Brexit Bulletin: Ask the Turks

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The idea of Britain staying in the customs union is back on the table, and the debate is raging.

The U.K.’s leading business lobby is calling for it and Boris Johnson has taken to Twitter to say it’s a terrible idea. While this is all going on, it’s worth remembering that Turkey, held up as the model, isn’t too keen on its own customs union and is trying to change it.

The point of the customs union is to impose a common external tariff – throwing a loose barrier around the trading bloc. But this leads to one of Turkey’s main complaints: when the EU negotiates a trade agreement with another country, Turkey is then forced to open its market to that country. “It’s asymmetric power,” says Hasan Turunc, the representative in London of Turkish business lobby TUSIAD. 

Lines at the border between Turkey and Bulgaria are notorious, with trucks waiting for hours to pass. Turkey, which joined the customs union in 1995 as a stepping stone to EU membership, is trying to get the deal updated and improved.

Theresa May has made clear that the U.K. will leave the customs union, but the government has left the door open to joining “a” customs union after Brexit. As the Cabinet continues to debate what the future relationship with the EU should look like, Foreign Secretary Johnson, a leading Brexit-backer, has been increasingly vocal that the U.K. must break free from all the EU trading structures, a necessary step in order to strike new commercial deals around the world.

Boris Johnson @BorisJohnson
2/2 Staying in the customs union means effectively staying in the EU: the EU *is* a customs union. It means no new… https://t.co/JEchj5ZEDq
https://twitter.com/BorisJohnson/status/955095296660443142

The Confederation of British Industry argues that remaining in a customs union with the EU will be far more valuable than getting trade deals elsewhere. But a customs union wouldn’t cover services, the most important part of the EU economy, and it also wouldn’t solve the Irish border issue, where tariffs are only part of the problem.

Brexit Latest

Irish Border | That Irish border issue will resurface sooner than May imagined. The agreement struck in haste last month was designed to prevent a breakdown in talks and serious questions still need to be resolved, according to three people familiar with the EU side of the negotiations. Different interpretations around the precise meaning of May’s commitments are starting to crystallize and flash points could become clear when the legal text that underpins last month’s accord is drafted early this year.

Historic Chance | Deutsche Boerse CEO Theodor Weimer described Brexit as a historic opportunity for Frankfurt. Euro clearing needs to be conducted in Germany: “From a risk perspective, it cannot be that there is only one central counterparty and that that CCP continues to be based in London, which may have offshore status.”

Brexit Hits Jaguar | Jaguar Land Rover will scale back production at its Halewood plant in northern England in the second quarter amid concern about the terms of Brexit and diesel car taxes.

Odd One Out | The International Monetary Fund’s upbeat assessment of the global economy doesn’t extend to the U.K. In its latest outlook, the IMF raised its forecasts for global growth to the fastest since 2011, upgrading projections for major economies including the U.S., Germany and China. The exception was the U.K., where the prediction was unchanged for 2018 and cut for 2019.

Upbeat CEOs | Almost 90 percent of U.K. chief executive officers are optimistic about their organization’s prospects for the next year, little changed from 2017, according to a survey by PricewaterhouseCoopers LLP released Monday. The proportion expecting a pickup in global growth has more than doubled to 36 percent since last year’s report.

Johnson’s Campaign | Foreign Secretary Boris Johnson will use a Cabinet meeting on Tuesday to make the case for spending more on the NHS to honor the campaign pledge he made during the referendum campaign, The Times reports. Johnson is demanding that the prime minister pledge an extra £5.2 billion a year on free public medical care after Brexit or open the door to a Labour government, Tim Ross reported last week. The Vote Leave pledge to send £350 million a week to the NHS instead of to Brussels –widely criticized at the time for overstating the amount of money sent to the EU each week – would add up to about £18 billion a year.

On the Markets | The pound strengthened above $1.40 for the first time since the Brexit vote, leveraged funds are the most bullish on sterling since August 2015 and the options market has also turned positive, Charlotte Ryan reports. However, Credit Agricole is among those cautioning of a reversal, amid a “non-negligible risk of a pullback in response to weaker U.K. data or a renewed spike in Brexit uncertainty.”

And Finally...

Since its creation in 1993, the U.K. Independence Party has had 14 leaders and acting leaders. Of those, its most famous face, Nigel Farage, has already led the party three times. Bloomberg’s Kitty Donaldson wonders if it’s time for another comeback.

UKIP’s current leader Henry Bolton, 54, has been called on to quit by his own party over racist text messages sent by his 25-year-old girlfriend (and his handling of the fallout.) On Monday, in the face of mounting pressure, Bolton insisted he would not step aside.

Farage, whose job as a member of the European Parliament will end when Britain leaves the EU, stepped down as party leader after the Brexit referendum, saying he had fulfilled his political ambitions to see his country quit the bloc. But he remains an influential figure who can shift the debate in the U.K, as his recent comments on the possibility of a second referendum demonstrated.

UKIP’s chairman Paul Oakden speculated Monday that Farage could be enticed to return to his former position. “I think everybody would like him to have a greater role in UKIP,” Oakden told BBC radio.

“Whether that’s as leader or not, I don’t know if I would subject Nigel to that.”

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