Air Boris blasts into Biarritz

BIARRITZ, France — Boris Johnson was quite clear about what he wanted discuss with the president of the United Sates.

“Cauliflowers!” the U.K. prime minister bellowed over the sound of jet engines as he briefed reporters on his Royal Air Force Voyager plane bound for the G7 summit in Biarritz.

Not just cauliflowers: “U.K. bell peppers,” “wallpaper, pillows and other fabrics,” “British-made shower trays,” and — crucially — “Melton Mowbray pork pies.” All face restrictions to entry to the U.S. market, he said, and he had made the point to Donald Trump and would make it again on Sunday when the two leaders have their first face-to-face meeting of Johnson’s premiership.

Reporters had gathered near the front of the plane for a mid-flight huddle. Johnson, suited and with an uncharacteristically neat collar, clutched a few pages of notes — some typed, some scribbled by hand. He went on for several minutes, while increasingly bemused journalists waited to ask questions about some of the more pressing matters on the G7 agenda: Brexit, the Amazon rainforest fires, the threat of a global economic downturn.

Anyone used to Johnson from his days as foreign secretary and mayor of London would have recognized the schtick: distract and divert with humor, and hope to avoid scrutiny. Even Johnson knows his routine has been rumbled. The Q&A would now begin, he said at last, “having cunningly exhausted as much time as I can with this lengthy but very, very important recitation of the problems British exporters face in the U.S.”

“President Trump has pioneered a quite remarkable way of communicating directly with the electorate” — Boris Johnson, British prime minister

In fairness to Johnson, he then fielded questions happily for 10 minutes, his ease in front of the press in stark contrast to his predecessor Theresa May, whose own briefings on ‘May Force One’ were curt, uncomfortable and sometimes difficult to hear over the sound of the engines. Then again, he is a former journalist who has spent a good part of his life talking to fellow hacks and clearly enjoys their company.

Only the imminent landing of the plane stopped him from talking for longer. “We’ll get thrown off the plane if I don’t get you sat down,” said one Downing Street aide to reporters, as the RAF crew politely but firmly requested everyone return to seats for landing.

“Are you getting used to being prime minister?” one reporter asked before heading back to their seat. “Yes!” Johnson replied. “At last. It took a while.”

New captain, same course

Fellow G7 leaders seeking to get a handle on what kind of British prime minister they are dealing with could still leave the summit perplexed.

Johnson with French President Emmanuel Macron at the G7 meeting | Pool photo by Andrew Parsons/Getty Images

Johnson seems to face both ways. His enthusiasm for Brexit, and his free-wheeling diplomatic style appear to place him firmly in the Trump camp. But on other areas of substance, his decisions to maintain continuity with British foreign policy on questions like climate change and Iran put him alongside Angela Merkel and Emmanuel Macron.

The split personality was on display on RAF Voyager. He spoke of his horror at the Amazon fires and listed biodiversity, free trade and girls’ education as his three key summit priorities.

His shopping list of grievances against Trump and U.S. trade policy was in part an attempt to amuse, in part very deliberate positioning of the U.K. in favor of internationalist free trade over protectionism (although he was clear some things were “completely off limits” for the U.K. in any trade deal, including the National Health Service.)

Asked about the U.S.-China tariff stand-off, he delivered a sharp rebuke to Trump (and to China) warning that those imposing tariffs “risk … incurring the blame for the downturn in the global economy.”

But in the same breath he lavished praise on the U.S. president. Asked if he was flattered by comparisons to Trump, he noted that it was “the most important thing for any prime minister of the U.K. … to have a very close, friendly relationship with our most important ally.”

“President Trump has pioneered a quite remarkable way of communicating directly with the electorate. My impression is that is also popular with large numbers of people in our country,” he said. (That’s not what Britons are telling pollsters — according to YouGov, only 21 percent of British people have a positive opinion of Trump and 67 percent negative.)

Brexit battles

But while a meeting with Trump on Sunday is the centerpiece of this G7 for Johnson, the most pressing issue in his in-tray at home, Brexit, still overshadows everything.

He waded into a row with European Council President Donald Tusk, who warned Saturday that Johnson risked going down in history as “Mr No Deal.” Johnson suggested it was Tusk who might earn the label if the EU refuses to agree to the U.K.’s demand to re-open May’s Withdrawal Agreement and scrap the Northern Ireland backstop plan for avoiding a hard border.

Asked about his relations with Tusk, and the European Council president’s comment that those who promoted Brexit without a plan had a “special place in hell”, Johnson joked with reporters that he didn’t want to get into “post-Brexit eschatology with the president of the Council.”

‘Eschatology’ — referring to the field of theology concerned with death, judgment and the final destiny of humankind — is not a word that commonly featured in Theresa May’s clipped press briefings.

For Boris Johnson, Brexit still overshadows the entire agenda | Isabel Infantes/AFP via Getty Images

But while the former prime minister made an art of giving unrevealing answers, Johnson’s own bombastic style can also be a way of dodging difficult questions. Pressed on whether he would bring forward the “credible alternatives” to the backstop that the EU is demanding as the basis for further talks to avoid a no-deal Brexit, he fudged it. There were “a large range of alternative arrangements” which “will be discussed with our friends in the coming weeks,” he said.

Asked what he would do if the U.K. parliament legislated for a Brexit delay, Johnson swerved again. “It’s parliament’s job now to respect not just the will of the people but to remember what the overwhelming majority of them promised to do over and over and over again and that is to get Brexit done,” he said.

Two sides talking past each other on Brexit, and a parliamentary battle waiting at home. May Force One may have made way for Air Boris, the prime minister’s style of communication may be the polar opposite to his predecessor’s — but Britain still faces the same tricky course to avoid a crash landing.

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UK freight industry says it’s ‘shooting in the dark’ on no-deal Brexit

The leak of Operation Yellowhammer, the British government’s no-deal planning dossier, indicates a hard Brexit would be “far, far more potentially disruptive” than industry has been told to prepare for, according to the Freight Transport Association.

The U.K. government must urgently clarify what it predicts the impact of no deal will be for moving goods into and around Britain, James Hookham, deputy chief executive of the Freight Transport Association (FTA), told POLITICO’s London Playbook.

The FTA was particularly blindsided by the suggestion in the leaked document that the government’s own no-deal zero-tariff policy could hit the U.K.’s domestic fuel industry, leading to the closure of two refineries, strikes and disruption to fuel availability, Hookham said.

While he said the FTA had not seen the original Yellowhammer document, Hookham added: “That really frightened me, because that’s clearly got the potential to disrupt all U.K. goods distribution activity and commercial activity, if the domestic fuel supplies are under threat. That’s certainly never been raised with us before.”

He continued: “We’re calling for some kind of independent review of the evidence and the scenarios that the government’s using, just to get it all out on the table. What we’re feeling now is that we’re just shooting in the dark, we’re being asked to prepare for something that we don’t fully understand and that the government’s not prepared to share with us … All of a sudden this isn’t just queues at Dover … this could have a knock-on effect to all domestic goods distribution and that is orders of magnitude more than we were led to believe might happen.”

Any threat to fuel supplies would be a “game-changer,” Hookham said, and urged the government to be open about its expectations to help industry prepare. “What we want now is just some honesty and some clarity. How can we help to mitigate this if we don’t know what we’re trying to solve?”

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Boris Johnson: UK-US trade deal will be a ‘tough old haggle’

Brokering a transatlantic trade deal won’t be easy but can be done, U.K. Prime Minister Boris Johnson said Tuesday.

“It will be a tough old haggle, but we’ll get there,” Johnson told Sky News.

“In my experience, the Americans are very tough negotiators indeed,” he said, adding that the U.S. market “is growing very fast for the U.K., but they still ban haggis, for heaven’s sake.”

Johnson also said reaching a post-Brexit deal with the EU will be most important.

“The single biggest deal that we need to do is a free trade agreement with our friends and partners over the Channel.”

Johnson’s comments come a day after John Bolton, U.S. President Donald Trump’s national security adviser, said during a visit to the U.K. that the two countries could broker sector-by-sector deals to reach bilateral agreements “very quickly, very straightforwardly.”

Bolton’s comments have been dismissed by trade experts, who say piecemeal deals based on tariff reductions in one sector would not comply with World Trade Organization rules.

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From ‘Blade Runner’ to Brexit in England’s industrial north

MIDDLESBROUGH, England — Boris Johnson has a plan to turn the U.K.’s old industrial port towns into freewheeling outposts of “global Britain.”

The plan means setting up so-called free economic zones offering lower import taxes and looser regulation to lure investment in up to 10 ports. It chimes with the swashbuckling Brexiteer vision of an outward-facing British economy restored to its glory days, and also spins a positive view of the country’s future outside the EU.

“Let us begin work now to create free ports that will drive growth and thousands of high-skilled jobs in left-behind areas,” Johnson pledged outside 10 Downing Street after becoming prime minister. In one of the candidate areas, Teesside, on Friday, International Trade Secretary Liz Truss will announce the appointment of a panel of ministers and experts to figure out the “world’s most advanced free port model” that will generate “thousands of jobs.”

But will it work?

Ben Houchen, the 32-year-old Conservative mayor of Tees Valley, a cluster of deprived cities in the northeast of England, wants to get the green light to start a pilot project around the mouth of the River Tees. He reckons free ports offer a “physical representation” of how Brexit can “deliver more control and say over international trade policy.”

The 20-minute train ride from Thornaby to cheery seaside town Redcar trundles past the skeletons of shuttered factories and steel plants.

“I get extremely frustrated as people talk about this very dismissively,” Houchen said in his office overlooking the river just days before Truss’ visit. “One of the reasons we came up with the concept 18 months ago is that there was such a negativity about Brexit.”

He’s pushing to make a free economic zone out of a 4,500-acre site around a shuttered steel works, six times the size of London’s City banking district. The goal is to transform the region by attracting new clean energy companies and manufacturing at the deepest port complex on England’s east coast, he said.

The plan may be novel for the Tees, but it isn’t new. A U.S. Congress report estimated there were more than 3,000 free economic zones worldwide in 2013. Britain closed its last free port in 2012, although there’s one on the Isle of Man, a U.K. crown dependency outside the EU. There are more than 80 across the EU offering various kinds of relief from taxes and tariffs to spur growth.

The top of Eston Nab in North Yorkshire, which looks down at the view over the industrial area of Teesside and Middlesbrough | Dan Kitwood/Getty Images

But the U.K. is dreaming bigger.

“What I’m talking about is not comparable to those in the EU,” said Houchen. “What they consider a free zone is basically a large warehouse.” Instead, outside the single market, customs union and the EU’s state aid restrictions, he’s aiming for zones similar to those that have helped supercharge growth in the United Arab Emirates and the United States.

The plan

Whatever Brexit brings, the Tees Valley, which in 2016 voted heavily in favor of the U.K. exiting the EU, will feel the impact. Once a heavy industry jewel in the British economy, its horizon of furnaces, chemical works and docks inspired the opening cityscape scene in the 1980s dystopian thriller “Blade Runner.”

But its days of industrial glory are long gone. The 20-minute train ride from Houchen’s office in a newbuild complex at Thornaby, through Middlesbrough’s dilapidated central station, to cheery seaside town Redcar trundles past the skeletons of shuttered factories and steel plants.

In 2015, a steelworks overlooking the beach was closed at Redcar, costing 3,000 jobs. That delivered a body blow to the local economy, although chemicals processing and oil rig-scrappage plants still dot the landscape.

If Johnson’s team gives the go-ahead for the free port project, Houchen thinks 37,000 jobs can be generated within 20 years and around £2 billion added to the local economy. He argues that at least half of that will come along anyway owing to a shift to wind energy and hydrogen production in the region, but will be “turbocharged” by a free port zone bringing new manufacturing to the area.

The tanker Louise Knutsen is moored alongside an oil facility on the banks of the River Tees | Ian Forsyth/Getty Images

“This site is chemicals, processing, clean energy and energy production, it’s manufacturing and it’s heavy industry,” said Houchen. “We’re not trying to store goods in the zone [but] the reintroduction of the kind of jobs we haven’t seen in this area for decades.”

To do that Houchen talks of abolishing corporation tax, employee national insurance contributions and business tax rates for companies moving in, in addition to offering direct subsidies for research projects that will help foster innovation. The Department for International Trade said in a statement that the zones can relieve businesses of “unnecessary checks and paperwork, and include customs and tax benefits” while noting that some of the most successful areas mandate “liberalized planning laws.”

Around the Tees, it’s all about investing in industries that fit the region, he said, rather than trying to attract tech firms.

“We know we’re not going to become the next Silicon Valley,” said Houchen. “So we’re quite happy to exclude consumer tech; the Amazons and the Googles of this world. Stop them relocating to this area just to get tax breaks.”

The catch

But not everyone is as starry-eyed about the prospects for a free zone on the Tees.

“I think there are so many flaws in it that it’s unlikely to get a lot of traction,” said Peter Holmes, an expert on trade at the University of Sussex. “None of this is going to develop high-skilled jobs. They would be jobs in warehouses and assembly plants. These are not the kind of things that transform a region.”

Despite recent improvements, unemployment sits at just over 6 percent across the region — 2 percentage points higher than the national average. In Hartlepool, the furthest north of the conurbations covered by the Tees Authority, it’s close to 10 percent. Locals complain that while the number of jobs may be up, they aren’t the high-paying ones lost in the steel plants.

Slashing environmental and labor rules offers one option, but that’s something the Tees authorities insist they won’t do.

Comparisons to U.S. special economic zones aren’t entirely valid either, as companies there take advantage of higher tax on components than on finished goods. For example, car assembly plants benefit from importing parts to a customs-free zone and only pay taxes on the finished vehicle, which is taxed at a lower rate than the individual parts.

“This has absolutely no relevance with the EU tariff system,” Holmes said.

That pours cold water on the insistence that the 250 zones employing 420,000 people in the U.S. offer a model for Britain. “If the U.K. model is implemented as successfully, it could have a significant economic impact,” the Department of International Trade said.

It will also be a struggle to persuade the U.K. Treasury that the plan won’t displace investment from elsewhere in the country, and just siphon tax revenues through Teeside that would otherwise head straight for the public purse. Houchen insists that’s not the case, and incentives offered would attract new investment.

In addition, the move comes just as Brussels takes a keen look at free ports and their potential for crime and deregulation. The European Commission this month labeled such sites an “emerging threat” that offer crooks a way to launder cash and shift counterfeit goods, but this isn’t the model Teesside is looking at.

Stanley, one of the cheapest places in the U.K. to buy a house. Much of the North East of the United Kingdom voted to leave the European Union | Dan Kitwood/Getty Images

Depending on how hard the U.K. crashes out of the EU, the plan wouldn’t be covered by watchdogs in Brussels anyway.

Regardless, Houchen counters he’s got legal advice that is clear there won’t be a problem. “The one thing free zones don’t do is turn a completely useless site into a brilliant site,” said Houchen. “You can’t turn a site in the Sahara into an amazing free port.”

The quick take on special economic zones is pretty alluring — look at the transformation of sleepy towns in China and the Middle East into forests of glass skyscrapers and factory complexes. But the reality is trickier, especially in developed countries. Shannon, a once vital Irish refueling stop for transatlantic aviation but otherwise a provincial backwater, was turned into a hub for big business thanks to its free zone. Despite that success, Shannon has created only 7,000 jobs, a fraction of what Houchen is proposing.

Slashing environmental and labor rules offers one option, but that’s something the Tees authorities insist they won’t do, ruling out making the port a haven for migrant labor.

A British Steel manufacturing site in Skinningrove in 2017 | Ian Forsyth/Getty Images

But that may hobble the dreams of creating an economic powerhouse, Holmes said. “You’re not going to make much difference to this region unless you give a substantial change in the cost [for business]. The cost saving from the free zone itself is going to be minimal.”

Keeping locals onside with the plan is key to satisfying one of the underlying causes of Brexit — a feeling of disenfranchisement outside the country’s rich southeast. While lawmakers argue over multibillion pound new infrastructure schemes around London such as a third runway at Heathrow and a rail scheme to Birmingham, the north has been relatively starved of public investment.

“The north is just all rusted up,” one local on Redcar’s high street said, declining to offer a name given the febrile political climate. “It’s a brilliant idea if it actually emerges.”

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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Why a US-UK trade deal ought to mean us finally getting some sense from Brussels

Prime Minister Boris Johnson has already made it clear he will urgently look for a trade deal with President Trump. From a purely political viewpoint, this clearly makes sense in a world where the EU is mortally afraid of what President Trump might do next to it. However, there is also an economic logic to it which is worth spelling out, both for those embarking on the US deal at this end and for those seeking an EU response to our offers of a trade deal.

What a US trade deal would do would be to open up our markets to US goods, both food and manufactures, in return for UK tariff-free access to US goods markets and easier access into US services markets, where we already operate fairly freely in practice. From the EU viewpoint it is the former that matters: US barrier-free supply of food and manufactures into the UK market would mean that UK prices would fall sharply in response to the more or less infinite (relative to the UK market) availability of supplies from efficient and large US suppliers at best world prices. Effectively UK home prices would fall to world levels, a drop of some 20%, this being the scale of EU tariff and non-tariff protection against world competition. From our trade viewpoint this would therefore operate like unilateral free trade, lowering consumer prices and forcing competition on our home suppliers, who would have to meet it by raising productivity. The gain to UK GDP and welfare of even half of this would, we calculate, be around 4%; double that if it all goes through. This makes a US trade deal highly desirable for us in its own terms.

Of course this deal will be fought tooth and nail by all the usual business and protectionist lobbies – the CBI etc. Ministers must be ready for the full litany of objections; they should be in no doubt that for this deal to go through, they must rebut the whole stable of these stale arguments, whether it is the preservation of jobs (read ’existing jobs’ for that – new jobs are constantly being created by our economy); the collapse of manufacturing (only if it cannot raise productivity, which it has done relentlessly for three decades); the disappearance of our farm industry (but it too can raise productivity and will be helped by our new farm support policies); the pollution of food standards (by higher-standard US food?); and so it will go on.

Assume our new government has the determination to get this through. What then happens to EU attitudes? Already no doubt ‘softened up’ by worries about losing the £39 billion promised in the Withdrawal Agreement, these attitudes are now transformed by the new economics of failing to do a trade deal, that’s what. Suppose now no trade deal so that tariffs go up both ways between the EU and ourselves. EU sales to us are bigger and on higher tariff items, so our tariff bill on these would be £13 billion a year. On our sales to the EU their tariff bill would be £5 billion a year. But more importantly, who ‘pays’ these tariffs, in the sense of being worse off to the tune of these amounts? Once a US trade deal is in place and UK prices are at world levels, the apparently surprising answer is that all these tariffs, both ways, are paid by EU traders.

Consider why. First, EU export traders, to sell in the UK market at these world prices, will have to match them; they cannot raise prices when the tariffs go on, or they risk selling nothing at all. So these EU exporters must absorb the tariffs. The UK Treasury will thus receive its £13 billion direct from EU exporters.

Second, EU importers of UK exports. UK exporters can sell their products at home now at world prices, so they will not take less for EU exports; hence EU importers will not be able to ‘pass back’ the EU-levied tariffs to UK exporters. Instead they will add them into EU prices. Will this reduce UK exports to the EU? No, because remember EU prices are above world prices by 20%, the effect of EU protection. So in effect EU importers can well afford to absorb the EU tariffs on UK exports (which average about 5%, much less than that overall 20% world protection inclusive of non-tariff barriers), and still be cheaper than other EU competition. So what all this means is that the £5 billion tariff revenue of the EU is simply taken from EU businesses.

So overall, a failure to do a trade deal will cost EU businesses £18 billion a year in lost profits. £5 billion of this will go to the EU in extra revenue, £13 billion to the UK Treasury. From the EU’s internal viewpoint, these are non-trivial costs to business; the fact that some of it is directly levied by the Commission will add to its unpopularity with business opinion, which is the biggest Brussels lobbying voice. Total gross profits in the EU27 are around €4,000 billion, of which some two thirds is capital depreciation, giving net profits of about €2,500 billion, so implying on a normal dividend payout ratio dividends of about €500 billion. So we are talking here of a significant hit to company dividends in the rest of the EU from a no trade-deal Brexit.

Up to now, the assumption in EU circles has been that no trade deal would be unpleasant in some parts of the EU but the worst effects, such as in Ireland, would be manageable, through some sort of compensation to this small economy. With the UK still a protected market with high prices, EU producers would not face tough competition and so could possibly pass on UK tariffs to UK consumers without too much loss of market share. Meanwhile UK exporters would absorb EU tariffs with their alternative market only being the limited home market or much lower-priced world exports.

This all changes, as we have seen, once a US-UK trade deal is signed. The EU trade deal arithmetic is transformed to a nasty corporate loss across the whole EU business sector.

There is more. When the UK signs the US trade deal, the direct effect on the prices the EU can sell at in the UK market will be a fall of 20%, even with no change in UK tariffs. Similarly our exporters to the EU will now sell to them at those 20% lower (now world) prices, assuming no EU tariffs. As we import some £100 billion a year more from the EU than we export, this 20% price fall will cost the EU £20 billion – even before any action on EU-UK tariffs. This will also come directly out of EU business dividends.

So when we sign a US trade deal, the EU will lose £20 billion at once, and a further £18 billion if there is no UK-EU trade deal so that mutual tariffs are levied – a total of £38 billion a year, nearly 8% of EU corporate dividends. This implies that the EU will be anxious to dissuade us from making a US trade deal by being more obliging in its negotiating approach over Brexit. Of course, in doing this they will risk annoying President Trump; nor is our new Government anyway likely to be dissuaded from such an important strategic deal.

But it all goes to show that the route to getting sense at last from Brussels lies through Washington and President Trump. It is good to see that Mr. Johnson is planning to take this route in short order.

The post Why a US-UK trade deal ought to mean us finally getting some sense from Brussels appeared first on BrexitCentral.

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