I refer of course to Brexit. In theory, the UK parliament has this week a number of choices facing it, ranging from revoking Article 50; a second referendum; accepting the government’s proposed agreement or leaving the EU without agreement. It is chilling to reflect that despite the EU’s conditional extension of the leaving date to 12 April, the only legally binding regulation on the statute books is that the UK will leave the EU on the 29 March. There will be attempts to find consensus in Parliament around a process that will avoid a no-deal Brexit. However, it is still far from certain as to how matters will develop as a stubborn blocking minority still has a no-deal exit as its preferred solution. While Brexit in itself is a disaster for the UK, a no-deal Brexit will be catastrophic. It is hard to believe that the UK Government has spent two years since triggering Article 50 failing to negotiate an agreement that could achieve Parliamentary acceptance. This has caused a constitutional crisis with Parliament moving to take over the decision-making process from the executive.
The cavalier disregard for truth, logic and accuracy demonstrated by many leaders of the Brexit referendum campaign is coming home to roost. Trillions of pounds of financial sector assets have been moved offshore as have tens of thousands of jobs. Uncertainty and strategic relocation have stalled both local and foreign investment and consumer spending has fallen. There is a wide consensus among economists that the UK economy is now around 2% smaller than it would have been without the Brexit decision.
Quo Vadis? On the basis that Brexit happens with the current agreement, we are faced with several years of negotiations on future arrangements. Hundreds of individual agreements need to be hammered out between the UK and EU, covering everything from civil aviation to academic cooperation, from security to mutual recognition of standards, from transport of radioactive materials needed for cancer treatment to protection of geographic designations (such as Scotch whisky).
The government’s deal precludes membership of the Customs Union or membership of the single market. The ambition of the PM is to negotiate a deal similar to the deal Canada negotiated with the EU in 2014 whereby 98% of all tariffs are eliminated. If this can be negotiated it will take several years; in the meantime, the economy suffers. Completely unrealistic plans to quickly replace EU trade (accounting for 44% of UK exports and 53% imports) with global bilateral agreements have so far failed miserably. Only three agreements have been signed – all with tiny island states. So far, only one of the 49 agreements described by the UK government as being crucial (Switzerland) is anywhere near completion.
Brexiteer bravado that a no-deal Brexit could be managed with WTO tariffs is more of the fantasy. Only three countries trade on an exclusively WTO basis – Southern Sahara, Mauritania and the Vatican... The UK has submitted its proposed tariffs to the WTO (a copy-paste of the EU tariffs) but several objections have arisen, so no schedule has been agreed as yet. That is not to say that WTO tariffs are particularly desirable. Export tariffs that the UK will likely have to suffer under a WTO regime include 10% on food, drink and tobacco; 70% on beef and 30% on lamb; 10.5% on textiles, clothing and footwear. Tariffs, unfortunately are only part of the bad news. Many exports under bilateral arrangements also have non-tariff costs (adaptation to different regulations). These non-tariff barriers include on average 30% on food, drink and tobacco; 10% on textiles, clothing and footwear; 9% on motor vehicles.
A poll of polls among respected UK economists predicts that the UK’s economy will suffer a loss of between 1% and 3% of GDP growth. Given the current low levels of growth that will take the UK into recession. This gloomy scenario has prompted two strange bedfellows, the CBI and the TUC to write jointly to the PM demanding that she avoids a no-deal Brexit.
On a purely personal level I subscribe to the Jane Austen measure of the idiocy of Brexit - 52% Pride and Prejudice and 48% Sense and Sensibility. I can only hope that something will happen to prevent Brexit. The authors of the process that was started to satisfy internal party politics would find themselves debarred from holding office were they company directors. Apart from causing concern, chaos and economic disadvantage it is likely to lead to the break-up of the UK. Many of the Scots who voted in the independence referendum to remain in the UK did so fearing the consequences of a Scotland outside of the EU. Brexit will deprive them of a reason to wish to stay and pressure will grow for a second referendum on Scottish independence. It's worth remembering that more Scottish voters opted for remaining in the EU (62%) than for remaining in the UK (55%)
Life after Brexit will be tougher for those looking to do business between the UK and Poland but it is not all doom and gloom. Despite politicians’ attempts at economic self-immolation, the UK is still the fifth-largest economy in the world and is again (as of January 2019) Poland’s second-most important export market. There is little chance that the two countries will remain other than important destinations for mutual import, export and investment activities. Without the certainty of finalised agreements, it is hard to predict the detail of the changes that will be required in the way we do business and we will all have to keep our eyes on the Brexit ball to ensure we do not harm our businesses through ignorance of new rules. Uncertainty will continue for some years. As we did during the periods pre- and post-Polish accession to the EU, the BPCC will follow closely all of the developments that may affect your businesses and we will share our knowledge with you, supplementing your own diligence and facilitating knowledge sharing among our members. You may read elsewhere in this edition about some knowledge sharing initiatives we are undertaking in the next days
May your Brexit be bountiful or better, awesomely abandoned!