By Charles Brasted and Andrew Eaton
100 business leaders. 27 roundtables. 18 economies of the EU27. One central conclusion: Politicians are not listening to the concerns and priorities of European business. That was the consensus at the launch of an important and timely report by the Council of British Chambers of Commerce in Europe (COBCOE): Brexit – the Voices of European Business, hosted by Hogan Lovells on Monday 25 September 2017.
The report, published with the support of Hogan Lovells, is a uniquely pan-European barometer of business sentiment on Brexit. Its message, based on extensive research and discussions with businesses of all sizes across Europe and echoed among the panellists at the launch, is that business' concerns for Brexit centre on three themes:
- the importance for European businesses of continued access to the UK post-Brexit, both for its deep pools of capital, talent and innovation, and for its role as Europe's global springboard;
- the need to avoid the introduction of additional barriers to trade and to maintain a frictionless European economy; and
- the harmful disruption already being caused by the Brexit process and the need to minimise the prevailing uncertainty around the negotiations so that businesses can prepare and adapt effectively to new circumstances.
You can read the full report here.
The launch consisted of two vigorous panel discussions among businesses leaders from a range of sectors, ably chaired by John Peet, Political Editor at the Economist.
Reception of the report: the importance of being detailed
A common theme of discussions was the sheer number of specific and detailed issues that arise once an individual business analyses the implications of Brexit for their particular circumstances. The panels praised the report for the way its case studies highlighted this, which they said helped them to appreciate how Brexit could impact their own business on the ground.
Panellists worried that few in Europe, particularly European consumers, fully appreciated the degree of disruption a hard Brexit would cause to their daily lives – not just in the UK but across Europe. An audience member also voiced frustration that politicians did not appear to be on top of the detail, focusing instead on high level rhetoric.
Europe's interdependent economy: in the common interest
A key finding of the report was how reliant Europe's complex and highly sophisticated supply chains are on the Single Market and Customs Union and the resultant ease with which businesses can move goods, capital, services and people from country to country within the EU. One speaker questioned whether the "just-in-time" supply model – used by sectors as wide-ranging as life sciences, aerospace and "fast fashion" – could survive Brexit.
The panel lauded the consistency of regulatory standards and processes across the EU as a key factor in Europe's economic success. They questioned the wisdom of establishing UK regulators to enforce new UK standards, even if such standards were based on EU equivalents, as this would inevitably result in divergent standards over time and duplication of work for business. It was noted that small and medium sized businesses would be the worst affected by the duplication of standards, as the additional costs would be proportionately higher for them.
Uncertainty: all we know is that we know nothing
Both panels recognised it is primarily for businesses to adapt to uncertainty and that there is often opportunity in uncertainty.
However, all agreed that Brexit presented a unique challenge that piles uncertainty upon uncertainty. Businesses do not know what the terms of the future relationship will be, nor do they know by when they will need to have plans in place to adapt to their new environment: "businesses cannot prepare for the future before they know what they are preparing for and when it will start to affect them".
The panellists and audience members discussed how uncertainty was already affecting their businesses. Brexit-related uncertainty was distracting management – "there isn't one board of directors across Europe that hasn't had a discussion about Brexit" – and customers were already starting to alter their behaviour, favouring short term over long term purchases. One business owner commented that their commercial wholesale purchasers were asking them to provide analysis on the impact of a hard Brexit on their supply chains. Others highlighted the unprecedented and pervasive nature of the uncertainty, potentially touching upon all aspects of business, including matters such as financing, human resources, R&D and data localisation.
Many agreed that without a sufficient level of detail about what the future might hold, it was very difficult for businesses to know what they need to plan for, let alone how to do it. There was a concern among panellists that, without more clarity on the direction of travel in the negotiations soon, businesses would need to "prepare for the worst – whatever that may be" by implementing contingency plans. One participant commented that the implementation of contingencies was already happening in some sectors and that it would become a major theme in management decision-making in three to four months' time.
Theresa May's speech: collaborative rhetoric, but lacking in detail
The panellists broadly agreed that the Theresa May's speech in Florence on 22 September 2017 was a "step forward", but that it was lacking in detail. One participant lamented that the position on the British side of the negotiations appeared to have developed from "Brexit means Brexit" to "we are where we are".
As to the UK Prime Minister's call for a transitional implementation period, the panel were sceptical that two years would not be enough of an extension to achieve agreement on the future relationship. The panel also doubted whether the statements made by Mrs May would be enough to satisfy the EU that talks should progress to the next stage.
The panel did not consider the recent election in Germany and the potential for coalition talks to take time to conclude would materially impact the negotiations: "the EU has its mandate and its structure for negotiations; this will continue with or without Germany, for the time being". However, some were concerned that Brexit had been demoted to "any other business" for many Continental European leaders, who were moving on to focus on other matters.
As a result, many businesses were already planning for a hard Brexit, whereby the UK would revert to trading with the EU on WTO terms. The panel was in unison in declaring that this would be the worst outcome of all, as it would have catastrophic impact on all aspects of their businesses.
A call to arms?
Despite the problems Brexit presents, none of the participants suggested that it would lead to a mass exodus of businesses from the UK. The continental businesses would continue to access the UK's markets for its finance, talent and innovation-friendly regulatory environment, among other things, and European consumers would continue to travel to the UK and buy UK products. "We shouldn't overplay the role politics plays in our day to day lives", one remarked.
What can businesses do now in light of the report's findings? The panel's response was unanimous: business was too slow to make its voice heard during the referendum campaign and should not delay any longer to assist politicians on both sides of the negotiations grapple with the detailed implications of Brexit. Failure to do so could result in the legitimate concerns of the doers and makers of Europe being overlooked in favour of political objectives and ultimately a bad deal for everyone.