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The Brexit Clock Is Ticking. How Should Global Companies Respond?

On March 29, British Prime Minister Theresa May officially set into motion the exit of the United Kingdom from the European Union, beginning a two-year period of negotiation and closure. The clock is ticking.

The Brexit Clock Is Ticking. How Should Global Companies Respond?

May triggered Article 50 of the Treaty of Lisbon, which outlines the procedure for unilateral withdrawal by a member state from the EU. But the controversy over the 2016 vote by Britons in favor of "leave" is far from over. And the long-term ramifications of that act remain to be seen.

Following the referendum, debate raged over whether the U.K. should pursue a “soft” or “hard” Brexit, the former of which would supposedly retain some economic and trade ties with the EU. But it soon became evident that a “hard” Brexit was the only path forward, given the sentiment among the majority of British voters and the politicians who sought desperately to appease them.

It remains unclear at this point what constitutes a hard Brexit, although tight restrictions on immigration into the U.K. and the reestablishment of some tariffs are likely outcomes. What’s certain is that two years from now, the U.K. will be on its own as a global trader and economic entity, free to pursue new trade deals with other regions of the world (and possibly the EU as well).

Proponents of “remain” asserted that Brexit would spell economic disaster for an independent U.K., which depends heavily on EU markets for its goods. After all, why should the EU make any concessions at all to a country that has so summarily rejected it? Let the literal island become a figurative one as well.

Not so fast, says Jeff Broadhurst, chief executive officer of the enterprise resource planning software provider Apprise. This is not the time for Brits and their trading partners to panic, he says. “It’s not going to do you any good. What you need to do is sit back and wait.”

It’s not in the interests of the EU to force the U.K. to come groveling for trade deals, Broadhurst says. The same anti-immigrant fervor that has gripped the British Isles can be felt in many places on the Continent. Rising strains of nationalism, triggered by an influx of refugees from southern Europe and the Middle East, are causing many Western governments to become “less warm and fuzzy,” he says.

“There’s reason to believe that the same kind of Brexit/Trumpism [sentiment] could happen in Paris,” says Broadhurst. “If so, the EU would be better off negotiating in good faith with the U.K.” A hard line could serve to fuel the anti-immigration flames, leading to more defections.

It’s in everybody’s interest to make a new union, says Broadhurst, albeit one that’s looser in structure. For example, there’s plenty of support for the idea that a single currency — which the U.K. never adopted — has been a disaster for the E.U. Witness the recent economic upheaval in poorer European nations such as Greece and Spain. In yoking their economies to the euro, they have ceded control over key levers such as interest rates and the money supply to the strongest E.U. members, particularly Germany. Perhaps it never made sense to adopt one currency for a group of countries marked by such extreme economic disparity.

On the positive side, the U.K. is likely to forge new trade ties with other countries, especially developing areas that might offer better long-term prospects than the mature economies of the EU. Then there’s the prospect of a new trans-Atlantic pact. “A trade deal with the U.S. has greater chances now than it did before,” says Broadhurst. “There’s room on both sides to have a win.”

What we won’t see, in all likelihood, is another big multilateral trade agreement such as the recently rejected Trans-Pacific Partnership (TPP). The prospects for its Atlantic counterpart, the Transatlantic Trade and Investment Partnership (TTIP), appear no brighter. In their place will likely come a new series of bilateral agreements, simpler in structure and focusing on more sympatico economies. Such a trend would bode well for renewed ties between the U.K. and U.S.

An independent U.K. is sure to result in dramatic changes in the way that companies make, import and distribute product throughout Great Britain and the Continent. Notwithstanding Prime Minister May’s invoking of Article 50, however, global traders would do well to adopt a wait-and-see attitude, says Broadhurst. Major decisions on altering factory and distribution-center networks should await more clarity — the kind that only comes with time.

The two-year transition period dictated by Article 50 gives companies some breathing space, as they determine whether Brexit will ultimately be a boon, a disaster or a wash. As for now, Broadhurst says, “You just don’t know. There’s not enough information.”

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