Image courtesy AFP
Next week the status of the United Kingdom’s withdrawal from the EU will become clearer. This final act in the Brexit negotiation process will determine if there will be a Brexit deal or not.
The European Commission will meet on October 15, a deadline set by the United Kingdom’s Prime Minister Boris Johnson, to decide the matter. Still, the outcome remains uncertain. Johnson was clear on September 7, “If we can’t agree by then, then I do not see that there will be a free trade agreement between us, and we should both accept that and move on”.
For the moment, the UK remains a member of the single market and customs union until December 31. Deal or no deal, the UK will be out of the EU at the end of the year.
Whether there is a deal or not, Brexit will present opportunities for some businesses just as it will threaten others. The uncertainty among the business community is ongoing. Businesses that have not moved operations to continental Europe in light of the Brexit referendum in 2016, but remain in the UK, are making noises about being compensated by Downing Street if there is a no deal Brexit.
Politics have always been at the center of Brexit. The process is now further complicated by the social and economic consequences of the Covid-19 pandemic.
So, where do things stand one week out from the October 15 meeting that is set to decide the matter?
Complications, something smells fishy…
Access to fisheries has long been, and remains, a key sticking point. This was emphasised by President Macron of France at the start of the year. Since 2016, this issue alone has been an indicator that these negotiations were never going to be anything other than messy at best.
The essence of the matter is that the EU wants a framework that will allow its fishing vessels, in particular French vessels, ongoing access to British waters. By contrast, Britain sees this as impinging on its sovereign territory. London wants to revise existing arrangements to its advantage. Britain, as it is entitled to do, wants to control the terms of access to its waters.
Similarly, British sovereignty informs the most recent complication. The UK has decided to take a renewed hardline position on Northern Ireland and this is where the latest split has appeared with the EU.
In September the UK Government submitted the United Kingdom Internal Market Bill which flouts the Protocol on Ireland / Northern Ireland. The original agreement with the EU meant that there would be no hard border between Ireland and Northern Ireland. In effect, Northern Ireland would be part of the EU single market. This does not sit well with Johnson who sees the new Bill as something of a lever. He is angling for additional British gains in the final stages of the withdrawal process.
Westminster’s action contravenes Article 5 of the Withdrawal Agreement between the UK and EU which came into effect on February 1. It is a gambit that has further upset the EU. The EU response has been to issue a legal infringement against the UK. This further sours the chances for a smoother Brexit.
Implications
A no deal Brexit will have a cascade of implications that will only become apparent after the event. It is certain however that Brexit is going to cost businesses and industries time and money. Time, because moving product across the border will take longer as a result of delays through customs checks, clearances and processing. Money, because of tariffs in the short term and the likelihood that it will simply be harder to do business with the UK in the longer term. By this measure, the UK has more to lose than the EU.
As the business community knows all too well, time equals money. Delays are always costly and business likes to operate along paths of least resistance. Especially when there are alternative, more efficient, supply chain options available.
If Britain leaves the EU with no deal it will result in Britain having to trade with the EU under the rules of the World Trade Organisation. This means there will be no favoured status or preferential treatment. It will be made to trade with the EU like any other nation anywhere in the world.
Some experts warn that Brexit will hamper Britain’s ability to form a cohesive foreign policy. Britain played a central role in building the post-1945 liberal world order. This was the foundation that globalisation and freer international trade has been built on. Since the GFC of 2008 however, this system has been under increasing pressure. A diminished Britain will not help revive it.
France’s Secretary of State for European Affairs is warning that the EU is preparing for a no deal scenario. The French, historically staunch defenders of their industries, are being the most vociferous of the EU nations on this point. In Berlin, the message is more subdued but the sentiment is no different. Germany views a no deal scenario as irresponsible and remain open to finding common ground. Nevertheless, it is preparing for a no deal resolution.
A recent press release from Downing Street is pessimistic that any agreement will be reached. It appears that there is little political will to arrive at a workable Brexit solution.
So, what might this portend?
Heading for no deal and more competition?
This obfuscation, and recent brinksmanship on Britain’s side, is all about the politics. Britain is prepared to leave the EU with no deal; as Johnson has frequently said since he became Prime Minister. The European governments want to protect their own businesses and interests. Why make life easier for the British who are responsible for the mess? In the competitive arena of international politics states seek advantage over others. No quarter is given. This is what is happening with the Brexit negotiations.
Unless an agreement can be made on October 15, and assuming there is no last minute reprieve, Britain and the EU will have no agreement in place from December 31. There will be significant and costly repercussions. How businesses ready themselves for a no deal situation, and how sound their strategic planning to cope with such an outcome is, will largely determine the extent to which they impacted.