Mr. Brexit’s long resume set to reverberate through coming talks

31 January 2017 9:55am

7th October 2016. By Matthew Holehouse, Lewis Crofts & Poppy Bullock

In Brief

The fate of UK-based businesses is in the hands of David Davis, the government’s Brexit minister. With a long career at sugar refiner and pro-Brexit advocate Tate & Lyle behind him, his CV also lists business interests in a German copper manufacturer and a Swiss pharma company. That mixed bag of professional experience should highlight both the benefits and the challenges of Europe’s single market. It remains to be seen whether the arch-Brexiteer will allow his background to permeate the important decisions that lie ahead.

The pound had slumped. Share values were down. Foreign investors were demanding certainty.

How much damage, Labour lawmaker Mark Hendrick demanded to know, was Brexit going to do to the British economy?

David Davis, testifying before the House of Commons Foreign Affairs Committee, became irritable.

“I have the advantage,” he told Hendrick, a former college lecturer, “of having worked in big business.”

“A businessman wants to see a decision taken on the basis of the facts,” Davis said, making it clear that newspapers clamoring for a plan would not be enough to disturb his methodical approach to work.

“If I were still in business, I would be panicked not by a government that takes its time and does it properly, but by a government that rushes to do something in a tremendous hurry without thinking it through,” the UK Brexit secretary said.

In coming months, Davis will need all the business acumen and sangfroid he can muster, with the grand deal he is crafting likely to make or break thousands of businesses operating in the UK for decades to come.

And as chance would have it, his own varied CV, which includes stints with a pro-Brexit sugar refiner, a Swiss pharmaceutical startup and a German copper maker, namechecks a representative sample of industries that will be affected by Brexit.

His experiences will inevitably shape the decisions he must now make.

Conservative grandee

Davis was at the heart of the Conservative Party’s civil war over Europe in the 1990s. Back then, he struggled to enforce unity during a lawmakers’ rebellion over the 1992 Maastricht Treaty, which paved the way to the euro and common justice policies.

He later served as the UK’s Europe minister, participating in reflections on the future of the bloc in the three years that preceded the 1997 Amsterdam Treaty, which transferred a number of national powers to the European Parliament.

Davis ran for leadership of the party in 2005, losing out to a youthful David Cameron. He then spent much of the decade that followed on the fringes, before being elevated this summer by Prime Minister Theresa May to the newly created job of Secretary of State for Exiting the European Union.

The appointment of a dyed-in-the-wool Brexit supporter to the role heartened Conservative lawmakers, because it suggested that the new Prime Minister was serious about quitting the 28-member bloc.

But his incautious approach unnerved others. Davis’s suggestion, in an article days before his appointment, that the UK could negotiate a free trade area “massively larger” than the EU before having quit the bloc was met with raised eyebrows.

In his first address to lawmakers, he dismissed the prospect of the UK retaining membership of the EU’s single market, saying a more-distant trading relationship would grant greater autonomy over migration policy.

Rehearsing an argument popular with “Leave” supporters, he said the UK could expect a favorable bilateral deal, being a net importer of manufactured goods such as German cars.

This approach has been criticized for focusing on tariffs while underplaying the importance of regulatory barriers in services.

The following day, May’s spokeswoman distanced the prime minister from Davis’s remarks on the single market, saying Davis had been voicing his own views and not those of the government.

In subsequent appearances before lawmakers, he was much more guarded, saying the UK’s stance would become clear when it activates the Article 50 exit clause of the EU treaty. “He’s clearly on a very steep learning curve,” said one City grandee, who watched events with trepidation.

A sweet education

Davis worked for 15 years at Tate & Lyle, a British sugar refiner. He left the company as an executive director on a salary, he has said, of more than a million pounds a year ($1.25 million today). He was elected to Parliament in 1987 and left the company three years later.

Tate & Lyle, a household name for generations of British shoppers, publicly urged a Leave vote during the referendum campaign, arguing that the EU’s regime for sugar producers was putting jobs at risk.

The company’s campaign referred specifically to the EU’s ending, next year, of production quotas on sugar beet, which is grown and refined on the continent. This means prices will fall.

At the same time, the tropical sugar cane that Tate & Lyle imports will still be subject to tariffs: 98 euros ($110) per ton within the quota, and 339 euros per ton beyond the quota.

The company says the tariff regime is killing its business, and that it has gone from six refineries to one since Britain joined the EU.

Davis’s work included restructuring a Canadian subsidiary, Redpath Sugar. Recounting the experience, he wrote a book, entitled How to Turn Round a Company. In it he said a new leader will have a honeymoon of around 100 days and must make tough decisions quickly.

For a successful turnaround, “it will be very apparent, or [the manager] will make it apparent, that without radical action on his part all will be lost,” he wrote.

Small wonder, therefore, that some have high hopes for Davis’s appointment. During his first appearance in the House of Commons as Brexit minister, Stephen Timms, the parliamentarian representing the electorate of Davis’s previous employers, declared that the politician was “well-placed to address the problems with EU rules faced by Tate & Lyle in my constituency.”

The company hosted two debates on global free trade at the Conservative party conference this week, with senior party backbenchers in attendance.

Whether the sugar maker enjoys a Brexit dividend will depend on many factors — chiefly, whether the UK remains a member of the EU’s customs union, and what tariff regime is agreed with countries that supply cane sugar.

A representative of the company said it has no contact these days with Davis and that expects no favors as a result of his appointment. The company has neither sought nor held any meetings with the British government so far, the official said, while saying they were watching how events unfold.

Business background

Before accepting a ministerial position, Davis topped up his annual lawmaker’s salary of 74,962 pounds with two directorships of European companies.

From December 2014 until taking office, he was a member of the board of directors of MetrioPharm, a small pharmaceutical company based in Zurich.

The role paid 13,165 pounds for 16 hours’ work a year, according to Davis’s entry in the UK parliament’s register of lawmakers’ financial interests.

The company is testing new treatments for immune disorders such as psoriasis and multiple sclerosis.

Davis, a graduate in molecular science and computing, holds 100,000 stock options in the company. He told a newspaper recently that their value depends on whether the drugs can be launched.

“If it works, the shares will be very valuable,” he said. “If it doesn’t work, they will be worth nothing.”

He surrendered them without benefit, upon taking office, it is understood.

MetrioPharm was unwilling to talk about Davis’ work for them. But his time there will have left him with an understanding of the significance of striking the right deal for the UK’s pharmaceutical industry — a success story that faces an uncertain future after Brexit.

Manufacturers such as GlaxoSmithKline and AstraZeneca have their headquarters in the UK, while US giants such as Novartis and Roche use UK entities to hold European-wide authorizations.

A significant draw is the European Medicines Agency, which approves some treatments to be used across the 28-member bloc and is based in London. If, as expected, it moves to another state, the industry’s regulatory experts are likely to follow.

The UK, and its own regulator, the MHRA, may be able to remain part of the EMA system under a reciprocity scheme.

Alternatively, drug manufacturers may be obliged to seek regulatory approval twice: once with the UK, and again inside the EU, either with the European Medicines Agency or with a regulator in one of the remaining member states.

This is the regime in Switzerland, a world leader in pharmaceutical research. Diverging from the EU regime could allow the UK to foster innovation in experimental treatments.

But much of the industry prefers pan-European harmonization.

It warns such a scenario would increase costs and create delays in getting products to the UK market, particularly if a standalone regulator found itself swamped by new applications for products requiring reauthorization.

Copper company

Mansfeider Kupfer und Messing (MKM) is a copper manufacturer in Hettstedt, Germany, producing pipes, wires and sheets from a factory with 1,100 employees.

Davis sat on the company’s supervisory board between 2013 and his appointment to ministerial office this year, earning approximately 34,000 pounds for six days’ work a year.

Copper manufacturers such as MKM have been shielded from foreign competition through the EU’s customs union, which imposes a tariff of 4.8 per cent on processed copper products. The UK must now decide whether it wants to be part of that regime.

Eliminating that tariff wall would be an early target of any bilateral deal between the UK and Europe. Otherwise, the cost of imports for customers such as the UK’s car manufacturers and housebuilders will rise.

As it embarks on an independent trade policy outside the customs union, the UK will come under intense pressure to drop its trade defenses and expose metals manufacturers in Britain, such as Tata Steel, to American and Chinese rivals.

Richard Harings, MKM’s chief executive, said Davis had resigned his position at the company. He said he was unaware how the minister had come to join the board, as it predated his appointment, and was unwilling to provide details of the skills or insights that Davis had brought.

Whatever Davis may have learnt through his business dealings, his time as both a manager and a board member would have exposed him to the full gamut of EU effects on corporations. A UK company unhappy with EU tariffs; a German company benefiting from the single market; and a Swiss pharma company looking to trade into the bloc.

Wherever his Brexit negotiations end up, it is unlikely all his former business associates will be happy with the outcome.

Brexit Special Report