What May's Brexit Fudge Means for Business: More Uncertainty

(Bloomberg) -- As Brexit talks edge toward a compromise, the fudged deal that’s taking shape risks bringing years of uncertainty to business.

Negotiators have made progress toward a deal on the thorny issue of the Irish border. But an agreement on that specific matter has wider implications for the whole U.K.’s relationship with the bloc.

While it’s known as the backstop because both sides consider it a guarantee, on both sides there’s a hunch that what is agreed as just a backstop could well end up being used -- and remaining in place indefinitely.

The compromise in view involves keeping the whole U.K. within the EU’s customs regime as a temporary measure -- and that would come into effect after the 21-month transition period comes to an end at the end of 2020.

The U.K. insists the fallback customs setup must be temporary, while the EU says any backstop has to be open-ended. There may be some wiggle room with the wording. Both sides say the backstop shouldn’t become a backdoor route for the U.K. to secure its future trading relationship with the bloc.

But for business, the risk is that Prime Minister Theresa May has given up on one of her first promises to them: that they would only have to adapt to one set of changes in rules and trading regulations.

‘More Open’

We’ve “long argued for a U.K.-wide element to the backstop for Northern Ireland, and applying this to customs arrangements would resolve some of our members’ anxieties,” said Allie Renison, head of Europe and trade policy at the Institute of Directors. But “the government needs to be much more open about its counter-proposals to the EU,” she said.

If the U.K. insists on making the customs arrangement temporary, then another set of changes will eventually come into effect once the two sides hash out their final trade deal. In an ideal world, the new trading relationship would be in place at the end of transition. But most Brexit watchers think that’s unlikely.

There’s also a chance that the backstop would never come into effect, and that practicalities would argue instead for an extended transition period, argues Mij Rahman, a director at Eurasia.

“All the politics will allow right now is a temporary customs arrangement,” he said. “But the actual plan might be different and we will be locked in transition for a very long time.”

Call for Clarity

Businesses have spent the past two years crying out for clarity on what Brexit trade terms will look like. The Confederation of British Industry said Thursday what mattered now was “measurable progress” from the negotiations.

But May’s backstop compromise could leave them staring at fudge.

Businesses don’t care about the political wranglings -- they just want answers, according to British Chambers of Commerce Director General Adam Marshall.

“It’s not the back room blow-by-blow that matters, but a withdrawal agreement and set of commitments on the future trading relationship that businesses can take to the bank,” he said.

©2018 Bloomberg L.P.