A ‘no deal’ Brexit ball-game – more whiff-whaff than Wimbledon?

SUMMARY:

The UK government has set out the prospect of a ‘no deal’ contingency customs regime, but the impact on the technology sector could be painful.

A whiff-whaff player

In the latest development in the ongoing Brexit negotiations between the UK and the European Commission (EC), British Prime Minister Theresa May has laid out trade plans for a no-deal exit from the European Union.

In a customs white paper, the UK government talks about a contingency plan in which companies would need to present goods for inspection “as inland as possible” if the country ends up without a formal trade deal in place by March 2019.

But critics pointed out that such a contingency would require large amounts of spending on staff, real estate and IT systems that would be necessary to support such a new customs regime.

Prior to May making a statement to the House of Commons, the Downing Street line was that the ball is now in Brussel’s court, a metaphor that was pushed back by Brussels, where a spokeswoman said:

This is not exactly a ball game…’But what I can remind you of is there is a clear sequencing to these talks and there has been so far no solution found on step one, which is the divorce proceedings. So the ball is entirely in the UK court for the rest to happen.

In her Commons statement, May also raised the prospect of an extended Brexit transition period, saying that it is necessary to plan for “every eventuality”:

How long the period is should be determined simply by how long it will take to prepare and implement the new systems we need. As of today, these considerations point to an implementation period of around two years.

In a separate Trade White Paper, the UK government played up the country’s membership of the World Trade Organisation (WTO):

The UK is a full and founding member of the World Trade Organization (WTO) and has consistently supported its efforts to liberalise trade and enforce international trade rules. The UK is already a powerful pro-trade advocate and proponent of the multilateral system. When we leave the EU we will regain our independent seat at the WTO.

As an independent member and one of the largest economies in the world, we will be in a position to intensify our support for robust, free and open international trade rules which work for all, and to help to rebuild global momentum for trade liberalisation. As part of our commitment to the rules-based global system and the benefits it brings, we will take specific steps as we leave the EU to ensure the UK remains part of the WTO Government Procurement Agreement (GPA).

Tech impact

But a new report from law firm Baker McKenzie on the likely impact of a so-called Hard Brexit makes for grim reading, predicting it would cost the UK’s technology sector £1.7 billion a year, a decline of 8.8%. Exports to the UK’s other existing key markets, including the US, Japan and China, would need to increase by 60% to compensate.

And at a time when the UK government is pushing to get US companies to invest in the country, Baker McKenzie also warns that there would be a drop off in interest:

These companies were likely motivated to base their operations in the UK because of the Single Market access it offered and they could seek to relocate if that market access is revoked.

Baker McKenzie Trade partner Jenny Revis said:

These figures indicate the extent to which the UK’s key manufacturing sectors are likely to be hit by the impact of a hard Brexit. You can understand why there is now mounting pressure for the UK to negotiate new customs arrangements for post Brexit trade with the EU and for companies to work with their industry groups to help shape future trading relations with the EU.

For the tech industry, Julian David, CEO of trade association techUK’s, said:

The Prime Minister is right to reaffirm her commitment to the proposals she set out in her Florence speech. The priority now must be securing the transition proposals she set out as quickly as possible. The UK’s tech sector needs clarity in order to continue to secure investment and deliver growth. Until then, businesses will be forced to plan for the ‘no deal’ scenario that remains a real possibility. Such an outcome would mean no agreement on key issues such as data flows, immigration and trade and would be deeply damaging for UK tech. Getting a deal and avoiding a cliff edge will require both the UK and the EU to work together and to compromise. It does not matter whose court the ball is in, simply picking it up and going home would be in no one’s interest.”

Getting our customs processes right post-Brexit is vital for the tech sector and its consumers. The Government’s paper is right to recognise the particular impact of delays and complex processes to ecommerce and other ‘just-in-time’ tech goods. The commitment to implementing more streamlined processes, including mutual recognition of Authorised Economic Operators is therefore welcome. However, building these streamlined processes will take time. Bilateral implementation of new technologies at the UK, French, Irish and every other EU 27 Member border is complex. Until the Government comes forward with a clear plan and technical specifications this work cannot begin, and the clock is ticking.

David argued that the government’s Trade paper sets out a sensible approach for future trading relationships, but emphasised that securing a good EU deal must remain a priority:

The EU is the UK tech sector’s primary market and is a vital part of what makes the UK such a great place to start and grow a tech business. The Government must also work to provide more clarity on which current EU trade deals with other countries it will seek to maintain when we leave the EU, such as the recent CETA deal. The UK will have to convert these deals into bilateral agreements with the consent of those countries. Knowing which markets the UK will maintain access to immediately post-Brexit is crucial to companies understanding the impact it will have on their business.

Finally, we welcome the clear commitment to leadership at a WTO level, in particular the commitment to remain part of the Government Procurement Agreement. This is vital if the UK is going to continue to improve and digitise our public services. The Government should also look to sign other WTO agreements, including the ICT Agreement in order to maintain strong leadership on tech and international trade.

My take

As with everything to do with Brexit to date, it’s a case of ‘who blinks first’. But this is the first formal sign that plans are being made for ‘no deal’ beyond the rhetoric that’s been bandied around since the referendum result. Whichever side of the debate you’re on, it would be healthy to see an end to the ‘ball game’ metaphors – even if the Foreign Secretary does have a well-known interest in whiff-whaff.

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