Brexit negotiations: compromise or crisis?

As we enter what is arguably the most crucial period of Brexit negotiations, businesses need as much clarity as the UK Government and EU leaders can give them.

Unfortunately, more than seven months into the two-year window for agreeing our exit – and almost 18 months since the referendum itself – clarity remains a rare commodity. There is no agreement or clarity on the type of Brexit the UK Government is looking for. The future rights of the three million EU citizens in the UK and of the one million UK citizens abroad remain uncertain. The question of the Irish border has yet to be addressed and no agreement has been reached on the cost of financial separation.
 
The slow pace of negotiations is a great concern, not least to the UK’s businesses, which need time to take informed decisions and implement plans that suit the future nature of the UK’s relationship with the EU.

What type of Brexit will we get?

How ‘hard’ or ‘soft’ the Brexit we get remains uncertain. So many variations still seem to be on the table.
 
At one end of the spectrum, a ‘no deal’ arrangement would free the UK from the shackles of EU regulation, but cast us adrift from the countless international agreements that are already in place.  All these would need to be renegotiated and that would, of course, take time. 

Alternatively, the UK could simply pay its divorce bill and perhaps go for a limited, tariff-free deal that would allow us to trade goods as now but do nothing for the services and regulated industries that might require passporting rights to continue to operate in the EU.

The various options beyond that (full services trading, customs union and a single market) get progressively ‘softer’ until the point where Brexit would seem to have little meaning. The more we buy into the concepts of mutual access to talent, free trade and regulatory recognition, the more the UK would have to give up the increased sovereignty that many voted for.

What are the key business concerns?

Individual sectors and businesses will have their own Brexit-related key issues. Some may be more concerned about the potential impact of tariffs on cross-border trade, and others on their future access to EU talent. However, when we look across all industries, everyone is fundamentally asking for the same thing: clarity and coherent political leadership. 

The business community is increasing pressure on the politicians to work together to provide a coordinated approach to negotiations. If businesses are to have a year to prepare, then full clarity on what Brexit will look like – or at least the shape of a transitional period – will be needed by the first quarter of 2018. For that to happen, significant, coordinated progress is needed by the end of December 2017.

The City has suggested that we do not want to lurch from one set of talks to the next and that we must avoid a ‘transition to a transition’. In other words, ‘whatever we do, we do it once’. Any transition period should enable a single switch to new operating models, so avoiding the administrative burdens and expense of a double shift. As ever, it would be the consumer who would bear the ultimate cost.

When outlining a transition plan that works for all sectors, it’s important to take account of existing commitments. Many analysts have already pointed out that some current contracts will still be running well beyond March 2019 and possibly even beyond a transition period. This is likely, for example, in financial services in relation to products and services such as long-term life assurance, medium and long-term derivative contracts, general insurance and credit facilities. Manufacturers and distributors with complex supply chains may also have long-term contracts in place that secure current favourable terms. What will happen to these if we are no longer subject to the laws and tariff-free trading conditions currently agreed within the EU bloc?

Time for compromise?

Brexit uncertainty continues to encourage political point-scoring and infighting within the Government.  This reflects individual interpretations of the motivations of Brexit supporters. (Was it immigration? Was it regulation? Was it sovereignty or railing against European federalism?)  For the sake of clarity and obtaining the best deal for the UK the political games need to stop. The Government already has a weak mandate but continued in-fighting would damage it further and most likely end up with its collapse. Perhaps to the surprise of many this would not bring joy to EU leaders since this would lead to loss of momentum and further destabilisation of the negotiations. Indeed, most (but not all) are ready to provide concessions in terms of beginning the negotiations on trade and citizens’ rights before one of their preconditions, the ‘divorce bill’, has been agreed.

From a pragmatic perspective, the time has come to accept the need for compromise – something which is, after all, an essential part of negotiation and even of successful government.
What’s needed in the short term:  
  • Clarity on the intended direction for negotiations with a clear statement to agree a deal – commitment is required from both the UK and EU, since it takes two sides to negotiate.
  • Cross-party working group with a common goal to provide a stable negotiating position.
  • Recognise that a transition period is required – noting the difference between transition (defining the rules) and implementation (refining the rules), which form two stages in the development of most Free Trade Agreements.
  • Ensure that the Brexit deal agreed with the EU is beyond legal challenge and properly debated in Parliament – with participation encouraged from industry representatives. And in that spirit of informed debate, let’s value the contributions of experts, rather than ridiculing their input.
The time has come to stop prevaricating. All businesses – including those in other EU member states – need clarity on life after Brexit. Unless this is achieved soon, many will assume the worst – ‘no deal’. This would then become a self-fulfilling prophecy as a weak and divided UK Government could lead to a period of political instability with little chance of agreeing a structure within which the UK and the EU can work in harmony.