British businesses are taking Boris Johnson’s election pitch to ‘Get Brexit Done’ with a pinch of salt: they know that confusion over the UK’s exit from the European Union is set to carry on through 2020, or longer.
Even if the prime minister wins a parliamentary majority in December and passes his Brexit withdrawal agreement, UK Plc would face another year of uncertainty before a still-to-be-negotiated new economic relationship with the EU begins at the start of 2021.
“The real impact of Brexit doesn’t start until the end of the transition,” said Lucy Fergusson, a partner at Linklaters in London, referring to the standstill period when trading relations between the UK and EU would remain the same. “What Johnson should be saying is ‘Get Brexit Begun,’” she said, when asked about the Tory leader’s slogan.
If he’s returned to power, 2020 would be a critical year for Johnson as he seeks to carve out a free-trade agreement with the bloc. His withdrawal deal, which covered delicate matters such as citizens’ rights, the divorce payment and avoiding a border on the island of Ireland, was just the first step.
The next will be negotiating a deal to replace the tariff-free access to the single market Britain’s companies have long enjoyed. Executives fret that Johnson will accept greater friction on trade — like tariffs and quotas — in return for greater freedom to diverge from EU standards. Should he fail to reach a deal with the EU, Britain’s largest trading partner, the UK could end up leaving on World Trade Organisation (WTO) terms.
“Business is unsettled as to what may come next,” said John Foster, campaigns director of the Confederation of British Industry. “Politicians should keep an open mind to extending the transition.”
Under Johnson’s deal, the UK has until July 1 to ask for an extension to the transition period past the end of 2020. So far, his government has ruled it out.
Completing a comprehensive free-trade agreement in 2020 will be impossible because there’s too much to resolve, said Anna Jerzewska, an independent customs expert and consultant for the British Chambers of Commerce. At best, the UK and EU might be able to agree to a goods-only deal, with negotiations to continue afterwards, she said.
In any event, many businesses would find adapting to a new a free-trade agreement just as troublesome as if the UK left without a deal, said Sam Lowe, a senior research fellow at the Centre for European Reform.
“It would still create a lot more trade friction and cost than currently exists,” Lowe said, citing the need for companies to grapple with issues such as rules of origin paperwork, customs and security declarations, and other import and export formalities.
“No matter how ambitious the deal is, there are known limits to how much it can do to liberalise trade.”
Johnson’s government used the summer to ramp up Britain’s readiness for a no-deal split, spending billions on preparations and running a 100 million-pound ($129 million) public information campaign. Next year will likely see a renewal of Brexit readiness messaging, said Peter Bishop, interim chief executive of the London Chamber of Commerce and Industry.
“No doubt there’ll be another 100 million pounds spent,” Bishop said, noting that hundreds of thousands of UK firms will be trading with the EU as a so-called ‘third-country’ for the first time, even under a free trade deal. “There’s a big education exercise to be done.”
While some companies have prepared extensively for Brexit, others have done little and much more action would be taken if the current withdrawal agreement passes, said Amanda Tickel, global Brexit lead at Deloitte in London. Many would carry out extensive impact assessments and pull the trigger on any substantial contingency plans if the transition period isn’t extended, she said.
“I think you’d see six months of quite frenetic activity in the back half of 2020,” Tickel said.