EU reluctance to extend Brexit reflects industry views as well as politics

21 March 2019 9:34am

20 March 2019. By Zosia Wanat and Giulia Bedini.

EU leaders aren’t bluffing about withholding a Brexit extension, judging by recent comments from continental business leaders who fear a delay could be more harmful to them than a no-deal exit in nine days' time.

This view isn’t unanimous, and European businesses are clear that either outcome is bad: They’d almost all prefer a managed outcome, or no Brexit at all.

But many businesses have put in place contingency plans for a no-deal exit next week, such as stockpiling supplies or rescheduling factory downtime for maintenance. Trying to unwind this would be hugely disruptive, they say — and doubly so if an extension just leads to a no-deal exit a couple of months later, just when those extra stockpiles would be depleted and the factories just coming back online.

The conclusion from industry representatives echoes that of national leaders and EU Brexit negotiator Michel Barnier. For an extension to be attractive to the EU, it has to offer a clear path to a deal.

“Whatever the extension is, the most important thing is that we know it’s for a specific, clear purpose, and we know what’s ahead,” said Luisa Santos, director for international relations at BusinessEurope, an umbrella group of EU trade bodies. Prolonging the current uncertainty will be harmful for businesses, she told MLex.

Grades of disruption

The calculation that many EU businesses seem to be making relies on the fact that, for most of them, a no-deal outcome won’t be nearly as devastating as it will be for the UK.

UK businesses would lose preferential access to suppliers and customers in all 27 other EU countries in the event of a no-deal Brexit, and also lose the benefit of the 40-odd trade deals the EU has with international partners including Canada and Singapore.

That means an “overwhelming majority” of UK businesses would rather extend the Article 50 negotiating period than crash out of the EU, according to Josh Hardie, Deputy Director-General of the Confederation of British Industry. “Faced with the choice of a harsh no deal, businesses will back an extension every day of the week,” he said last week.

By contrast, EU companies will just lose access to the UK market, which is less than a sixth of the EU’s total, and keep all their deals outside the bloc. Certain countries such as Ireland would be hit very hard, as would some industries such as transport; but for many others the disruption would be more manageable.

That’s reflected in their attitudes to a Brexit delay — and, most likely, in their lobbying efforts to national leaders who will ultimately decide whether or not to grant one.

“My experience is that the economy can live better with bad conditions than with uncertainty,” said Dieter Kempf, who as chairman of German industry federation BDI represents more than 100,000 companies, in a recent interview with Dutch newspaper Het Financieele Dagblad.

German companies have prepared for a no-deal scenario in March, not in May or any other month, he said — noting that these preparations can’t simply be pushed back a couple of months.

Carmakers’ plans

A good example of the potential disruption of a delay can be found in the car industry, which relies on complex supply chains and just-in-time logistics management. It also accounts for a big chunk of the EU economy, particularly in Germany, and has the lobbying presence to match.

BMW, for example, has brought forward the annual maintenance of its UK factory, so it will be offline immediately after Brexit, rather than over the summer. UK-based Jaguar Land Rover has also scheduled additional shutdowns in April due to Brexit uncertainty. These must be planned months in advance.

Factories in continental Europe, meanwhile, are likely to have stocked up on UK-sourced parts to avoid disruption from the lengthy customs delays expected under a no-deal Brexit. BMW has even chartered a transport plane to move Rolls-Royce parts between continental Europe and its factories in the UK, MLex understands.

And companies have had to put their long-term decision-making on hold until they know what sort of relationship the UK will have with the EU. In all cases, prolonging Brexit will disrupt these plans.

“Any further delay in the Brexit decision-making process poses a risk to investments and jobs in the automotive industry, which relies on long-term planning security with development cycles of up to five years,” Volkswagen said in January.

The devil you know

It’s not just carmakers. A recent gathering of more than a hundred Dutch logistics businesses saw more than half of them express a preference for the certainty of a no-deal Brexit next week over the uncertainty of an extension, according to Rem Korteweg, a senior analyst at the Clingendael Institute, who chaired the event.

“Companies make plans, hire extra staff to deal with the immediate effects of a no-deal. There’s no certainty that they’ll find these resources again, after an extension,” he told MLex. “There are companies that have built up stocks: These will need to be refilled again.”

“Businesses are going to have some maintenance issues: If they’ve had to cancel some of the orders, they will have to do it again after the extension. They will have to redo some of their no-deal planning,” he added.

The worst case would be an extension, followed by a no-deal Brexit. That would mean companies faced all the disruption of a chaotic exit, without the benefit of the months-long preparations many of them have made.

And that’s making some of them prefer the devil they know, Korteweg said. “There’ll be turbulence, there’ll be problems, but they are going to happen anyway. Why not now?”

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