A Bilateral Sense of Loss

Mar 12, 2018
Sunday Business Post, 11 March 2018

There is a frozen pizza manufacturer located in the West Midlands of the UK.  They buy cheese from Irish creameries and ship it across to the UK.  Then they use it in the assembly of the pizza, freeze the pizza and send some of the finished product back to the Irish market. 

There is a clothing manufacturer in the North of England.  They buy their textile from the Far East, and bring it into the UK.  Some of the finer detail work – dyeing, stitching and the like is carried out in Ireland.  Part finished garments cross between Ireland and the UK until the final product has been assembled.  Then it is shipped to EU destinations.

We all know how competitive the food market and the clothing market is.  When feeding or clothing a family, a euro or two here or there makes a difference.  When the United Kingdom leaves the European Union, the business models of this pizza manufacturer and this clothing manufacturer will no longer be valid.  There will be too many border crossings triggering too many customs duty payments and too many delays.  Unless they change their supply and fulfilment arrangements, this pizza manufacturer and this clothing manufacturer will possibly go out of business, because post Brexit their products may well cost too much for the consumer.

These are not hypothetical situations.  These are real situations which I have come across directly in the last few months.  I don't know how many people either business employs either here or in the UK.  I do know however that the jobs of many of those workers are in jeopardy because of Brexit.

The Customs Union and the Single Market

Let's go back to basics.  The United Kingdom, per the Lancaster House declaration one year ago, is to leave the EU Customs Union and the Single Market. 

The customs union governs the movement of goods across borders within the European Union.  It ensures that there are no customs obligations or tariffs as goods move between the EU member countries.  As a quid pro quo, the member countries agree that they will deal as one bloc with other countries when it comes to trade negotiations.  No side deals, no special arrangements with outsiders.  That way, their businesses flourish at the expense of businesses outside the customs union.

The single market is a further refinement.  For trading purposes what the single market means is that once goods or services meet predefined and agreed standards, they can be sold to customers in other countries within the single market without any obstacle.  Remember that what we now know as the EU started life as a Coal and Steel community, and then became the European Economic Community (EEC) before morphing into its current form.  If Britain is a nation of shopkeepers (as Napoleon is supposed to have said) so too under EU rules are France, Germany and the other 25 EU member countries, Ireland included.

Destruction

The harsh reality is that a hard Brexit will decimate businesses which rely on the advantages of the Customs Union and the Single Market to trade.  It will therefore destroy the livelihoods and the quality of life of many EU and UK citizens alike.  This reality is being blurred by the political speeches and draft withdrawal proposals that have been the dominant feature of the Brexit process over the last several weeks.  With all that generalisation and aspiration floating around, people could be forgiven for thinking that the problem is somehow going away and that Brexit can’t really matter?  If you don’t think Brexit matters much, it may be because you cannot recall what conditions were like pre-EU. 

Most people don't remember the reality of Border checkpoints.  They don't recall the inability of businesses to expand into European markets not just because of language barriers or currency barriers, but because of quotas, regulation, and the myriad of terms and conditions that one country can set to protect itself when dealing with another.  They don’t remember just how difficult it was to get any job other than manual labour outside of this country as professional qualifications and training were not recognised. 

We thought we had got beyond this.  Europe is moving backwards.

Hope

Except that in the last few days, there may have been a small glimmer of hope.  The Brexit speech by UK Prime Minister Theresa May on March 3 last recognised for the first time that the United Kingdom would be worse off outside of the customs union and the single market.  And, when introducing the guidelines to future EU Brexit negotiations, the EU Council President Donald Tusk acknowledged that for the first time ever, new trade deals between the UK and the EU would be worse than those they were replacing. 

Is the coin beginning to drop with the political establishments on both sides that a hard, un-negotiated Brexit is lunacy, not just for their businesses, but for the citizens who work in them?  I hope so.  And I'm sure that my man in the pizza manufacturing company, and my man in the clothing manufacturing company hope the same.

This emerging bilateral sense of loss might force some shape on future trade negotiations.

Beyond the political rhetoric and posturing, people's livelihoods are at stake.  If the political system is finally beginning to recognise this fact, it is not before time.  History may yet be kind to Theresa May and Donald Tusk.

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