Business fears grow as no-deal Brexit remains on table
UK businesses and industries are increasingly fearful of a catastrophic no-deal Brexit as the worst-case scenario remains much on the table following the defeat of British Prime Minister's motion in parliament Thursday night.
In the countdown to the Brexit day on March 29, British House of Commons voted against Prime Minister Theresa May's motion that asked the parliament to support the government's negotiating strategy with the European Union. Conservative rebels abstained on the grounds that the motion implied a no-deal Brexit would be ruled out.
While some lawmakers hope to avoid a hugely damaging no-deal option, some want to use it as a potential negotiation tactic with the EU. Locked in an impasse over the backstop arrangement to avoid border checks between Northern Ireland and the Republic of Ireland, there is no revised deal in sight. And questions remain if the British parliament will back the deal by a majority if there is one.
"The defeat of the Government motion will increase fears among food and drink manufacturers that there is now a diminishing prospect of rescue from the catastrophe of a no-deal Brexit," said Ian Wright, chief executive of Food and Drink Federation, in a statement after the vote.
Businesses are fretful about the progress of Brexit and are vastly unprepared for a no-deal scenario, industry groups have warned. A survey from the EEF, the Manufacturers' Organization, shows less than one in five manufacturers are prepared for a no-deal scenario, though 84 percent of companies remain concerned about its impact on their business.
In a no-deal scenario, Britain will have to trade under the World Trade Organization terms. Exports from and imports into the country will be subject to higher tariffs compared with the current frictionless trade between Britain and other EU members as well as the preferential rates under the EU trade deals with third countries.
A government report released last November said pharmaceutical and automotive industries would be particularly vulnerable in a no-deal Brexit as they depend on a just-in-time supply chain.
UK car production fell to a five year low in 2018, and fresh investment halved in the year. Exporting eight out of its 10 cars, new calculations show two-thirds of UK's global car trade will be at risk from a no-deal Brexit, according to data from the Society of Motor Manufacturers and Traders (SMMT).
Mike Hawes, SMMT chief executive, said Brexit uncertainty has already done enormous damage to output, investment and jobs. "Yet this is nothing compared with the permanent devastation caused by severing our frictionless trade links overnight, not just with the EU but with the many other global markets with which we currently trade freely. "
Rain Newton-Smith, the chief economist of the Confederation of British Industry, said: "The reality is that no deal would not be a short, sharp shock－it could spark a long-term decline in the capital's competitiveness, with severe knock-on effects for London and the rest of the UK."
"While the good news is that a no deal scenario is avoidable until it's off the table firms are spending hundreds of millions of pounds preparing for an event which the UK simply cannot manage and need not to happen," Newton-Smith said.
To alleviate the business concerns, the British government is offering some solutions to cushion the impact of a no-deal Brexit. One of its major moves is to race against the clock to replicate EU trade deals it has benefited from as an EU member into bilateral ones to allow businesses to continue trading freely.
Britain has so far signed four continuity agreements, respectively with Chile, Eastern and Southern Africa, the Faroe Islands and Switzerland. Businesses doubt whether the government can successfully roll over much of the around 40 EU trade deals before March 29, especially with major trade partners like Canada, Japan and the Republic of Korea.