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The cost of hard Brexit to Britain’s

Rayhan Ahmed Topader :

 

 

Since no one could imagine no deal, this fudge was left in the oven. It is now baked to a cinder, as Johnson and his anti-European aide Dominic Cummings play tough with the EU. With no deal in the offing and hard borders in preparation on all sides. In just over 90 days, the UK will leave the EU single market and customs union as the Brexit transition comes to an end. With the UK heading towards a no-deal exit and Covid-19 hurting demand, fashion is particularly vulnerable. For international brands, tariffs of between 8 and 12 per cent on a significant portion of fashion goods coming into the UK are likely, and domestic brands face duties of between 6 and 12 per cent on exports leaving the UK, analysts say. London’s position as a tourist hub is also under threat by plans to scrap tax-free shopping for international visitors after Brexit, industry groups say. The transition will be costly, even if a deal is passed and no tariffs are applied, particularly for UK brands with separate and burdensome intellectual property laws and labelling requirements, and the exit of the EU preferential trading zone making nearshoring more expensive. The UK will also leave the EU Customs Union requiring extra documentation to ship products between the UK and the EU. Leaders of the United Kingdom and those of the European Union are watching carefully the evolving Brexit dynamics.

Germany taking over the Presidency of the EU and also the passing away of the extension deadline. The end-of-June deadline for agreeing on an extension to the Brexit transition period beyond 31 December 2020 has expired. This means that the EU-UK negotiations will have to conclude at the end of this year, regardless of whether a deal has been reached or not. These developments appear to have raised UK expectations that the German Council Presidency would unlock talks and that EU negotiator Michel Barnier’s position will now be slightly more flexible. This is creating new hopes for a deal. Anxiety has also gained ground on both sides because of the fact that less than four months are left to ratify an agreement. Those across the Atlantic and in the Far East have however sometimes openly noted that the final solution is likely to be dependent on political developments, particularly within the UK in the near future. The first scenario being referred to deals with the unlikely possibility of a fundamental deal that over-steps the EU’s red lines concept. One needs to understand that there might have been a change in the EU Presidency but it is highly unlikely that the EU will change its fundamental negotiating principles substantially. It is true that the EU has signaled a degree of willingness to consider the UK’s red lines and discuss possible compromise landing zones.

But it is less than likely that it will drop its fundamental demands. It is true that the EU might be willing to have some compromises but such flexibility would be based on the EU’s economic interests and political unity. One needs to understand that a basic deal with regard to Brexit needs to be completed by the end of summer 2020. This has to be accomplished within a matrix where EU economists consider that the EU red lines have not been overstepped. This is where the second scenario comes into focus. British media has suggested that, given the current situation and the sensitivity of reconstruction of the British economy after the pandemic, it is unlikely that the UK government will concede any of its red lines before the end of summer. Prime Minister Boris Johnson is more likely to follow a strategy where he will try to apply indirect pressure on the EU struggling to find its feet and unity after the socio-economic implications of the Covid pandemic.The third possible scenario is arriving at a basic deal between the two parties by the end of autumn 2020 with some of the EU red lines in place. Such a trade deal might be possible, provided that the UK starts to seriously engage with the political trade-offs between market access and divergence. This will require some compromise from both sides. However, it is also clear that the factor of balancing power in that form of negotiation dictates that the UK will need to concede significantly more than the EU.

It must also be understood here that even if EU and the UK eventually agree on moving towards a deal, negotiating all the technical details by the end of the year will remain a serious challenge. Several factors related to the internal paradigm of governance within the UK will need to be addressed- for example – how the UK’s state aid regime will work. The time needed on the EU side to ratify any deal will additionally reduce the time available to finalise an agreement. One must not also forget that ratifying the deal will include a European Parliament vote. This will limit the EU’s room for manoeuvre given the Parliament’s firm stance on the level-playing-field issue. Geo-strategists have remarked that under a different scenario there might even be a a late extension of the datelines which might eventually lead to a basic deal based on UK concessions. However, such a situation is being seen as less than likely. In this regard, the fourth scenario is being mentioned that if the British Prime Minister realizes that his brinkmanship might not pay off and that the EU is indeed serious about its affirmations to not agree to a deal at any price, he might then consider a short extension with a new title rather than facing a no-deal outcome. However, one needs to remember that the road seeking an extension under the terms of the Withdrawal Agreement elapsed at the end of June. It will be difficult to get another extended period.

The British Prime Minister knows that the British public is tired of Brexit and have started paying little attention to the actual content of the negotiations. Consequently, if Johnson sees that nothing significant might be achieved through discussions, he might in all probability quietly reduce his demands, turn around, get out of further discussions- leave the platform quietly and claim in the British Parliament that the Brexit deal has been completed successfully. He will however have to strongly defend one aspect- the economic incentive of continued tariff- and quota-free trade with its largest trading partner, especially in a post- Covid Europe. He might also after such a scenario, lay the blame for a no-deal Brexit on the persistent intransigence of the EU. In any case, it is most likely that a comprehensive deal between the two Parties is less than probable. In any case if the EU and UK fail to sign a deal by December 31, 2020, and also fail to extend the period for negotiating the withdrawal agreement, .the no-deal Brexit would come into effect. An additional concern for brands is stalled movement of inventory between the UK and the EU. UK government minister Michael Gove recently warned logistics operators that queues of up to 7,000 trucks at the English port of Dover were a possibility in a worst-case scenario.

Other outstanding uncertainties remain. Rules of origin, which are complicated calculations that determine where a good was technically produced and whether or not tariffs apply, could prove complicated as the UK has opted out of the Pan-Euro-Med agreement. As a result, a sizeable proportion of goods manufactured across the borders of Europe and its mediterranean neighbours like Morocco, Turkey and Tunisia will no longer be duty-free after entering the UK. The UK is expected to retain current EU rules that level zero tariffs on imports from developing countries like Bangladesh, though these may no longer apply if products are imported into the UK and then into the EU. The best advice to brands, analysts say, is to prepare for the worst. But many will be unable to do so in the wake of Covid-19, and the industry outlook is that more companies are at risk of shutting down and more jobs will be lost. Many businesses have just not had the bandwidth to actually deal with Brexit.

Writer and Columnist

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