Why October Will Be Critical to Brexit Stakeholders
For European traders and multinationals with a stake in the ongoing Brexit negotiations, October 2017 will represent a series of watershed moments that will set the tone for the future of EU-UK commerce — and things aren’t looking up.
Last week, the members of the European Parliament held a non-binding vote in which MEPs agreed 557 to 92 that “sufficient progress has not been achieved” on the three big issues, namely financial settlement, Ireland’s border, and EU citizens’ rights in the UK.
The European Council will meet on October 19 and 20 to take a vote of their members. Without an affirmative result, discussions on the UK-EU future relationship cannot commence. This leaves international traders to mind quite a gap of uncertainties; duty and tax exposure, higher broker costs, clearance delays, system changes, regulatory changes, and free trade agreement administration to name just a few.
Despite British Prime Minister Theresa May’s recent attempts to assuage such fears with a proposed two-year implementation period following Brexit Day (March 29, 2019), a significant chasm remains between the negotiating parties. Much of that is tied to the UK’s financial obligations associated with Brexit.
May wants continued benefit from the EU Single Market and has said Britain will uphold its financial obligations, but to the chagrin of many failed to specify a number. The EU could request as much as €100 billion from the UK for Brexit, but there is speculation the UK’s initial offer may be only €20 billion. A resolution could come down to an exhausting and time consuming line-by-line negotiation.
The UK rebuffed the EU Parliament vote. The usually optimistic UK Chief Negotiator, David Davis, warned the “UK is ready to walk away with no deal,” sentiments echoed by May who reiterated the red line she has drawn on several occasions; “no deal is better than a bad deal”. While such statements may simply be posturing, it leaves the trading community on both sides of the English Channel looking for guarantees that may never come.
Critically, the fifth round of negotiations will be held this week and will be the last talks prior to the European Council’s decision. Both sides must be ready to bargain and make concessions. Unfortunately, the financial settlement chasm casts a pall over talks that are already handicapped by the complexity and breadth of the exit issues.
Brexit compromise is hard to come by, though. The EU so far has staunchly abided by its negotiating imperative; “nothing is agreed until everything is agreed”. There will be no cherry-picking permitted. At risk is the UK and EU disbanding further talks and waiting for the Brexit Day and fall over the so-called “cliffs edge” to an abrupt hard-Brexit under WTO rules only.
While the UK and EU treat the Brexit negotiations as a high-stakes poker game over the coming weeks, businesses with financial commitments are forced to look on and consider contingency plans in the face of widespread uncertainty.
Trade threats must be addressed by the business community with sound solutions. Risk management is called for to plot the “what-if” scenarios, supply-chain disruptions, and the likely impact on their unique vulnerabilities. These plans must be updated as negotiation facts are revealed or altered.
It is in every company’s self-interest to be proactive, rather than wait for events to unfold.