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      in US Politics

      Netflix still several steps ahead in strategy for wooing subscribers

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      Only Frank Underwood could amass as much power in such a short space of time. Nearly eight years after Netflix used House of Cards as the launch of its global empire, the streaming service announced last week that it now had more than 200 million subscribers. The pandemic has hastened the company’s transformation from a debt-laden digital upstart into an essential part of the TV landscape in homes across the world.In 2013, when Netflix’s first original series made its debut, the company had 30 million (mostly US) subscribers. This was six years after it moved from being a DVD-by-post business to a streaming pioneer. Since then it has added 170 million subscribers in more than 190 countries and its pandemic-fuelled results last week sent Netflix’s market value to an all-time high of $259bn.Last year proved to be the best in the company’s history, even as a new wave of deep-pocketed rivals attempt to deprive it of its streaming crown. Accustomed to operating in battle mode, Netflix added a record 37 million new subscribers as lockdown prompted viewers to alleviate housebound cabin fever with fare including The Crown, Bridgerton and The Queen’s Gambit.Last week it reported that in 2020 the amount it earned from subscribers exceeded what it spent – to the tune of $1.9bnBut Netflix’s pioneering low-price, binge-watching approach to driving growth has come at a cost. Year after year the need to spend billions on ever-increasing numbers of films and TV shows in order to keep and attract subscribers has weighed on its balance sheet, if not its share price. With a Netflix subscription a fraction of the cost of a traditional pay-TV service, average revenue per user is low. This is great for growth but means the company has to keep on topping up its content budget to fulfil its binge-watching promise to fans. A few billion here and there has spiralled to $16bn in long-term debt and a further $19bn in “obligations” – essentially payments for content spread out over a number of years.Analysts have been split over Netflix’s grow-now-pay-for-it-later strategy, but the company finally appears to have proved the naysayers wrong. There was a symbolic announcement in its results last week: it reported that in 2020, free cashflow was positive – which means that the amount it earns from subscribers exceeds what it spends on content, marketing and other costs – to the tune of $1.9bn.Part of the reason for this was that Netflix’s content spend fell – from $14bn to $12bn – as a result of production stoppages caused by lockdowns, but it was a turning point nevertheless. It has taken 23 years since its humble beginnings as a DVD rental company in California for the Netflix machine to reach the point of sustainability.The firm’s decision in 2013 to invest heavily in original productions has proved critical – and prescient. It sensed, correctly, that its success would prompt the suppliers that it was licensing shows from to eventually keep them for their own services. In the past 18 months, HBO Max, Sky-owner Comcast’s Peacock and AppleTV+ have joined longer-term rival Amazon Prime Video in vying for subscribers.Reed Hastings, Netflix’s co-chief executive, acknowledges this second wave in the streaming wars, particularly noting the “super-impressive” performance of Disney+, which has become the third global force in streaming behind Amazon. In just 14 months since its launch, the service, powered by franchises including Star Wars TV spin-off The Mandalorian, Marvel films and Frozen 2, has amassed 87 million subscribers four years sooner than forecast. Last month, Walt Disney+ announced a doubling of its content budget and tripled its forecast of subscriber numbers by 2024.However, new rivals have yet to dent the dominance of Netflix, which reported adding 8.5 million subscribers in the fourth quarter, and revealed that 500 TV titles were in the works and a record 71 films would premiere this year. Some doubters had raised concerns that Netflix’s debt-fuelled growth was a financial house of cards. But its foundations look solid now.Nissan’s ‘edge’ over rivals is no vote for BrexitLeaving the EU without a deal would have been an act of economic self-sabotage nearly unrivalled by a developed economy. Carmakers’ relief that a deal was reached on Christmas Eve was palpable. Nissan’s glee became clear last week, with chief operating officer Ashwani Gupta repeatedly declaring that the Brexit deal had given the Japanese carmaker a “competitive advantage”.Nissan had looked through the complex new rules of origin governing trade between the UK and the EU. Parts and finished cars that cross the Channel will not attract tariffs if a certain proportion of their components are from either the UK or the EU. Nissan’s cars already comply with the rules.Crucially, this applies to high-value batteries, which a partner company builds in Sunderland, in a factory next door to Nissan’s. Other companies are not so well-placed and must rely instead on imports from east Asia. For them the Brexit deal has started a scramble to secure batteries from Europe – if they want to sell into the UK – or hope that untested UK companies can build gigafactories to supply them.However, the Japanese carmaker’s statement should not be mistaken for a “vote of confidence”, as Boris Johnson managed to do. Gupta acknowledged that the UK’s departure from the EU had brought new costs, though these were “peanuts” for a company of Nissan’s scale. They may not be so negligible for exporting entrepreneurs, a breed that will probably become rarer as non-tariff barriers increase for would-be traders with the EU.Furthermore, “competitive advantage” is a double-edged compliment. Nissan will gain on UK and EU rivals which do not source batteries locally. Even if it is less of a burden than those carried by competitors, a handicap – in this case increased trade friction with the UK’s biggest market – is still a handicap.A new president is not a panaceaIt would be a mistake to allow the relief that has accompanied Joe Biden’s victory in the US presidential election to become something close to euphoria and, consequently, freight the new US president with expectations that are unachievable.The next decade is looking troubled and fractious even now that Donald Trump’s hand is no longer on the tiller of the world’s largest and most powerful economy. From a global perspective, there is the assessment of climate economist Lord Stern that the next 10 years will be crucial if we are to reach net zero carbon emissions by 2050.China, for 30 years a convenient supplier of low-cost goods to the global economy, is becoming more authoritarian and looking to use its spheres of influence in Asia and Africa to quell complaints by international bodies about the way it treats Uighur Muslims and Hong Kong protesters. To make matters worse, populations in the west and in China are ageing and struggling to provide a decent standard of living for younger members of society.In the UK, Brexit reintroduces a welter of red tape into the trading arrangements this country has with its biggest commercial partner, the EU, and will depress average household incomes over a long period. So despite the relief in many corners of the globe that greeted Biden’s inauguration, there is reason to worry.But there are grounds for hope too. The pressure to address the climate emergency is growing rapidly and politicians all over the world are at last taking notice. The 26th UN climate change conference in Glasgow, scheduled for November, could mark a seismic shift in action. And Biden showed how inclusive he plans to be with his roster of inauguration acts, from the stalwart Republican country singer Garth Brooks to 22-year-old African American poet Amanda Gorman.It was telling that Biden said he wanted to build bridges. It will be difficult, but on the issue of climate change, if on nothing else, that must include China. More

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      in US Politics

      Biden executive orders target federal minimum wage and food insecurity

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      Joe Biden on Friday will sign a pair of executive orders aimed at providing immediate relief to millions of American families grappling with the economic toll of the Covid-19 pandemic and expanding safety protections for federal workers.Sign up for the Guardian’s First Thing newsletterPressing ahead with an ambitious set of executive actions, the new administration is seeking to marshal an “all-of-government” effort to combat hunger as tens of millions of Americans face food insecurity amid historically high unemployment rates.“The American people can’t afford to wait,” said Brian Deese, the national economic council director, on a call with reporters. “So many are hanging by a thread.”The measures, he said, were a “critical lifeline” for American families, but were “not a substitute” for the nearly $2tn relief package Biden has called on Congress to pass.Biden will direct the Department of Agriculture increase a Covid-19 food program that helps families with children who would normally receive free or reduced-price meals at school, as well as expand the emergency increases approved by Congress to the Supplemental Nutrition Assistance Program for low-income Americans.He will also ask the Department of Treasury to update its process for delivering stimulus checks to millions of eligible Americans who reported issues or delays with the first rounds payments. And Biden will the Department of Labor to make clear that out-of-work Americans who refuse employment that could jeopardize their health would still qualify for unemployment benefits. Until now, workers who refused offers to return to their jobs out of concern for their safety no longer qualified for unemployment aid.The second order is aimed at expanding protections for federal workers by restoring collective bargaining powers and lay the groundwork for the federal government to implement a $15 federal minimum wage. As a first step, Biden will direct federal agencies to conduct a review of federal workers earning less than $15 an hour and develop recommendations for raising their wages.The latest executive actions come one day after a labor department report showed that unemployment claims remained at historically high levels, with 900,000 Americans filing for unemployment benefits last week. The figures reflected the magnitude of the economic challenges Biden inherited, amid a resurgence of the coronavirus this winter.Friday’s actions are part of a blitz of executive orders and directives Biden has taken since assuming the presidency.Hours after his inauguration, Biden signed an executive order extending a federal pause on evictions through the end of March, a move that will shield millions of Americans struggling to pay rent amid the pandemic. He also directed federal agencies to extend their moratorium on foreclosures of federally guaranteed mortgages and asked the education department to prolong its freeze on federal student loan payments through the end of September.On Thursday, he unveiled a “full-scale wartime” national Covid-19 strategy aimed at growing the production of vaccines, creating guidelines to reopen schools and businesses and imposing new requirements on mask-wearing.Biden has long argued that economic recovery is tied to combatting the coronavirus, a starkly different approach to his predecessor who urged states to lift restrictions even as infections rose.The centerpiece of Biden’s plan to address fallout from the pandemic is a $1.9tn relief package called the American Rescue Plan, which includes $1,400 direct payments to Americans, more generous unemployment benefits and billions of dollars for a national vaccination program.Already Republicans are objecting to the cost of the legislation, raising doubts about whether Biden will be able to attract bipartisan support as he had hoped. Several Republicans have questioned the need for an additional relief package weeks after they passed a $900bn coronavirus relief bill.Stressing that urgent action was needed, Deese declined to say how long the White House planned to court Republican support before potentially moving to a process that would allow Democrats to move the legislation forward without them.His team plans to hold a conference call with a bipartisan group of senators on Sunday to make the case for another round of stimulus, without which he said the nation’s economy would plummet further into “a very serious economic hole”.“When you’re at a moment that is as precarious as the one we find ourselves in,” he said at a White House press briefing on Friday, “the risk of doing too little the risk of undershooting far outweighs the risk of doing too much.” More

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      in US Politics

      Janet Yellen says Biden must 'act big' with coronavirus relief package

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      Janet Yellen, US president-elect Joe Biden’s nominee for treasury secretary, told lawmakers on Tuesday that “the smartest thing we can do is act big” on the next coronavirus relief package, adding that the benefits outweigh the costs of a higher debt burden.In testimony at her virtual confirmation hearing, Yellen said her task as treasury chief would be twofold: first to help Americans endure the final months of the coronavirus pandemic, and second to rebuild the US economy “so that it creates more prosperity for more people and ensures that American workers can compete in an increasingly competitive global economy”.Yellen observed that economists and others have noted that the recovery from the early stages of the Covid-19 pandemic has been “K-shaped” – with the well-off bouncing back sharply while the less advantaged have slid further into financial difficulties. “This is especially true of people of color,” said Yellen.But Yellen noted that the K-shaped economy long predated the pandemic and said it was the treasury’s role to try to address these inequalities.Yellen’s testimony was a marked contrast to the Trump administration’s fiscal priorities. She called climate change “an existential threat” and argued international cooperation was needed to end the “destructive, global race to the bottom on corporate taxation.”Biden, who will be sworn into office on Wednesday, outlined a $1.9tn stimulus package proposal last week, saying bold investment was needed to jump-start the economy and accelerate the distribution of vaccines to bring the virus under control.“Neither the president-elect, nor I, propose this relief package without an appreciation for the country’s debt burden. But right now, with interest rates at historic lows, the smartest thing we can do is act big,” Yellen, a former Federal Reserve chair, said in prepared remarks to the Senate finance committee.“I believe the benefits will far outweigh the costs, especially if we care about helping people who have been struggling for a very long time,” she said in the statement, which was obtained by Reuters.The proposed aid package includes $415bn to bolster the US response to the virus and the distribution of Covid-19 vaccines, some $1tn in direct relief to households, and roughly $440bn for small businesses and communities particularly hard hit by the pandemic.Many Americans would receive stimulus payments of $1,400, which would be on top of the $600 checks approved in a pandemic relief bill passed by Congress last month. Supplemental unemployment insurance would also increase to $400 a week from the current $300 a week, and it would be extended to September.Yellen received an endorsement from all living former treasury secretaries, from George Shultz to Jack Lew, who urged senators in a letter to swiftly confirm Yellen’s nomination so she can quickly tackle “daunting challenges” in the economy.“Addressing these pressing issues will require thoughtful engagement by the Department of the Treasury. Any gap in its leadership would risk setting back recovery efforts,” the former secretaries wrote. More

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      in US Politics

      We're on the verge of breakdown: a data scientist's take on Trump and Biden

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      Peter Turchin is not the first entomologist to cross over to human behaviour: during a lecture in 1975, famed biologist E O Wilson had a pitcher of water tipped on him for extrapolating the study of ant social structures to our own.It’s a reaction that Turchin, an expert-on-pine-beetles-turned-data-scientist and modeller, has yet to experience. But his studies at the University of Connecticut into how human societies evolve have lately gained wider currency; in particular, an analysis that interprets worsening social unrest in the 2020s as an intra-elite battle for wealth and status.The politically motivated rampage at the US Capitol fits squarely into Turchin’s theory. In a 2010 paper, Dynamics of political instability in the United States, 1780-2010,Turchin wrote that “labour oversupply leads to falling living standards and elite overproduction, and those, in turn, cause a wave of prolonged and intense sociopolitical instability.”Turchin’s Cliodynamics, which he describes as “a more mature version of social science”, rests upon 10,000 years of historical data, as such there is, to establish general explanations for social patterns. He predicts that unrest is likely to get worse through this decade, just as it has in roughly 50-year cycles since 1780.Historians don’t necessarily like the proposal, he acknowledges. “They bring general theories through the back door. Our job is to be explicit.”Explicitly, then, Turchin explains current political warfare as a battle between an overpopulation of elites to some degree exacerbated by a decline in general living standards or immiseration, and financially overextended governments. Initially, Turchin applied the theory to pre-industrial societies, but a decade ago he travelled forward in time, predicting unrest –Ages of Discord– that would intensify in 2020 and endure until reversed.“Societies are systems and they tend to change in a somewhat predictable way,” Turchin told the Observer. “We are on the verge of state breakdown where the centre loses hold of society.”In the US, he points out, there are two political chief executives, each commanding his own elite cadre, with nothing yet being done at a deep structural level to improve circumstances. “We’ve seen growing immiseration for 30 to 40 years: rising levels of state debt, declining median wages and declining life expectancies. But the most important aspect is elite overproduction” – by which he means that not just capital owners but high professionals – lawyers, media professionals and entertainment figures – have become insulated from wider society. It is not just the 1% who are in this privileged sector, but the 5% or 10% or even 20% – the so-called “dream hoarders” – they vie for a fixed number of positions and to translate wealth into political position.“The elites had a great run for a while but their numbers become too great. The situation becomes so extreme they start undermining social norms and [there is] a breakdown of institutions. Who gets ahead is no longer the most capable, but [the one] who is willing to play dirtier.”Turchin’s analysis, of course, is readily applied to Donald Trump who, spurned by mainstream elites, appealed to a radical faction of the elite and to the disaffected masses to forward his political ambition. A similar case could be made for leading Brexiteers.Similar circumstances, says Turchin, can be found with the Populares of first century Rome who played to the masses and used their energy to attain office – “Very similar to Trump, who created a radical elite faction to get ahead.”In the professor’s reading, the incoming administration, notwithstanding the diversity of its appointments, is representative of mainstream elite power. “Think of 2020 as the return of the established elite and separation of dissidents. What’s important is that the incoming administration recognises the root problem.”In recent weeks, Turchin has found himself profiled in the Atlantic (The Historian Who Sees the Future), portrayed as a mad prophet, and name-checked by the Financial Times (The Real Class War is Within the Rich).He has been uplifted by some, but pushed back against by others. “You have this veneer of complicated impressive science. But any analysis like this is only as good as the data upon which it rests,” says Shamus Khan, chair of Columbia University’s sociology department. “It’s easy to imagine that you’re a Cassandra, and forget about the million others who similarly claim that they are.”“I think he’s got a point, because a significant component of the reasonably far left are highly educated but with blocked opportunities,” says Mark Mizruchi, author of The Fracturing of the American Corporate Elite. “Where you have disjunctures is where you get political extremism. If Turchin is right, you’re going to get a lot more highly educated people facing limited career prospects. Most of those will turn left rather than right.”Dorian Warren, one of the authors of The Hidden Rules of Race: Barriers to an Inclusive Economy, says elite warfare is only one way to describe the circumstances. “Frustrated elite aspirants gets radicalised when their expectations meet the reality of a rigid hierarchy. They perceive the system as unjust, but the source of injustice is elite overproduction and too much competition.Warren points to Occupy Wall Street, which was not a working-class movement. “It was mostly disaffected, white college graduates. That was a preview of what we’re seeing now.” In the American context, Warren says, “it’s mostly white elite fighting among each other, while the elites of colour are trying to break into the hierarchy.” For the most part, Warren points out, black elites in the US refuse to participate in white elite warfare.”But the hard science of Turchin’s approach cannot explain all things. After the Great Depression in what some might call a negotiated settlement, elites negotiated a unionised settlement with the masses in a moment of enlightened self-interest.“There was an elite consensus to accept the legitimacy of unions. In the last 40 years, we’ve seen a re-fracturing of that consensus with no worry for peasants with pitchforks who might come.”Without Trump as a unifying villain, elite fracturing is likely to enter a period of multi-dimensional refracture. “The left was always fighting among itself, so in some ways, it’s reversion to normal. There’s a reckoning coming in the Republican party, too, as it turns in on itself again over how it lost power. I think we’ll see intra-elite warfare on both sides.”Warren believes we’re at a critical juncture over a new elite settlement. One reason for optimism can be found in the battle for a minimum wage or corporate support for the social justice movement – “seeds of a new settlement”.Turchin says he feels “vindicated as a scientist who proposed a theory, but I have some consternation that we have to live through this. It may not be very pretty. I’m worried about a state breakdown. Mass shootings and urban protests are the warning tremors of an earthquake. Society can survive, but problems are likely to escalate.” More

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      in UK Politics

      Scottish fishermen eviscerate Boris Johnson’s ‘desperately poor’ Brexit deal in angry letter as losses mount

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      Boris Johnson’s “desperately poor” Brexit deal has left Scottish fishermen with losses mounting by the day and many businesses fearing for their survival, the industry’s trade body has said in a scathing letter to the prime minister.Scottish Fishermen’s Federation (SFF) chief executive Elspeth MacDonald accused Mr Johnson of misleading the public about the agreement and giving the industry “the worst of both worlds”.”You and your government have spun a line about a 25 per cent uplift in quota for the UK, but you know this is not true, and your deal does not deliver that,” Ms MacDonald wrote.The prime minister’s stated approach, known as “zonal attachment”, would have secured British boats up to 90 per cent of the catch in  UK waters for important stocks such as herring. Instead the deal actually means the UK share of the herring catch is just 32.2 per cent and for other fish is even lower, while EU boats have “unfettered” access to British waters.”This can hardly be claimed as a resounding success,” Ms MacDonald wrote.
      “Of major concern, however, is the outcome for many key whitefish species. Your deal actually leaves the Scottish industry in a worse position on more than half of the key stocks and now facing acute problems with North Sea cod and saithe in particular.“This industry now finds itself in the worst of both worlds. Your deal leaves us with shares that not only fall very far short of zonal attachment, but in many cases fail to ‘bridge the gap’ compared to historic catches, and with no ability to leverage more fish from the EU, as they have full access to our waters. “This, coupled with the chaos experienced since 1 January in getting fish to market means that many in our industry now fear for their future, rather than look forward to it with optimism and ambition.”The stinging rebuke came as Scottish fishermen saw orders cancelled by EU customers after delays at the border meant perishable shellfish was failing to arrive at its destination on time.
      The SFF reported fish prices plunging at wholesale markets earlier this week and one fish processor threatened to dump unsold catch outside Downing Street in protest.SNP shadow environment secretary Deidre Brock said the SFF’s verdict on Brexit was “utterly devastating”, particularly given that fishing was one of the industry’s that the government had specifically highlighted as seeing tangible benefits from leaving the EU.Ms Brock added: “Scotland’s fishing industry is right to be angry about all the Tory lies and broken promises on Brexit, and the devastating reality of Boris Johnson’s deal, which is costing Scotland’s fishing communities millions of pounds in lost revenue, mounting costs, red tape and barriers to trade.
      “The prime minister must urgently deliver a multi-billion pound package of Brexit compensation for Scotland – to mitigate the damage his Tory deal has done to our economy. This must include major compensation for fishing businesses and communities who have been hit hard.” More

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      in Elections

      The $2,000 stimulus cheques alone won't work – the US needs better infrastructure

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      With the Democrats’ stunning sweep of Georgia’s two Senate run-off elections giving them control of both houses of Congress as of 20 January, the idea of $2,000 stimulus cheques for every household is sure to be back on the agenda in the US. But although targeted relief for the unemployed should unquestionably be a priority, it is not clear that $2,000 cheques for all would in fact help to sustain the US economic recovery.One post-pandemic scenario is a vigorous demand-driven recovery as people gorge on restaurant meals and other pleasures they’ve missed for the past year. Many Americans have ample funds to finance a splurge. Personal savings rates soared following the disbursement of $1,200 cheques last spring. Many recipients now expect to save their recent $600 relief payments, either because they have been spared the worst of the recession or because spending opportunities remain locked down.So, when it’s safe to go out again, the spending floodgates will open, supercharging the recovery. The Fed has already promised to “look through” – that is, to disregard – any temporary inflation resulting from this euphoria.But we shouldn’t dismiss the possibility of an alternative scenario in which consumers instead display continued restraint, causing last year’s high savings rates to persist. Prior to the Covid-19 crisis, some two-thirds of US households lacked the savings to replace six weeks of take-home pay. Having reminded Americans of the precariousness of their world, the pandemic is precisely the type of searing experience that induces fundamental changes in behaviour.We know that living through a large economic shock, especially in young adulthood, can have an enduring impact on people’s beliefs, including those about the prevalence of future shocks. Such changes in outlook are consistent with psychological research showing that people rely on “availability heuristics” – intellectual shortcuts based on recalled experience – when assessing the likelihood of an event. For those parents unable to put food on the table during the pandemic, the experience will establish a heuristic that will be hard to forget.Moreover, neurological research shows that economic stress, including from large shocks, increases anabolic steroid hormone levels in the blood, which renders individuals more risk-averse. Neuroscientists have also documented that traumatic stress can cause permanent synaptic changes in the brain that further shape attitudes and behaviour, in this case plausibly in the direction of greater risk aversion.Though the pandemic is in some ways more akin to a natural disaster than an economic shock, natural disasters also can affect saving patterns: savings rates tend to be higher in countries with a greater incidence of earthquakes and hurricanes.This behavioural response is largest in developing countries, where weak construction standards amplify the impact of such disasters. One study of Indonesia, for example, found large increases in both the perceived risk of a future disaster and risk-averse behaviour among people who had recently experienced an earthquake or flood. While the response to natural disasters may be more moderate in advanced economies – where individuals expect that their government will compensate them – some lasting impact will almost certainly remain.The upshot is that we can’t count on a burst of US consumer spending to fuel the recovery once the rollout of Covid-19 vaccines is complete. And if private spending remains subdued, continued support from public spending will be necessary to sustain the recovery.But putting $2,000 cheques in people’s bank accounts won’t solve this problem because unspent money doesn’t stimulate demand. With interest rates already near zero, the availability of additional funding won’t even encourage investment. Sending out $2,000 cheques to everyone thus would be the fiscal equivalent of pushing on a string.Fortunately, there is an alternative: the president-elect Joe Biden’s $2tn infrastructure plan would mean additional jobs and spending, which is what the post-pandemic economy really needs. Better still, under the prevailing low interest rates, this option would stimulate job creation without crowding out private investment.Guardian business email sign-upAlthough Biden’s plan will require more government borrowing, infrastructure spending that has a rate of return of 2% will more than pay for itself when the yield on 10-year US treasury bonds is 1.15%. By raising output, such expenditure reduces rather than increases the burden on future generations. The International Monetary Fund estimates that, under current circumstances, well-targeted infrastructure investment pays for itself in just two years.Obviously, the “well targeted” part is important. President Donald Trump was right that the Coronavirus Aid, Relief, and Economic Security Act was loaded with pork, not least his own “three-martini lunch” tax deduction for businesses. There’s every reason to question whether Congress can do better when crafting an infrastructure bill.In response to this problem, countries such as New Zealand have established independent commissions to design and monitor infrastructure spending initiatives. If Covid-19 changes everything, then maybe it can change the way the US government organises infrastructure spending. Creating an independent infrastructure commission with real powers would go a long way toward reassuring the sceptics and insuring the recovery against the risks posed by the pandemic’s lingering behavioural effects. More

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      in World Politics

      Brexit Trade Deal Brings Temporary, If Not Lasting, Relief

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      “What we call the beginning is often the end / And to make an end is to make a beginning.” So said Ursula van der Leyen, the president of the European Commission, announcing the completion of Brexit negotiations on Christmas Eve, quoting from T.S. Eliot’s “Little Gidding,” the final quartet of his last great poem. Van der Leyen’s words perfectly capture the defining trait of the EU-UK Trade and Cooperation Agreement (TCA): It is a platform for further ambition in cross-border partnership between the UK and EU rather than a ceiling on current ambitions.

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      Relief was the predominant emotion amongst the business community on both sides of the Channel before the New Year. Now that the dust has settled and attention has turned to the detail of the deal reached, there should be no illusions that the TCA ends EU-UK negotiations. We set out below what, in high-level terms, the TCA means for EU-UK trade in goods and services, and where there are gaps to fill and questions to still be answered over the coming months and years.

      What Does the TCA Mean for Trade in Goods?

      Firstly, the good news. Under the TCA, there are no tariffs or quotas on cross-border trade in qualifying goods between the United Kingdom and the European Union. In this regard, the TCA goes further than any EU trade agreement negotiated with a third country. This is a hugely positive outcome for businesses with UK and EU supply chains, particularly in sectors such as the automotive and agri-food industries, where tariffs imposed on so-called World Trade Organization terms under a no-deal Brexit would have been high.  

      However, it is crucial for those involved in cross-border trade to appreciate that only goods that are of EU or UK origin benefit from zero tariffs and zero quotas under the TCA. Rules of origin are a key component of every trade agreement and determine the “economic nationality” of products. Under the TCA, a product will attract a tariff if a certain percentage (beyond a “tolerance level”) of its pre-finished value or components are not of either UK or EU origin. The tolerance levels vary from product to product and require careful analysis. Therefore, businesses will need to understand the originating status of all the goods they trade between the UK and the EU to ensure they benefit from the zero tariffs and quotas under the agreement. Businesses will also need to ensure that their supply chains understand the new self-certification procedures to prove the origin of goods.

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      Beyond the qualified good news on tariffs and quotas, the deal is less helpful in that full regulatory approvals are required for goods being imported into the EU from the UK and vice versa. While in certain important sectors (automotive, chemicals and pharmaceuticals) the UK and the EU agreed on specific rules to reduce technical barriers to trade, the UK government did not achieve its longstanding negotiating objective of securing broad mutual recognition on product standards.

      Therefore, from January 1, 2021, all products exported from the EU to the UK will have to comply with the UK’s technical regulations and will be subject to any applicable regulatory compliance checks and controls. Similarly, all products imported from the UK to the EU will need to comply with EU technical regulations and will be subject to all applicable regulatory compliance obligations, checks and controls.

      There will also be specific changes to food and plant safety standards under the TCA. UK agri-food exporters will have to meet all EU sanitary and phytosanitary (SPS) import requirements with immediate effect. In this sector, UK exports will be subject to official controls carried out by member state authorities at border control posts. Similarly, EU agri-food exporters will have to meet all UK SPS import requirements, following certain phase-in periods the UK government has provided.

      Far from being a “bonfire of red tape” promised by certain advocates of Brexit before the 2016 referendum, the TCA introduces a “bonanza of new red tape” for businesses who wish to sell their products in both UK and EU markets. On January 8, UK Cabinet Office minister, Michael Gove, acknowledged that there would be “significant additional disruption” at UK borders over the coming weeks as a result of customs changes and regulatory checks.

      What Does the TCA Mean for Trade in Services?

      As has been widely noted by commentators, the deal on services is far thinner than on goods. More than 40% of the UK’s exports to the EU are services, and the sector accounts for around 80% of the UK’s economic activity. As an inevitable consequence of leaving the EU single market, UK service suppliers will lose their automatic right to offer services across the union. UK business will have to comply with a patchwork of complex host-country rules which vary from country to country and may need to establish themselves in the EU to continue operating. Many have already done so.

      The level of market access will also depend on the way the service is supplied. There are four “modes” for this. Services can be supplied on a cross-border basis from the home country of the supplier, for example over the internet; to the consumer in the country of the supplier, such as a tourist traveling abroad and purchasing services; via a locally-established enterprise owned by the foreign service supplier; or through the temporary presence in the territory of another country by a service supplier who is a natural person.

      All of this means that UK-established businesses will need to look at domestic regulations on service access in each EU member state in which they seek to operate, and vice versa for EU-established businesses seeking market access in the UK.

      A Basis for Ongoing Negotiations

      The TCA does not mark the end of EU-UK negotiations, and in some areas these discussions start immediately. For example, the agreement has provided an end to so-called passporting of financial services under which banks, insurers and other financial service firms authorized in the UK had automatic right to access EU markets and vice versa.

      The EU and the UK have committed to agree on a memorandum of understanding that will establish a framework of regulatory cooperation in financial services by March this year. With an end to passporting, it is likely that there will be more friction in cross-border financial services, but the extent of that friction depends on the outcome of future negotiations between EU and UK governments and regulators.

      To take another example of importance to the UK economy, the TCA does not provide for the automatic mutual recognition of professional qualifications. As of January 1, UK nationals, irrespective of where they acquired their qualifications, and EU citizens with qualifications acquired in the UK, will need to have their qualifications recognized in the relevant EU member state on the basis of that state’s domestic rules. However, the TCA leaves the door open for the EU and the UK to agree on additional arrangements in the future for the mutual recognition of qualifications, something that professional bodies will be pushing for immediately.

      Whilst there has been understandable relief from politicians, businesses and populations on both sides of the Channel suffering from Brexit fatigue that a deal — any deal — has been reached, the sheer extent to which the TCA envisages ongoing negotiations between the UK and the EU on issues both large and small over the months and years ahead has not been widely appreciated.

      The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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      in US Politics

      Sheldon Adelson, casino magnate and major Trump donor, dies aged 87

      by

      Sheldon Adelson, a casino magnate, perennial top single donor to Donald Trump and other Republican causes and an influential opponent of a two-state solution in the Middle East, has died. He was 87.Adelson’s influence on Trump has been seen as a major factor in the president’s assertive foreign policy on Israel, including his decision to declare Jerusalem as Israel’s capital, a deeply controversial move as parts of the city are also claimed by Palestinians.In a statement on Tuesday Adelson’s wife, Dr Miriam Adelson, said the Las Vegas Sands chairman and chief executive died “of complications from a long illness”. A Nevada newspaper Adelson owned reported the cause of death as non-Hodgkin’s lymphoma, which Adelson was found to have in 2019.“It is with unbearable pain that I announce the death of my husband, Sheldon G Adelson,” Miriam Adelson said.Adelson was born in 1933 and grew up in a suburb of Boston, his father a cab driver of Ukrainian Jewish and Lithuanian Jewish ancestry.As the owner of the giant Venetian and Palazzo casino-resorts in Las Vegas, the Venetian Macau in China and the Marina Bay Sands in Singapore, he was among the richest men in the world, with a net worth pegged by Forbes at more than $33bn.In the 2020 election, the Adelsons set a new record for political gifts from individuals, flooding the Trump campaign, related accounts and many lesser Republican campaigns with a total of $172.7m, according to the campaign finance site Open Secrets.The Adelsons were the top donors in every major election cycle going back a decade except for 2016, and their lifetime political giving amounted to about half a billion dollars, Open Secrets said.In a statement on Tuesday, Trump said Adelson “lived the true American dream”. The president also recognised Adelson’s role in the embassy move and US recognition of Israeli sovereignty over the disputed Golan Heights, another hugely controversial issue.The former president George W Bush said: “Laura and I mourn the passing of a friend.”An enemy of union organizing inside his casinos, Adelson was a veteran of bruising negotiations with, and criticism from, union political machines in Las Vegas and elsewhere, a conflict seen as fueling his support for anti-union Republican politicians.In 2015, as part of a wrongful dismissal suit brought by an employee, Adelson spent four days in court defending his gambling empire from accusations of bribery and ties to organised crime in China.Initially skeptical of Trump, whom he knew as a failed casino entrepreneur, Adelson was slow to enter the 2016 election. Since the early 2000s, he had prioritized giving to candidates who opposed Palestinian statehood, and it was not initially clear where Trump stood on Israel.But Adelson and Trump’s priorities connected in Trump family connections, through the president’s son-in-law Jared Kushner, to the Israeli prime minister, Benjamin Netanyahu, whom Adelson had long supported.Adelson was adored across much of the political spectrum in Israel for his wide-ranging support to many Jewish and also Zionist organisations.In particular, he was praised by hardline nationalists, in part due to his financial support for Jewish settlements in the occupied Palestinian territories, which are considered illegal by most world powers. One medical school in a settlement in the occupied West Bank is named after the Adelsons.The billionaire’s death was mourned by several far-right Israeli politicians, including Naftali Bennett, a former defense minister, who said Adelson would be “forever be recorded in the annals in the State of Israel”.Local media reported Adelson’s funeral would be held in Israel.Israel’s current and longest-serving prime minister, Netanyahu, has also been a key beneficiary of Adelson, who launched a free newspaper called Israel Hayom in 2007 that was clearly supportive of the Israeli leader. The paper has since become the country’s most widely circulated daily.Netanyahu said he felt “deep sorrow and heartbreak” on hearing of Adelson’s death. The news will be a blow to the prime minister, who is facing an election in late March, although Adelson’s wife has long been seen as a leading figure in family decisions on Israel.“Along with his wife Miri, Sheldon was one of the greatest contributors in history to the Jewish people, Zionism, settlements and the state of Israel,” Netanyahu said, using Miriam’s nickname.In 2018, Trump gave Miriam Adelson the highest US civilian honor, the presidential medal of freedom – alongside Elvis Presley and Babe Ruth.In her statement on Tuesday, she called her husband “an American patriot: a US army veteran who gave generously to wounded warriors and, wherever he could, looked to the advancement of these great United States”.“He was the proudest of Jews,” she said, adding that he “saw in the state of Israel not only the realization of an historical promise to a unique and deserving people, but also a gift from the Almighty to all of humanity.”While Adelson changed American politics with his money, equipping thousands of local Republican campaigns with the resources, messaging and structure to win, his sympathy for Trump ended with the president’s re-election defeat last November.In 2015, Adelson acquired the Las Vegas Review-Journal in a secret bid, after the newspaper published exposés about his empire. Last November, the paper rejected Trump’s effort to deny his loss to Joe Biden in Nevada, urging Trump to accept the result. More