What May’s Brexit fudge means for busi­ness: More un­cer­tainty

Gulf Times Business - - BUSINESS -

As Brexit talks edge to­ward a com­pro­mise, the fudged deal that’s tak­ing shape risks bring­ing years of un­cer­tainty to busi­ness. Ne­go­tia­tors have made progress to­ward a deal on the thorny is­sue of the Ir­ish bor­der. But an agree­ment on that spe­cific mat­ter has wider im­pli­ca­tions for the whole UK’s re­la­tion­ship with the bloc.

While it’s known as the back­stop be­cause both sides con­sider it a guar­an­tee, on both sides there’s a hunch that what is agreed as just a back­stop could well end up be­ing used — and re­main­ing in place in­def­i­nitely. The com­pro­mise in view in­volves keep­ing the whole UK within the EU’s cus­toms regime as a tem­po­rary mea­sure — and that would come into ef­fect af­ter the 21-month tran­si­tion pe­riod comes to an end at the end of 2020.

The UK in­sists the fall­back cus­toms setup must be tem­po­rary, while the EU says any back­stop has to be ope­nended. There may be some wig­gle room with the word­ing. Both sides say the back­stop shouldn’t be­come a back­door route for the UK to se­cure its fu­ture trad­ing re­la­tion­ship with the bloc. But for busi­ness, the risk is that Prime Min­is­ter Theresa May has given up on one of her first prom­ises to them: that they would only have to adapt to one set of changes in rules and trad­ing reg­u­la­tions.

We’ve “long ar­gued for a UK-wide el­e­ment to the back­stop for Northern Ire­land, and applying this to cus­toms ar­range­ments would re­solve some of our mem­bers’ anx­i­eties,” said Al­lie Reni­son, head of Europe and trade pol­icy at the In­sti­tute of Direc­tors. But “the govern­ment needs to be much more open about its counter-pro­pos­als to the EU,” she said.

If the UK in­sists on mak­ing the cus­toms ar­range­ment tem­po­rary, then an­other set of changes will even­tu­ally come into ef­fect once the two sides hash out their fi­nal trade deal. In an ideal world, the new trad­ing re­la­tion­ship would be in place at the end of tran­si­tion. But most Brexit watch­ers think that’s un­likely. There’s also a chance that the back­stop would never come into ef­fect, and that prac­ti­cal­i­ties would ar­gue in­stead for an ex­tended tran­si­tion pe­riod, ar­gues Mij Rah­man, a di­rec­tor at Eura­sia.

“All the pol­i­tics will al­low right now is a tem­po­rary cus­toms ar­range­ment,” he said. “But the ac­tual plan might be dif­fer­ent and we will be locked in tran­si­tion for a very long time.” Busi­nesses have spent the past two years cry­ing out for clar­ity on what Brexit trade terms will look like. The Con­fed­er­a­tion of Bri­tish In­dus­try said Thurs­day what mat­tered now was “mea­sur­able progress” from the ne­go­ti­a­tions.

But May’s back­stop com­pro­mise could leave them star­ing at fudge. Busi­nesses don’t care about the po­lit­i­cal wran­glings — they just want an­swers, ac­cord­ing to Bri­tish Cham­bers of Com­merce Di­rec­tor Gen­eral Adam Mar­shall.

“It’s not the back room blow-by-blow that mat­ters, but a with­drawal agree­ment and set of com­mit­ments on the fu­ture trad­ing re­la­tion­ship that busi­nesses can take to the bank,” he said. Mean­while, the Euro­pean Union has a plan up its sleeve to avert mar­ket chaos in case of a no-deal Brexit, ac­cord­ing to a se­nior fi­nan­cial-ser­vices of­fi­cial. “We have the mea­sures in place, whether it’s a soft or a hard Brexit,” said Pa­trick Pear­son, who runs the fi­nan­cial-mar­kets in­fras­truc­ture unit at the Euro­pean Com­mis­sion, the EU’s ex­ec­u­tive arm. “We know what to do.” The Bank of Eng­land stepped up pres­sure on the EU this week to help stave off the threat that a no-deal Brexit poses to tril­lions of pounds of de­riv­a­tive con­tracts and mil­lions of in­sur­ance poli­cies. While the UK has an­nounced steps to re­duce the risks, in­clud­ing a plan to is­sue tem­po­rary li­censes if needed, the EU has largely in­sisted that it’s up to com­pa­nies to pre­pare for the worst.

The EU has made “only lim­ited progress” in mit­i­gat­ing the risks of a dis­or­derly de­par­ture, the BoE said. John Glen, eco­nomic sec­re­tary to the UK Trea­sury, drove that point home on Wed­nes­day, warn­ing that the risks must be ad­dressed in “a mat­ter of weeks.” This is “a po­lit­i­cal de­ci­sion that the EU will have to come to terms with,” he said.

Pear­son’s broad-brush as­sur­ances echoed com­ments by Daniele Nouy, the Euro­pean Cen­tral Bank’s head of su­per­vi­sion, who said the ECB is “ready to help en­sure a smooth Brexit — no mat­ter the out­come of the po­lit­i­cal ne­go­ti­a­tions.”

The com­mis­sion is “in contact con­stantly with the mar­ket” and ready to re­spond “at the right time — not too early, but at the right time with any mea­sures,” Pear­son said at an event in Brus­sels.

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