British Woodworking, looking for the Brexit and prepared for the risks

“For the UK, its people and its economy, we are entering a new chapter in history. But for the joinery manufacturing and woodworking industry, what matters now is that firms are well informed and well prepared to assess risk and sieze any opportunity. From that position of preparedness, businesses will be able to ride through the inevitable period of change ahead with greater confidence and optimism.  BWF have now updated our Brexit risk matrix and we encourage companies to go through it so they are braced for change.

Some of the risks will be immediate, such as fluctuating currency.  The impact on material and component imports and rising fuel costs must be factored into estimates and companies must ensure they are not caught out on projects that they have already quoted on, but materials have not been secured.  In the medium term it is important to remember that, whilst the direction of travel has changed, ultimately the world is the same today as it was yesterday and there may well be increased and enhanced opportunities for UK Manufacturers. Longer term the force of the impact will depend very much on how our Government reacts.  As companies look to invest in compliance we need an early lead.  We have been speaking to senior Civil Servants and at the moment it is business as usual – we are still in so you need to comply and prepare for compliance. 

Government must set aside petty squabbling and personal ambition and unite cross-party to end the period of uncertainty as soon as possible and start creating this new future we have been promised.  We have already heard from leading political spokesmen what this means to their party.  Frankly we are not interested.  Attention must now be targeted not internally in Westminster, but on those parts of the economy that create wealth and jobs.  We need to work with Government and the Civil Service to ensure that the manufacturing sector is not left to struggle through uncertainty, but is placed in an incubator ensuring that we emerge for any short-term blips and can start growing again, adding jobs and value to the new economy.  Initially this must come through tax breaks, incentives to employ and light touch legislation.  We must also ensure that public sector procurement, now unfettered by EU policies, very carefully measures and takes into account the socioeconomic impact of decisions within specification. 

At times like this, strong leadership is crucial. The BWF will be there to support its members, to remain vigilant to market opportunities as well as potential dangers, and to provide insight and clarity wherever it can. Members’ Day next month could not come at a more momentous time. We will be launching a new tool to help our members assess business risk and running workshops with experts well placed to help.  I expect it to be a very busy couple of weeks and a lively event!

Iain McIlwee, Chief Executive, British Woodworking Federation

What next for BWF Members?

Brace yourselves against the barrage of news and spin that you are about to hear, markets are volatile and with the inevitable uncertainty they will be bouncing around a fair bit.  The only thing certain is the uncertainty we face here, in Europe and Globally. 

The important thing is to focus on what we know, which is actually, apart from the volatility and direction for the economy, the fundamentals of how we operate and trade will not alter today or in the very near future – the legal relationship will remain the same for the next two years.

So what does Leave mean?

Article 50 of the Lisbon Treaty sets out the formal process for leaving the EU – this is not triggered by the referendum, but when the UK formally notifies the European Council of its intention to leave – there is no obligation to provide this notification immediately (and the two year clock does not start ticking until they do).  Following David Cameron's subsequent announcement this morning, the start it is almost inevitably delayed until we have a new PM.

The first are of complexity is that the result is not legally binding.  The Government must ratify the referendum result, pass new laws and repeal the 1972 European Communities Act. This ratification has to be passed through the Commons and the  Lords and could take some time.  It is unlikely that politicians will vote against the people and so Parliament blocking seems improbable and MPs who will not vote with the whip will likely stand down.  It could end up in a bit of an eternal loop with the Lords, but again uncharted territory starts to creep in if this should transpire.  It is not entirely clear if notification will be served before the process is finished (it seems probable that it won't at this stage)

The only way now that the referendum could be overturned is if a general election was called and a party campaigned on a promise to Remain, got elected and then claimed that the election mandate topped the referendum.  The trigger for  general election to be held ahead of 2020 (the date now set by fixed term parliaments) is that two-thirds of MPs would have to vote for an election – whilst a potential and some will no doubt make the call, at present this seems an unlikely scenario.

So where is the Brexit?

The decision of how we exit depends on our negotiations.  The process allows two years to conclude the agreement and can only be extended if all 27 Member States agree unanimously to an extension.  The complexity of the exit is not to be underestimated and it may be a time before we have our own political structure in place to open the negotiations, the announcement of David Cameron this morning means a new leader and a new Cabinet will need to be formed.  There are also some tricky negotiations within the Union as to who and how the negotiations will be conducted and how the entire United Kingdom will or will not be represented.

In addition to the trade and level of contribution, the freedom of movement of labour will present some interesting challenges not simply who gets to come in, but what happens to EU nationals in the UK and indeed UK nationals elsewhere.  The very framework of the governance of the UK and Europe will be challenged.  It is unlikely the UK will take the next Presidency of the EU as was planned in the second half of 2017!!

So what will the negotiations be about?

Ultimately the negotiations will be about contributions in to the EU, trade agreements and which, if any principles (e.g. freedom of movement of labour) and regulations we will be required to accept. There are four possible outcomes based on current models on which negotiations will be centred:

The European Economic Area:  This would still require freedom of movement of labour, an issue very much at the heart of the vote and also adopting EU regulations into their own law (with limited ability to influence them).  It would mean no tarriffs, but added bureaucracy from border control and VAT.  This is the model used by Norway, Lichtenstein and Iceland.

The European Free Trade Area:  This is effectively replicating the position of Switzerland (the only country currently operating in this way).  It is similar to the EEA, but more limited in scope – Switzerland have rejected EU Policy on freedom of movement of labour, but the EU will have made a statement that Switzerland can't pick and choose EU Laws and as a result Switzerland will be called back to the negotiation table, this must be completed within three years and was only put on hold pending the outcome of the UK vote.

A Free Trade Agreement:  More of an unknown quantity, but what many of the "Leave Voters" will be expecting.  This would simply be a negotiation to secure tarriff-free trade and some business freedom in Europe.  There is no formal requirement for freedom of movement or budgetry contributions, but conditions would be set within the deal that was negotiated.  Once a deal is set it would require a formal renegotiation to ammend.  As this is an unprecedented situation, there is no timeline set, but the CBI predicts around 5 years and require formal votes in the European Parliament and referendums in some Member States.

No agreement at all: Failing an agreement being met, the UK would resort to trading via the WTO rules and both tarriffs (individually negotiated) and customs borders being re-established between the EU and UK.

Of course these possibilities are linked to the world as it is now, it was in no doubt rocked on its axis today and the negotiations will be about renegotiating a new normal for the UK from our perspective and holding together the very fabric of the EU from the other side. 

The possibilities will be debated at BWF Members’ Day on 7th July and the program is being adapted to ensure their is sufficient time and expertise in the room to make this as productive as possible