Politics

Is NZ business ready for Brexit?

As UK politicians scrap over how (or whether) to leave the EU, the date for the country’s departure is fast approaching - but are Kiwi businesses and politicians ready for the results?

More than two and half years on from the UK’s vote to leave the European Union, exactly what that decision means is as unclear as ever.

With the UK Parliament rejecting Prime Minister Theresa May’s proposed Brexit deal by a resounding margin in a vote on Wednesday morning (NZT), her deal as it stands is dead in the water.

Less obvious is whether there is a majority for any of the alternatives, be that a second referendum or a significantly different arrangement with the EU.

That has increased the likelihood of a “hard” exit on the March 29 deadline without any transitional arrangements in place - a potential outcome that is causing some to sound the alarm about the need for Kiwi businesses to be prepared for the chaos that could result.

'Safety blanket' gone

Stephen Jacobi, executive director of the NZ International Business Forum and a former diplomat, says a no-deal Brexit in March looms as one of the worst possible outcomes for Kiwi exporters, who would need to adjust to a change in conditions far more swiftly than anticipated.

"The safety blanket of a two-year transition period that was associated with the [Theresa May] deal is now gone, so that’s problematic for New Zealand exporters.”

Sarah Salmond, the head of international trade for Russell McVeagh, says smaller exporters do not appear to have done the same “road testing” on their European supply chains as larger corporates like Fonterra.

“[Other companies have] generally taken the view that it’s kind of like Y2K, all talk, all bluster, but at the end of the day nothing’s going to happen, and if it was so bad the Government would step in and save us all, so I’m just going to sit and wait.”

“[Other companies have] generally taken the view that it’s kind of like Y2K, all talk, all bluster, but at the end of the day nothing’s going to happen, and if it was so bad the Government would step in and save us all, so I’m just going to sit and wait.”

That seems a dangerous approach given some of the likely impacts of a no-deal exit, such as delays with customs and other hold-ups at the UK and EU borders.

Jacobi mentions the debate over the division of tariff rate quotas, particularly for the meat industry, that may not be a problem in the immediate future but is likely to rear its head as the year goes on.

Then there are the wider economic impacts on the UK and the potential flow-on effects to consider.

Finance Minister Grant Robertson says the Government has been taking a multi-agency approach to Brexit preparations. Photo: Lynn Grieveson

It’s no surprise that the issue is keeping the Government busy in New Zealand, with Finance Minister Grant Robertson saying the latest vote has created further uncertainty.

“Obviously that’s challenging, particularly for exporters who are looking towards what their exports to the UK in particular will look like in the future, and nobody likes uncertainty but that is the situation we find ourselves in.”

Robertson says the Government has taken a “multi-agency approach” to Brexit, with agencies handling trade, customs, immigration and biosecurity among those who have been working on plans for all possible outcomes.

Trade and Export Growth Minister David Parker says a crucial area of work has been ensuring that the existing sanitary and phytosanitary agreements with the UK are maintained to avoid disruptions to animal- and plant-based exports; officials are close to finalising a solution.

Harsh commercial realities

But while Salmond believes officials have been doing their best to prepare for a no-deal scenario, she says they can’t prepare Kiwi exporters for the commercial realities of Brexit, such as the need to find new customs and corporate representatives for EU business.

An added complication is the current contracts being signed between UK and NZ businesses, with the former doing their best to pass on all Brexit-related risks to the latter.

“What the British are doing is saying, ‘Hey we’re going to buy some stuff off you in New Zealand but you’re responsible for all of the steps in getting it to us, therefore you’re responsible for the customs duties, you’re responsible for the shipping. If there’s a delay it’s your fault, if there’s a border inspection you need to deal with it’.”

Salmond says that is a serious risk for companies with small margins selling to a large retailer, who risk being stuck with the tab for spoiled dairy products stuck on a wharf in the UK - as well as any ensuing legal dispute over the bill.

"People need to be aware and working with their partners in the UK to understand exactly where they can get products to in the event this [a hard Brexit] happens."

Robertson says he is aware of concerns about the readiness of some companies, but is quick to dismiss any suggestion of a government handout in the event of exporters being hit hard by a hard Brexit.

“That’s not something I’ve done any work on because it’s not something that I think is going to play out, but it does emphasise all the more why people need to be aware and working with their partners in the UK to understand exactly where they can get products to in the event this happens, how they would export them and all those sorts of issues.”

Businesses are likely to have slightly more time to prepare, with both Jacobi and Salmond predicting the UK will (eventually) seek an extension of the Brexit date to provide more time for negotiations and alternative options to be considered.

But as Salmond says: “Frankly, all that’s going to do is buy more time - it’s not going to change the substance of the decisions that need to be made.”

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