French Businesses Wake Up to the Reality of a No-Deal Brexit
French Businesses Waking Up to the Reality of a No-Deal Brexit
(Bloomberg) --
Jean-Marie Fabre began traveling to London from southern France about five years ago to sell his red wine, and Britain now accounts for around a fifth of his exports. A no-deal Brexit threatens to undo all his work.
“I was starting to get good traction,’’ said Fabre, over the sound of wine presses at his vineyard, the Domaine de la Rochelierre. “It takes time and money to enter a market and nurture a commercial relationship, propose your products, organize tastings.’’
Fabre’s is one of many small to mid-sized French businesses waking up to the possibility that Britain will crash out of the European Union at the end of October, throwing trade into turmoil overnight. That risk escalated after Prime Minister Boris Johnson said he’ll suspend Parliament from mid-September to mid-October -- leaving lawmakers less time to block a no-deal departure.
While Britain stands to lose the most from such an outcome, France won’t be immune. A hard Brexit could shave 0.4% from annual growth in gross domestic product, said Ana Boata, senior economist at credit insurer Euler Hermes. That could rebound onto President Emmanuel Macron, who has shown little willingness to compromise with Johnson on Brexit and only recently began putting the virulent Yellow Vest protests behind him.
“Jobs, the well-being of families, loans, investments are on the line,’’ said Alban Maggiar, European affairs deputy at CPME, an organization representing small and medium-sized French companies. Transport, agriculture and fishing are among areas most at risk, he said.
France’s government now sees a British exit without a withdrawal agreement as the most likely scenario, an official close to Macron said last week. The finance ministry will hold a meeting Tuesday to brief businesses on Brexit, an official said. With no transition period, U.K. firms would have to start trading with the EU on World Trade Organization terms – causing goods to face tariffs at the border.
France will stage a dress rehearsal for Brexit at the port of Calais on Friday, where customs officials and truckers will act as if Britain has already left, Budget Minister Gerald Darmanin told RTL radio. French authorities have recruited 700 additional customs officers and upgraded technology to smooth the transit of goods, he said.
“It seems impossible to imagine that this market, which has been reliable for years, would just shut down overnight,’’ said Andre Sergent, who raises pigs in Brittany and exports a third of the cold cuts he produces to the U.K. He foresees the disarray lasting for as long as two years.
France’s biggest firms have had years to map out strategies and adjust supply chains to deal with potential disruptions. Peugeot-maker PSA Group has warned it may move the production of Vauxhall cars from the U.K.’s Ellesmere Port plant to southern Europe. Airbus SE, with operations across Europe, has been stockpiling parts in the U.K. to avoid border tie-ups and planning for an airlift if necessary.
Yet many smaller companies lack the resources to prepare, said Bernard Spitz, who heads European affairs at Medef, France’s largest trade group, representing more than 750,000 firms.
“They don’t have the skills or the budget to hire legal, logistics and tax experts,’’ Spitz said. “So some of them are wondering if it’s worth it. As long as Brexit isn’t a given, some say ‘we’ll see.’’’
That’s the case for Emmanuel Delaille, who produces Cheverny wines at Domaine du Salvard in France’s Loire Valley, and exports to the U.K. “We aren’t a multinational company -- there’s not much we can do,’’ he said, adding that some British customers will probably stay faithful to French wines even if they become more expensive.
Others are preparing to adapt. Vincent Le Granche, who handles exports for Pom’ Alliance, a company that packages and sells some 250,000 tonnes of French potatoes annually in 40 countries, said farmers may reduce the acreage devoted to growing the small, firm varieties preferred by customers in the U.K.
‘Light a Candle’
“We envisage the worst -- losing this market entirely,’’ he said. Pom’ Alliance will look to Northern Europe and Germany to make up for lost sales in Britain, where customers are already unwilling to commit to contracts without more clarity on Brexit, Le Granche added.
The trouble is, as exporters to the U.K. look for substitution markets, all their EU competitors will be doing the same, said Thierry Pouch, chief economist of the French Chambers of Agriculture. He estimates a cliff-edge departure could translate into a 3-billion-euro ($3.3 billion) hit for French agribusiness.
Some segments of the economy, such as Paris real estate, could benefit from Brexit, as banks and other corporations shift personnel to France and citizens living in Britain move back home, economists say. And some of France’s EU partners, from Ireland to the Netherlands, stand to take a much bigger hit.
While a new accord or even fresh U.K. elections are still possible, time is running out, leaving French companies, and the rest of the EU, in limbo. Fabre, the red-wine producer, said his business with customers in Britain is frozen because of the uncertainty.
“We don’t hold the keys to what will happen with Brexit, or what will happen tomorrow in terms of commercial relations,” he said. “If you’re a believer, you can light a candle, or use amulets.’’
--With assistance from Angelina Rascouet and Helene Fouquet.
To contact the reporter on this story: Ania Nussbaum in Paris at anussbaum5@bloomberg.net
To contact the editors responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net, Frank Connelly, Kenneth Wong
©2019 Bloomberg L.P.