What will Brexit mean for British trade?
It will present challenges—so pragmatism is essential
Britain is leaving the European Union, and—as Theresa May has now made brutally plain—it is also leaving the associated economic arrangements. Businesses thus have to get on with navigating the challenges presented by Brexit—to put pragmatism first, and put the debates over whether the “Leave” vote was wise to one side. But “getting on with it” does not mean turning a blind eye to potential risks. Indeed, there are many obstacles for those who aim to keep Britain trading.
All this was clear from a recent Prospect roundtable discussion, “Brexit Britain: the trade challenge,” launched off the back of a recent report of the same name. In our Westminster office, 15 experts convened to discuss how Britain can remain a major trading power from March 2019—which is when May pledges we will be out of the EU—onwards. And by a quirk of fate, on the very day of May’s fateful Lancaster House speech which ruled out Britain’s continuing membership of the single market. Proceedings were chaired by Prospect Editor Tom Clark.
At the outset, some cautionary notes were sounded. Andy Davis, Prospect’s personal finance columnist and contributor to the aforementioned report, said that the success of Brexit, from the perspective of British trade, will depend on “the feasibility of sectoral deals.” But, Davis explained, he was “Very unclear about how these are actually done. Who does them? Who speaks for the British aerospace industry? How do you make sure you actually are speaking for it?”
Carlos López-Gómez, Head of Knowledge Transfer at the Centre for Science, Technology and Innovation Policy at the University of Cambridge, also voiced some concerns. In her speech, May had explained that if the EU pursued a punitive Brexit deal, that would disrupt “sophisticated supply chains.” Of this, López-Gómez said “One key issue is what evidence about this complex change in supply chains [that will take place because of Brexit] is available… If we don’t have a complete view of these complex networks, then decisions [in Brexit negotiations] can be sub-optimal.” Even if we have the relevant information, however, other participants pointed out that it could not be assumed that the UK will be well placed to negotiate protection for these supply chains, given the far greater clout of the continental market over the British one.
Jay Elwes, Prospect’s Executive Editor, asked: “If we do pull out of the EU in a hard way, as the PM suggested, then are we going to be turning our backs on a vast body of financial regulation of just the most dizzying quantity?” His concern was whether the government recreating that regulation could be problematic for business.
However, it became increasingly clear that there was a sense of “let’s get on with it” around the table—at least, the thinking seemed to run, where it’s possible to do so. “Brexit means Brexit,” as the PM has long said, but now that she’s finally told the rest of us what that means, those involved in securing Britain’s trading future must come to terms with it.
For example, Tina Hallett, Government and Public Sector Leader at PwC, said: “We are working in a commercial climate, with some uncertainty, but the businesses we talk to just want to get on with this.” An analogy, Hallett suggested, is when there are leaves on a train line: “The leaves are there, they may cause delays, but you get on. We’ve got to get on and make decisions in uncertain times.” Stephen Ibbotson, Director of Commercial and Business at ICAEW, echoed Hallett’s sentiment: “our partnerships of accountants will have firms in different countries and will operate in a way that works for whatever the circumstances become, it’s going to adapt.” He summed up: “We’re here and we’ve got to get on with this. This is life.”
Several other panellists agreed. Crispin Passmore, Executive Director of Policy at the Solicitors Regulation Authority, said: “It is important to be pragmatic about this, to put aside what each of us thinks about whether this was the right decision… How do we get this into a better place?” David Leighton, Head of Public Affairs and Corporate Communications at Associated British Ports, was upbeat: “In all of this, with mutual economic interest and rationality, there’s no reason there can’t be a reasonable outcome for everybody—even a beneficial one.” He continued: “The only issues in terms of the smoothness of flows of trade are political.” But as the discussion went on further it became clear that while “keeping calm and carrying on” is advisable, there are obstacles that will be difficult to navigate.
Others, however, feared that whatever the political prospects may be, the underlying economics could get choppy too. Referring back to May’s speech, Michael Gasiorek, Senior Lecturer in Economics at the University of Sussex, said: “It’s very hard not to conclude that leaving the EU, leaving the Single Market, is not going to lead to less trade, make us less prosperous. Therefore, the signing of other trade agreements becomes even more important.”
Vicky Pryce, Board Member at the Centre for Economic and Business Research, shared Gasiorek’s concern. “I think May’s been persuaded by various politicians who seem to think the trade that Europeans do with us is very significant for them, when in fact it represents only 7 per cent of their exports, whereas what we trade with them represents 44 per cent of our exports. I think there’s some sort of misconception there.”
Sue Cameron, political columnist at the Telegraph, was more concerned about the “Great Repeal Bill”—which will, in theory, see all EU law transposed into UK law post-Brexit, with a view to the government reforming it only later, on a very gradual basis. But Cameron asked of the first step: “How are they going to do it?” And worried that if EU law is transposed law-by-law in the Commons, “everybody will be saying “Well we don’t want that law put into ours, the reason we’re leaving Europe was to avoid that law.” This could lead to a “huge argument” unless the government uses “Henry VIII clauses,” to amend or repeal legislation without a parliamentary vote, Cameron suggested.
In her speech, May announced that Britain is leaving full membership of the Customs Union. Miriam González, Co-chair at the International Trade and Government Regulation practice at Dechert LLP, said: “Many business sectors dealing with goods here are much more worried about the cost of the customs procedures than the tariffs. If you look at milk for Baileys on the Irish border, it crosses eight times.” Her point being that extra bureaucracy—checks each time the goods cross the border—could be as damaging to British trade as financial barriers and taxes. She also suggested that we might see a Britain in urgent need of new economic partners even considering ways of signing up to international trade agreements such as the North Atlantic Free Trade Agreement, known as NAFTA.
Explaining her view, González said: The world is “going back to big powers… the US and its area of influence, Russia and its area of influence, China and its area of influence… If this country is moving away from engagement with the EU… we are on the US’s side. Clearly you need to think about trade in terms of the politics…We need big thinking.”
Tasmina Ahmed-Sheikh, Member of Parliament for Ochil and South Perthshire and SNP Trade and Investment spokesperson, was asked whether, if Scotland insists on remaining within the single market, it could end up with a hard border with the rest of the UK once that is outside it. “When it comes to Ireland, David Davis said there should be no barriers to trade and he doesn’t want a hard border,” Ahmed-Sheikh said, and she went on to argue that exactly the same reassurance would be good for Scotland too.
In her speech, May left the door open to a possible transitional Brexit deal with the EU. David Riches, Executive Director, Commercial, Trade and Marketing at the British Chambers of Commerce, explained that a big transitional discussion is happening “around the EU workforce.” Businesses, including small businesses, are saying “we can’t get the right British workers into our businesses,” and that “pre-Brexit, this was an issue anyway.” A transitional deal may provide business with concerns about their workforces with a medium-term guarantee.
James Kenny, Head of Global Affairs at Arup pointed out that “27 per cent of UK construction workers are from the EU,” before continuing: “Like many professional services and businesses, we’ll go where the workers go, and we’ll have to look and see what the long term impacts will be to determine how that affects our business.”
The lasting impression from the discussion, then, seemed to be that optimism and realism ought to be balanced—both will be vital as Britain, and those looking to ensure it remains a trading power—take on the Brexit challenge.
On the 17th of November, Prospect launched Brexit Britain: the trade challenge. A publication designed to act as a guide for parliamentarians, officials and businesses with a stake in the UK’s changing relationship with the world following Brexit.
If you want to know how different industry sectors are likely to be affected by the coming change and the answer to that all-important question: how do we ensure Britain remains open for business? then order your free copy of the Brexit Britain: the trade challenge.
This discussion was chaired by Tom Clark, Editor, Prospect. We would like to thank our participants for taking the time to share their insights and contribute to this informative discussion: Tasmina Ahmed-Sheikh MP, SNP Trade and Investment spokesperson; Sue Cameron, Political Columnist, Telegraph; Andy Davis, Associate Finance Editor, Prospect; Jay Elwes, Executive Editor, Prospect; Dr Michael Gasiorek, Senior Lecturer in Economics, University of Sussex; Miriam González, Co-chair – International Trade and Government Regulation practice, Dechert LLP; Dr Carlos López-Gómez, Head of Knowledge Transfer, POLICY LINKS, Centre for Science, Technology and Innovation Policy (CSTI), University of Cambridge; Tina Hallett, Government and Public Sector Leader, PwC; Stephen Ibbotson, Director, Commercial & Business, ICAEW; David Leighton, Head of Public Affairs & Corporate Communications, Associated British Ports; James Kenny, Head of Global Affairs, Arup; Crispin Passmore, Executive Director- Policy, Solicitors Regulatory Authority; Vicky Pryce, Board Member, CEBR; David Riches, Executive Director, Commercial, Trade and Marketing, British Chambers of Commerce.
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