Where are we at, anyway?
You’re forgiven for not knowing. It’s only been a few short weeks since the Mar. 29 hard Brexit deadline, but it feels like months. Since then, there’s been not one, but two extensions. Time drags on when you’re not having fun, and no one’s having a good time with Brexit.
Let’s recap where we’re at today.
- The new deadline has been set for Oct. 31.
- The U.K. can leave earlier if their members of Parliament can agree to withdrawal terms.
- The U.K. must now take part in elections to the European Parliament, which will be held May 23. Failure to take part in those elections would force the U.K. to leave the European Union (EU) on June 1 without a deal.
Predicting the unpredictable
In a rare show of solidarity last month, MPs rejected a no-deal exit scenario. Keep in mind that doesn’t mean cashing out without a plan couldn’t happen. Overall, there are really only three possible outcomes to end this adventure, but it’s anyone’s guess as to which one will occur. Why? Let’s not forget that there are potential potholes in the road, not the least of which could be an election. If that happened, it would likely change the course of events in ways we can’t even imagine. While logic would dictate certain outcomes over others, MPs’ decisions aren’t always tied to logic. To complicate matters, decisions and events taking place outside of Parliament can change the lay of the land, further clouding the projections. What are the possible outcomes?
- Leave with a deal. Talks between the Conservative and Labour parties are attempting to resolve the Brexit deadlock. In short, they’re hoping to untangle in the next six months what couldn’t be achieved in the last two years. Whether they finally agree to Prime Minister Theresa May’s deal, or negotiate a new one entirely, leaving with a deal in place is still the most likely outcome. While it’s in everyone’s best interest to ensure a smooth transition, the process, thus far, has been anything, but smooth.
- Leave with no deal. Even though MPs voted against cashing out, a number of MPs abstained from that vote, so it’s still a possible outcome. There’s a lot of squabbling going on, and both the Conservatives and Labour parties are deeply divided. May could step down, an election could be called, even another referendum is possible. Much can happen in one month, let alone six, and the prospect of taking part in the European parliamentary elections next month adds an absurd dimension to the drama.
- Cancel Brexit and stay—for now. Last December, the European Court of Justice ruled that the U.K. had the option of revoking Article 50 unilaterally. In other words, the U.K. could decide to cancel Brexit and the EU would have no say in the matter. This doesn’t mean that Brexit would be ruled out forever, but rather, cooler heads would prevail and the debate would be shelved until greater public and political accord is reached. However, this could take many years and would probably involve another referendum. At the moment, everyone is suffering from Brexit fatigue. The most recent polling data indicates that only a slightly greater number of U.K. citizens would choose to stay rather than leave. So, even if another referendum was held in a few years, it could net an inconclusive outcome mirroring the public’s almost even-split vote in the 2016 referendum. Despite the negative headlines detailing the corporate exodus to the continent and elsewhere, and the subsequent job losses, the population seems unmoved.
While the final decision is too close to call, leaving with a deal is still the most likely outcome. A mere three weeks ago, this option had a clear lead, but it’s now lost some steam. We can expect the odds to shift back and forth over the coming weeks: the ride through this will remain rough. If an election is called and a hardline Brexiteer rises to power, then that’s the ball game. If another referendum is held and it results in further gridlock, then putting Brexit on the shelf looks more possible. It’s no small irony that the latter two options—while being polar opposites—have a rising probability of happening the longer this drags on. Let’s hope it doesn’t come down to a coin toss.
Dyson, an innovative vacuum designer/manufacturer, is just one of many companies to announce its intention to relocate its headquarters outside the U.K. To avoid anticipated disruptions, Panasonic and Sony are moving their European headquarters to Amsterdam. Nissan has reversed its intention to produce its X-Trail model in the U.K. and instead opted for Japan. Honda announced it would be closing its plant in the U.K. Toyota and Ford have issued similar warnings.
Corporate displeasure has been voiced across all sectors. Airbus said it’s spent “tens of millions of euros” preparing for Brexit, warning that difficult decisions will have to be made. Keep in mind, you can’t participate in an Airbus project if you’re not in the EU. And Siemens’ CEO has voiced the sentiment of all business: “Nobody invests into uncertainty.”
Financial institutions in London have been swift in adopting their own moving-day measures. From Goldman Sachs to BNP Paribas, UBS, HSBC, Credit Suisse and Deutsche Bank, even Barclays—the list goes on. It’s been estimated that financial services groups could shift roughly US$1.3 trillion in financial assets out of the U.K. in favour of alternate European locations. Paris, Frankfurt and Dublin are just some of the beneficiaries.
What’s a Canadian business to do?
For Canadian exporters and investors with interests in the U.K., there’s a silver lining in the latest stay of Brexecution: If you haven’t already formulated your Plan B, you still have time. Evaluate how you fit into the supply chain and determine what your alternate moves could be, but make no mistake about it, this planning window is quickly closing.
In our recent webinar on Brexit, Robert Brant, managing partner at McCarthy Tetrault’s London office, offered the following advice:
- Stay closely connected to your partners in the U.K. because things are changing by the hour.
- If you’re doing business in the U.K. or using the U.K. to enter Europe, make sure your contracts will still work in a deal or no-deal outcome.
- Think about tax planning because there are EU-wide tax directives that could fall away if the U.K. leaves.
- Consider how reliant you are on EU labour and develop contingency plans.
Regardless what the final Brexit decision is, there’s no denying that the U.K. will remain a very important market for Canada. We can be certain of that. So, plan accordingly. Look into potential sources of delays, adapt a more flexible approach to your supply chain, and above all, be ready to take on additional burdens in the short-run to ensure your long-term success in the U.K.
To help you plan, stay tuned for further updates as new and relevant events emerge to shape the outcome: Deal, no deal, or stay.