As Britain Prepares to Leave the EU, Here’s What Businesses Are Watching

It’s showtime.

After more than three years of heartache, headache, delays and parliamentary bickering, Britain will leave the European Union on Jan. 31, with just 11 months to secure a new trade deal with the EU — or not.

The nation may have voted for Brexit last month by handing Boris Johnson and the Conservative Party a thumping parliamentary majority — the biggest since the days of Prime Minister Margaret Thatcher — but while the country has united behind the party and its pro-leave PM, that doesn’t mean the next 12 months are going to be easy. At the best of times, trade negotiations can be long and torturous.

To make matters more complex, Johnson has committed to leaving the EU for good, whether or not there’s a trade deal in place by the end of 2020, a year of transition where Britain and the EU can continue to trade.

If there is no deal by Dec. 31, Britain would default to World Trade Organization rules, which could mean onerous taxes on imports, exports, raw materials, clothing and fabric samples, and works of art traveling between the U.K. and Europe.

Just after Christmas, European leaders including Michel Barnier, the EU’s chief Brexit negotiator, said nailing a full free-trade deal by the Dec. 31 deadline was “very unrealistic,” while the new European Commission president Ursula von der Leyen said she was extremely concerned about the abbreviated timetable.

She is already plumping for an extension if talks are not on track by midyear. That sentiment won’t go down well with bulldozing Johnson, who now has a parliamentary majority of 80, and can effectively push through any legislation the party wants.

While many British business owners and operators may have been relieved that Jeremy Corbyn’s hard-left Labour Party failed to win the general election on Dec. 12, they were quick to raise the alarm about the consequences of a bad trade deal, or none at all.

The British Chambers of Commerce summed up the mood here, stressing that getting the detail of a trade deal right is far more important than simply getting it done.

“Unless a comprehensive U.K.-EU trade agreement is in place by the end of next year, businesses could once again face a cliff edge — and seismic changes to trading conditions equivalent to a no-deal exit,” the business lobby said. “Ministers must urgently consult businesses communities throughout the U.K. and British firms operating in Europe, to ensure that the new relationship meets real-world needs rather than short-term political objectives.”

Within hours of the election result announcement on Dec. 13, luxury and beauty industry figures had already expressed their relief — and concerns — about the Johnson government strategy.

Helen Brocklebank, CEO of Walpole, which represents British luxury businesses across various industries, said that on one hand, the election result was positive. “Members will welcome an end to the uncertainty of the last three years and, historically, a Conservative government has offered the conditions in which British luxury thrives.”

But she was quick to add that securing a hardworking trade deal for the high-end sector in just 11 months from the Jan. 31 withdrawal will be challenging. “For British luxury fashion businesses with deep supply chains through Europe, the devil will be in the detail of that trading agreement.”

Caroline Neville, president of CEW (U.K.), the beauty industry organization, said a strong Conservative government “is good for business, the economy and the livelihoods of our members. The result ends three years of uncertainty and (challenging) trading conditions for the beauty industry, so we hope that consumer confidence will lift.”

She, too, expressed concerns about the nitty-gritty of the trade deal.

“Of great concern to CEW is the protection of effective supply chains and access to ingredients and resources. We hope for a swift and positive resolution of the talks,” Neville said.

The volatile British pound has reflected business leaders’ concerns: Having hit a high of $1.35 as the exit poll was announced on Dec. 12, the currency is trading at $1.31. Against the euro, the British currency has fallen to 1.17 from its post-election high of 1.20.

There are more trade woes in store for British businesses, especially luxury ones that export to the U.S. As of October — and unrelated to Brexit — exporters of cashmere sweaters, men’s suits and women’s swimwear have had an extra 25% tax slapped on their products.

The U.K. has been penalized alongside such countries as Germany, France and Spain, as the U.S. began imposing levies on $7.5 billion worth of goods.

The tariffs are the result of a World Trade Organization ruling that stems from a long-running dispute between the U.S. and the EU over subsidies to the aviation industry.

Even after the U.K. leaves the EU, it will still be subject to the tariffs. The U.S. is the single most important market for British luxury exports, according to the industry lobby Walpole. It is also Britain’s second-largest trading partner after the EU.

There has been no indication so far that the U.K. and its European partners plan to retaliate with any tariffs on U.S. exports to the region.

This story was reported by WWD and originally appeared on WWD.com.

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