CHAMBER NEWS
Protecting your business amid Brexit uncertainty
By Ron Mendes, MD of consultancy firm PROSPA (UK) and a member of the Chamber’s Brexit Advisory Group
Recent surveys from the British Chambers of Commerce and the CBI suggest that around three million out of just over five million SMEs in the UK have made no preparation for Brexit – with both identifying almost identically that there is still a challenge to change the mindset of SMEs regarding Brexit preparation. The need for that situation to change is even more vital and critical for SMEs when assessing the following. Almost simultaneously, three
major challenges could confront the UK in the coming months:
1. A “no Deal” Brexit.
2. The possibility of a worldwide economic recession in 2020 (just when the UK comes out of a Brexit transition period – if there is one). The IMF has predicted this, and the World Bank corroborated it.
3. The UK’s future in the WTO is at quite some risk, post Brexit, in the short term, with no clarity either moving forward in the long term.
The third possibility above is
arguably the most serious challenge to the UK of not having immediate and full access to the WTO, post Brexit. Initially it is the UK’s potential exclusion from the GPA part of the WTO (Government Procurement Agreement) where businesses can bid for contracts of other Governments worth $1.7tr annually under membership of the WTO. Thus, in a previous year Serco
Group PLC, a UK business, won a $1.3bn contract with the US for part of Obama Care project. That may not happen in future as the UK’s
participation in the GPA part of the WTO is being blocked by the likes of the USA, New Zealand and even Moldova – resonances with little Wallonia’s blocking of the FTA following seven years of negotiations between Canada and the EU. Furthermore, the UK’s post Brexit
future in the WTO is threatened on a more widespread basis. Liam Fox, the UK Government’s Secretary of State, has tried to fast track the UK joining other parts of the WTO, post Brexit, but on the UK’s own trade terms – resonant with its Brexit negotiation strategy with the EU. Only this time, such an approach has been immediately blocked by about 20 countries, including Russia. Clearly the UK is being blocked
on all fronts. Even if a Withdrawal Agreement occurs at, or before, March 2019 the UK will still be in a state of flux as there will be no legally-enforceable agreement at that stage but simply individual legislation in the respective UK and EU Parliaments. The Brexit steps are to have a
UK-EU Political Declaration before December 2018. This would in effect simply state that the UK and EU will walk into the future “side- by-side” but not “hand-in-hand”. The Withdrawal Agreement by March 2019 is then simply a headline agreement coming after the Political Declaration, but is not legally enforceable. The real negotiation work, that is high risk, starts after March 2019, with the detailed operating framework for a UK separated from the EU. That would be set down in international treaties that are legally enforceable. If the UK and EU are struggling
to agree on the non-legally enforceable negotiations two and a half years after the Referendum, it would be some feat for the detailed operating framework, underpinned by international law, to be agreed in lesser time. Therefore, if the UK’s operating
withdrawal from the EU, underpinned by international law, is not in place by the end of the Transition Period in December 2020 then one possibility is a No Deal scenario on 1 January 2021. The Canada-EU free trade
agreement (FTA) took seven years and it is easier to form an FTA rather than extricate from one in operation for 40 years. The maths is obvious. Moreover, after the
international treaties are signed an implementation period of at least two years to bed down the treaties would be needed. Doing the maths may mean that Brexit happens, if at all, sometime in the late 2020s. Or we crash out before then. Incidentally, the World Bank is predicting like the IMF that after an international economic crisis in the next few years, the 2020s could be a period of low or little economic growth. Hence the need for SMEs to have
contingency plans and/or crisis plans in place now – and upgraded corporate strategies for the next decade.
GUIDING CHAMBER MEMBERS THROUGH BREXIT
The Chamber’s dedicated Brexit Advisory Group informs and supports East Midlands businesses in responding to the challenges and opportunities of Brexit. It also plays an important role in helping to refine and deliver the Chamber’s lobbying messages to Government and other stakeholders. Formed from the existing Chamber International Steering Forum, the group meets up to six times per year and brings together some of the region’s leading thinkers and business professionals – including Chamber strategic partners Morningside Pharmaceuticals and RSM.
For more on how the Chamber can support your business through Brexit, visit
bit.ly/EMC_Brexit
business network December 2018/January 2019 39
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