged period of uncertainty,” said Tej Parikh, chief economist at the Institute of Directors.

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British train companies quit Interrail

U.K. rail firms will no longer participate in the Interrail system of pan-European ticketing, ending the prospect of cheap summer jaunts through Britain for young travellers from the Continent.

Tickets bought up until the end of December will still be valid for trains in the U.K. this year, the Eurail company which runs the system said in a statement Wednesday, but British participation will cease from January.

Young Brits will still be able to buy an Interrail pass and travel across Europe.

Eurostar tickets will still be included in the scheme, offering travellers connections from Paris, Brussels and Amsterdam into London. Discounts on ferry services to the U.K. will also continue, Eurail said. But operators of trains running on the U.K.’s privately-run passenger network have opted to stop accepting Interrail tickets, which typically offer free rides on a certain number of days and discount tickets to those under the age of 27.

The decision will apply to Interrail and the Eurail ticket, which is available to travellers from outside the 31 European countries that participate in Interrail.

The U.K. has been a part of Interrail since 1973, the same year it joined the EU. However, despite the timing the scheme is an arrangement between companies rather than formal EU policy so is not connected to Brexit, said Mark Smith, who runs train travel website The Man in Seat 61.

“This is a decision of the British train operators, it’s on them,” said Smith. “It’s as if they see the grass-roots [flight shame] movement towards rail, and instead of welcoming it, deliberately go out of their way to stop it.”

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