Future History

Oct 01, 2018
Sunday Business Post, 30 September 2018 

One of the dilemmas facing future historians will be to pin-point exactly when the Brexit negotiations between the EU and the UK went off the rails.  Was it when David Davis, the UK negotiator, lost his arguments about the sequence of discussions in 2017, before discussions had even really got underway?  Or was it in the November 2017 fudge, when all the parties declared that sufficient progress was being made on the Northern Ireland border to permit broadening the scope of talks to encompass the future trading relationship?  Or was it earlier this month in Salzburg which showed in bleak terms the chasm between the expectations of the technocrats and the political realities?

I’m in Central London, where all around me the newsstands are leading with a story about Next.  Next, the clothing chain, is developing contingency plans to improve their fulfilment capability outside the UK by establishing a company in Dublin that will manage its cross border customs issues inside the European Union if there is a hard Brexit.  Salzburg has changed the narrative.  Business is waking up to the realities of Brexit, deal or no deal and that Next jacket or pair of jeans leaving the UK for an EU destination could well face tariffs and delays as it is being delivered to an EU customer from a UK port. 

Other UK newspapers are carrying the results of a survey of supply chain managers by the UK Chartered Institute of Procurement and Supply.  This claims that 10% of firms believe their businesses would likely go bankrupt if goods were delayed at the border by between 10 to 30 minutes.  While it’s not clear if it would be correct to apply that 10% figure across all businesses, the survey highlights the biggest practical problem with a hard Brexit.  That is the delays at entry points to goods being shipped from the UK to the rest of the EU, and vice versa.  Tariffs particularly tariffs on agricultural goods matter.  But all goods will fall subject to checking and hence delays.  It’s harder to get paid for delayed or perished goods, and cashflow problems kill businesses faster than anything else.

Technology and trusted trader schemes for customs checking aren’t solutions either.  There’s no point in having a container pre-cleared and electronically tagged for customs purposes if the HGV carrying it is stuck in a queue behind 100 HGVs with containers which have not been pre-cleared.  The delay is still the same. 

Nor will technology resolve the regulatory requirements enforceable by EU member countries on UK businesses post Brexit.  The UK is replacing one set of international trade regulations for its manufacturers with up to 27.  As one UK manufacturing executive put it to me, her business is still working out the number of new labels they will have to design and apply to their consumer products.  This is to meet the individual country requirements currently imposed on countries outside the EU.  If the labelling is wrong, the product is worthless.  It’s difficult and costly to peel labels off several thousand bottles of product. 

If the politicians and negotiators at the heart of the Brexit process are becoming angry and frustrated, so too is business because of the ever increasing risk of hard, no deal, profitless Brexit.  The Brexit political debate is more centred around issues of migration and political sovereignty than about trade and commerce.  Given that the EU project started life as the facilitation of commerce to deflect causes of conflict, this is quite an extraordinary turn of events.  But the official attitude among the negotiators seems to be that businesses will somehow find solutions and be able to cope.  The fact is, many won’t.

So what’s to be done? 

The EU institutions should perhaps remember that they have already secured their main objective; that no other member country might wish to leave.  Brexit has become an object lesson in how not to do things, and all lessons have some value.  Outside of the UK, being an EU leaver is a minority sport and will remain so.  It is hard for any trade deal to beat membership of a customs union.  The EU can afford to be a bit more civil towards the UK, and that starts with its most senior official, Donald Tusk, refraining from recourse to Instagram with photos of cherry-free cakes. 

The second part of the remedy is more difficult.  The UK has to recognise the serious commercial and social issues Brexit creates, and either revoke it or accept a semi-detached accommodation with access to the single market as Norway has done.

Neither graciousness nor admission of mistakes are natural attributes of the political classes, particularly in this populist era.  Nevertheless these need to be injected into the process and in double quick time.  Without them, there will be a hard Brexit.  With a hard Brexit, the living standards of people in both the UK and in the remaining member countries (particularly Ireland) will fall, because commerce will flag and falter.  Faltering commerce will lead to hostilities – look what’s happening between the US and China at the moment with a nascent trade war. 

For Brexit, a successful outcome looks a lot like the way the EU was before 29 March 2017, the day the UK formally notified its intention to leave the EU.  Maybe future historians will nominate that day as the day when the Brexit negotiations between the EU and the UK went off the rails.

 

Dr Brian Keegan is Director of Public Policy and Taxation at Chartered Accountants Ireland