Members of the European Union are preparing to enter into Brexit without a deal, meaning Britain would exit the EU without negotiating the terms of its departure. That could create chaos for U.S. boat and marine equipment manufacturers exporting to the U.K. and Europe.
EU leaders gave British Prime Minister Theresa May until April 12 to keep trying to negotiate a deal that might be accepted by her own Parliament, but said they were prepared for a no-deal departure it deemed “increasingly likely,” according to Bloomberg News.
Though it’s the least-preferred option, the European Commission said governments had taken measures to prepare, including the recruitment of hundreds of customs specialists.
An EU official underscored to the news outlet that it wouldn’t enter into mini-deals to make a no-deal more palatable, and its measures were unilateral and aimed at self-protection.
A petition to vote on reversing Britain’s exit from the EU had received 5.4 million signatures in less than a week, according to CNN.
The problem is that the United Kingdom is just as split as people are in the United States, and nobody is willing to compromise, said Richard McKenna, a managing partner at Atlantic Strategies. McKenna sits on the board of directors of the British American Business Council of New England.
“It’s a quagmire that has been caused by politics versus sound business,” McKenna told Trade Only Today.
No matter how it plays out, the move is likely to have a dramatic effect on any U.S. company that operates overseas, McKenna said.
“Nobody has the crystal ball because this has never happened before, but a couple things will likely happen quickly,” he said. “The declining value of the pound versus the U.S. dollar is going to make American boats very expensive to buy.”
That would mean yet another price increase for U.S.-built boats if the UK kept the 25 percent retaliatory tariff on boats imposed by the EU.
Boatbuilders that have partnerships to manufacture in the UK will probably not be able to keep their employees from the EU; for example, the 300 workers from the European Union that Sunseeker employs might not be able to stay in the UK, particularly without a deal negotiated, said McKenna.
“The labor laws are so different in Europe than in the U.S., you can’t just cut workforce; you have to care for that workforce for a time,” said McKenna.
Brexit will probably present problems for U.S. manufacturers that have established British partnerships for European distribution.
“A lot of American companies, regardless of industry, have partnered with the UK as a channel to Europe,” said McKenna. “There’s no language barrier, there’s a similar tax structure and rules around labor and the environment. Without a deal, they will have to find partnerships in France or Ireland or other parts of the EU so they can continue to sell into the EU.”
A hard Brexit will also mean difficulty in sourcing parts that come from the EU to the UK, and vice versa.
“It really is amazing how complicated things actually are,” said McKenna. “A lot of components are made all over Europe, so certain manufacturing standards need to be renegotiated, and taxes and tariffs. Even trying to ship things to the UK on a cargo ship to Southhampton — if Brexit happens as a hard break, companies are going to have to negotiate another port, and find different shipping routes. It’s so complicated.”
After Brexit, if there is no deal, the results of any conformity assessment carried out by UK notified bodies will no longer be recognized in the EU, according to the International Council of Marine Industry Associations.
This means that products tested by a UK notified body will no longer be able to be placed on the EU market without retesting and re-marking by an EU recognized conformity assessment body.
“All members should ultimately prepare for the worst-case-scenario which is that no exit deal is reached between the UK and the EU,” said ICOMIA in a bulletin to update members. “It is important that everyone keeps themselves informed of all the potential outcomes.”
If the UK leaves the EU in 2019 without an agreement, UK exports to EU member states will automatically defer to World Trade Organization trade rules and the UK will be subject to the applied rate levied by the EU on external trading partners.
British import duties will also be governed by WTO trade rules and the UK would most likely seek to broadly match the duties levied by the EU, but this has yet to be confirmed.
An example of the current tariffs applied to third country imports into the UK can be found here and guidance on what will happen to existing trade agreements if the UK leaves the EU without a deal can be found here.
American boatbuilders can likely carve out a fair deal with British importers, but until EU contracts are established, they’re going to have a hard time exporting to Europe, speculated McKenna.
The British American Business Council is bringing a group of U.S. businesses on a trade mission to Northern Ireland and Scotland next month to help them establish partnerships.
“I think builders should focus on — if they had to leave the UK — the Republic of Ireland,” said McKenna. “Luckily they’re an island, and they’re English speaking and part of Europe.”
“It’s an absolute mess,” added McKenna. “Nobody knows what’s happening. That’s why I’m taking American businesses over to the UK to meet counterparts face-to-face and figure things out. From mess there’s opportunity.”