Take action now as 'No Deal' Brexit looms

Source: ECN

2019/01/17

Following the UK government’s Brexit defeat, UK chemical companies and their trading partners should ramp up preparations for a no-deal Brexit as that is still the default legal position, despite optimism in financial markets that it can be avoided.

Following the defeat by more than 200 votes on 16 January, UK Prime Minister, Theresa May, now has to speak to senior parliamentarians to see if there is any way to find an approach to her Brexit deal which could garner enough support to pass through parliament.

Members of Parliament (MPs) may also work behind the scenes to try to find a solution with cross-party consensus. The UK pound sterling held steady after the defeat as analysts predict that a no-deal Brexit is less likely to happen.

However, parliament is so deeply divided that it is far from certain that any kind of consensus can be achieved, which means that although the vast majority of MPs oppose a no-deal exit, this is still the default legal position.

May’s Plan B must be presented to Parliament on Monday, 20 January. There may follow a series of votes on different solutions to see if any can achieve a parliamentary majority. If this fails, the government is left with few options:

  • Seek an extension to Article 50 of the Lisbon treaty which will grant extra time before exit day to find a Brexit solution and prepare the country for it legally and administratively. This would have to be agreed by all other 27 governments in the EU.
  • Cancel Article 50 altogether, which would halt Brexit.
  • Call a general election.
  • Seek a second Brexit referendum.
  • Do nothing and crash out of the EU without a deal on 29 March.

In her speech after the defeat, May pointed out that parliament has rejected her deal but not offered an alternative.

“It is clear the House does not support this deal. But tonight’s vote tells us nothing about what it does support, nothing about how or even if it intends to honour the decision the British people took in a referendum,” she said.

May has made it clear that she does not support a second referendum or a general election and is intent on delivering Brexit so would not cancel Article 50 altogether. However, in seeking an extension to it she would need a definite plan of action for the EU to grant more time.

There are other forms Brexit could take, but planning and implementing them could take years; the current deal took two years to negotiate.

Other forms of Brexit (see ICIS Brexit topic page for full details) include:

  • Membership of the European Economic Area (EEA)/European Free Trade Association (EFTA).
  • A customs union.
  • The “Canada model” free trade agreement.

Under a no-deal scenario, companies trading between the EU and the UK will face a much more complicated system of paperwork to comply with new customs arrangements under World Trade Organisation (WTO) rules. As well as preparing for that, they need to ensure that their logistics systems will be legally able to operate.

Chemical companies should press the “panic” button and ramp up preparations for the chance of a disorderly exit into WTO rules, according to Paul Hodges, chairman of information service Ready for Brexit.

“The situation for business is terrible. We know that 80% of companies have not made proper preparations for this and have just stuck their heads in the sand and assumed it would not happen,” said Hodges.

He added that companies have to learn about Rules of Origin and customs arrangements, pointing out that in pre-single market times nine forms had to be filled out to get a cargo of benzene from the UK to Rotterdam, compared to two today, and with no delays.

Meanwhile, chemicals trade groups expressed their dismay at the continued uncertainty. According to the UK’s CIA, this makes it difficult or impossible for companies to finalise investment plans.

“Every delay risks either no decision on UK investment, trade and jobs or, worse than that, irreversible decisions,” said CEO Steve Elliott.

European chemicals trade group Cefic director general Marco Mensink said that having certainty on the arrangements between the EU and the UK was “critical to avoid serious” supply chain disruptions.

Additional reporting by Tom Brown