Companies like Airbus are warning of the risks, but is it all coming too late?by Peter Kellner / June 25, 2018 / Leave a comment
Photo: Andrew Matthews/PA Wire/PA Images Britain’s business community has started to stir. More companies are warning of the dangers of Brexit. Over the weekend, five industry organisations came together to demand a new approach to the negotiations in Brussels. How seriously should we take these warnings—and have they come too late to prevent an economically damaging hard Brexit? Consider the seriousness first. Brexiteers say the companies are sabre-rattling in order to maximise their profits—come the day, they will not cut back in Britain. However, when Brexiteers are pressed on the details, they retreat into vague generalities; and the details matter. Airbus’s position illustrates the point. It fears that Brexit could disrupt its European supply chains. Is it making empty threats? No: and for a specific reason that goes to the heart of the debate about the customs union and single market. To see why, let’s recall what the Brexiteers propose: that the United Kingdom should pursue free trade deals with countries throughout the world; then the companies now complaining about Brexit would enjoy access to an even larger market than they do currently, all on tariff-free terms. They could continue to operate as successfully as they do now. The trouble with this argument is that it does not apply to Airbus. Its operations are covered by rules set by the World Trade Organisation in 1980. The “Agreement on Trade in Civil Aircraft” abolished all import duties on the sale of civil aircraft and their components around the world. In other words, the kind of tariff-free future that the Brexiteers want already applies to Airbus. So why is Airbus nervous about Brexit? Because trade rules are not just about tariffs. What worries Airbus is that there will be customs checks at Dover and other ports, delaying the transit of its lorries. Delays would wreck Airbus’s just-in-time operations, which rely on the frictionless movement of components in and out of the UK. It is these checks, not tariffs, that concern Airbus. What Airbus needs is a Brexit deal that maintains frictionless trade with the rest of Europe. Not “as frictionless as possible,” as the prime minister promises, but “frictionless” full stop. This will likely require UK adherence to the EU’s customs union and single market rules, at least for traded goods. (Services are a different matter.) The UK would have to accept the jurisdiction of the European Court of Justice on trade issues. Whatever the details, only a truly soft Brexit can prevent long, frustrating queues on either side of the Channel. Set against the risks of dismantling the architecture of frictionless trade, gaining the right for the UK to decide its own tariffs won’t help industry much—and won’t help Airbus at all. So: the warnings by Airbus and other companies, such as Nissan, Rolls Royce, BMW, Siemens and Unipart, are real. But have they come too late? Probably yes for some workers. The longer the uncertainty lasts, the more likely are manufacturers and the finance sector to relocate jobs to the rest of the EU, and choose to locate new factories away from the UK. But is it too late for business to help stop a hard Brexit? Maybe not. The government has yet to decide what it wants—where to strike the balance between “taking back control” and frictionless access for British companies to EU markets. This autumn the drama of the Brexit negotiations will be intense. The voice of business could matter, if it is able to link future jobs and investment to arrangements that resemble those of the customs union and single market. Imagine the dilemma that would face Theresa May should the EU offer a deal that allowed trade to flow as smoothly as it does today across the Channel and the Irish border, in return for the UK giving up any thought of designing its own product regulations or negotiating its own trade deals with the rest of the world. The objections from pro-Leave Conservative MPs would be deafening. And their complaints of the UK becoming a vassal state would have force. However, if business, loudly and clearly, does what it did not do two years ago, and makes the case for preventing a Brexit that damages prosperity, then this could provide May with some important cover. She would be in a stronger position to face down her Brexiteer back-benchers. There is another scenario. Suppose there is no soft-Brexit deal. We could then be heading for a full-blown crisis—either because the government agrees to a hard Brexit that parliament rejects, or because the talks in Brussels break down altogether. Saturday’s People’s Vote march suggests one way out. If parliament cannot clear up the mess, maybe the people should. The choice would be to leave the EU on terms that are bad for the economy—or not leave the EU at all. Businesses will then have decide whether to make clear to their workers, their suppliers and their customers what the consequence would be of crashing out of the EU. The latest Survation poll suggests that supporters of a new referendum outnumber opponents by two-to-one. I am wary of making too much of individual polls; but it is possible that public opinion on whether to hold a people’s vote is on the move. The politics of the coming months are likely to be fluid. What business says could make a big difference.