At the end of August, Panasonic announced that, ahead of Brexit in March 2019, it would move its European headquarters from the United Kingdom to Amsterdam in the Netherlands. It follows Japanese banks and financial companies that have made a similar move due to concerns over financial “passporting”.
“We just can’t do anything. Everyone is seriously concerned,” said Hiroaki Nakanishi, chairman of Keidanren, the most important Japanese business federation. “Like many UK businesses, many Japanese operating in the EU are frustrated by the lack of any real clarity over what sort of Brexit the UK will actually achieve,” he told the Financial Times at the end of August.
Nakanishi called on the government to maintain membership of the customs union, in order to maintain the UK’s current economic environment as much as possible.
His German counterpart, Joachim Lang, director-general of the BDI industry federation, has the same view. “We have reached a critical phase,” he said early this month. “The time that remains is incredibly short. In a no-deal scenario and without a transition phase, we would end up with a border and customs regime that no-one is prepared for.”
The UK government is proposing the Chequers plan, named after the country retreat where the cabinet agreed to it. It calls for Britain to remain within the single EU market for goods but not for services, capital and people.
“We believe that cannot work,” said Lang. “When we sell a piece of machinery today, we do not just sell the product. We also sell services, data and maintenance. We are not selling a piece of chocolate.”
But Prime Minister Theresa May said that she would not be pushed into accepting compromises on the Chequers proposals that were not in the national interest. “I would opt for no deal rather than make further concessions to Brussels,” she said.
Lang and Nakanishi expressed the views held by most British business leaders; they want a “soft” Brexit – a relationship with the EU as close as possible to the one they have now and access to the single market as unhindered as possible.
The British auto industry, for example, employs nearly one million people directly and indirectly; it relies heavily on parts and components from EU countries. Most of it is foreign-owned – BMW, Volkswagen, Renault/Nissan, Peugeot Citreon and Tata, firms with no national allegiance to Britain.
Most economists agree with Lang, Nakanishi and the British business leaders – a “hard” Brexit or no deal at all would be extremely damaging for the UK economy.
But that is not the view of the European Research Group (ERG), chaired by Conservative MP Jacob Rees-Mogg, one of the leading advocates of Brexit; the group brings together 60 like-minded MPs of the ruling Conservative Party.
Its alternative is a “Canada-plus” deal, based on Canada’s trade agreement with the European Union. The deal would remove tariffs on almost all goods and reduce some non-tariff barriers. Free movement and budget payments to the EU would end in the longer term. This would involve regulatory checks on goods and farm products at the border; they would disrupt the current smooth chain of supply.
Or Britain could seek a status similar to that of Iceland, Liechtenstein and Norway which are part of the European Economic Area (EEA).
Established on Jan. 1, 1994, the EEA provides for the free movement of persons, goods, services and capital within the European single market, including the freedom to choose residence in any country within this area. But the three countries do not participate in the Common Agricultural or Common Fisheries Policies; they have no commitment to closer union with the EU and can opt out of or restrict the free movement of workers.
The ERG is also happy to accept a “no deal” outcome. Under this, all imported goods from the EU would be subject to World Trade Organization tariffs.
“A WTO Brexit is good Brexit,” said Jacob Rees-Mogg. “It is a clear Brexit. We are in control of our laws, our money and our borders on day one. Being a third country is great. It’s independence, it’s liberty and it’s not being shacked to the failing European Union’s economic model.”
The ERG argues that such a Brexit would give the UK the freedom to negotiate its own trade agreements with countries around the world, including China and India.
There are only six months to go before Britain leaves the EU. In that time, Prime Minister May must negotiate an agreement with Brussels and submit it to Parliament for approval. With her own party split down the middle, no-one can predict the outcome of this vote: nor whether an agreement will be in place by the date of the divorce – March 29, 2019.
No wonder that German, Japanese and other foreign companies are so uneasy – how can they plan for a future regulatory environment that nobody knows?
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