THE WIDER ANGLE. Britain heads to a messy divorce

It isn’t often you get to watch a country collectively doing a slow-march towards a precipice. But that’s the only way to describe Britain as it heads towards Brexit, its supremely messy divorce with the European Union. And it’s only now, as the final break draws near, that the British are beginning to realise what they have let themselves in for. In fact, one minister quit on Tuesday just before a Parliamentary vote on some aspects of Brexit.

Consider one figure: some 2.6 million trucks cross annually from Dover in the UK to Calais in France. Now the trucks travel with minimal customs and immigration checks but that’ll change once Britain leaves the EU.

“Even if they take two minutes per vehicle, there’ll be 20-30-mile queues back from Dover,” says Karan Bilimoria, who is in the vanguard of a fight against Brexit hardliners. “The best option, by far, would be to remain (in the EU),” he says.

For many Indian companies which have made their home in Britain, treating it both as a market and a bridgehead to Europe, the coming months will be critical. Four Tata Group companies alone — Tata Motors (JLR), Tata Steel, Tata Chemicals and TCS — employ 65,000 people in Britain. JLR is Britain’s biggest automobile company. It is not clear yet what tariffs automobiles will face in Europe and how parts coming from Europe will be taxed. JLR has just opened a major new factory in Slovakia and last year started an R&D centre in Ireland. It insists these moves were long-planned and unrelated to Brexit, but analysts expect it to move work to Slovakia in coming years to lower its UK dependence.

One large chunk investment in Britain has come from Indian pharmaceutical companies like Lupin and Aurobindo Pharma that have set up shop there. Britain has been a favoured base for Indian pharma companies as a springboard to Europe and also because the European Medicines Agency (EMA), the European regulatory authority, is based in London. But the EMA is moving to Amsterdam next year if Brexit goes through.

“Pharma companies seem to be staying put for now but they may also move eventually to Amsterdam,” says Anuj Chande, South Asia Group head at Grant Thornton UK.

As yet, there’s no sign Indian companies are giving up on Britain, says Chande. That is partly because London is a natural port of call as Indian companies pursue global expansion. Also, the pound’s slide since the tight referendum verdict has made British companies attractive buys.

“Local revenue generation (of Indian companies) has continued to spike,” says Lakshmi Kaul, who heads CII’s London office. She adds that Indian tech companies are hoping that Brexit will present new opportunities within Britain itself.

Chande says there may be a slowdown in the coming months. “There is still a lot of activity but the closer it gets to Brexit, it may tail off,” he adds. After March 29, 2019, when the UK is scheduled to leave the EU, Indian companies may no longer be able to use the country as a spring-board for accessing the EU market.

Portugal’s pitch

Indian companies are being wooed by several European countries and Portugal’s Indian-origin Prime Minister Antonio Costa made a pitch to Indian firms to consider Lisbon as a “two-in-one” option along with London so as to have an EU base. Costa points towards Portugal’s extremely attractive personal tax rates and great climate. Other European countries, too, are on a charm offensive to attract Indian companies that may need an EU base.

The dilemma for Indian companies and everyone else is, even now, nobody knows what form or shape Brexit will take and that makes it difficult to plan. The Europeans have told the British a final deal must be on the table by October because it has to be cleared by every EU country and even provinces in some countries.

A divided house

But the British themselves have been unable to reach an agreement on what they want from Brexit. The ruling Conservative Party is a warring tribe over what kind of customs arrangement it desires with the EU or if it wants one at all. The preferred choice of hardline Brexiteers like Foreign Secretary Boris Johnson is to crash out of the EU without a deal. They contend it will give Britain more leg-room to manoeuvre and strike free-trade deals, particularly with the US.

More moderate voices say US President Donald Trump’s upending of the global trade order is a stark warning to Britain its cherished hope of a special US trade deal is pie-in-the-sky. EU Brexit negotiator Michel Barnier also is in no mood for favours, saying the UK’s decision to leave “has consequences”.

International Trade Secretary Liam Fox’s 2017 assertion an EU trade deal would be the “easiest in human history” now rings conspicuously hollow.

It looks as if Britain will now stay in a customs union with the EU till 2021. Extending the customs union until 2021 means British tariffs would be kept in lockstep with the EU and Britain would have breathing space beyond when Brexit comes into effect. Critics say the delay, though, would mean the position after 2021 would remain unclear and stoke Brexit uncertainty.

Brexit was always badly thought out and that becomes crystal clear with the Irish border question that’s become a monumental hurdle. At present, there are no border checks between the Irish Republic and Northern Ireland which is part of the UK. Both Irish sides agree they don’t want a hard border with customs checks.

But post-Brexit, if there’s free movement in Ireland, there would have to be border checks between Northern Ireland and the British mainland, which UK Prime Minister Theresa May says is unacceptable. Given that situation, the only alternative is Britain staying in the customs union for now. Says Bilimoria: “The Achilles Heel of Brexit is Northern Ireland”.

The other alternative is what’s called the Norway solution under which Britain remains in a permanent customs union with the EU but doesn’t get to sit at the high table and take decisions. That’s obviously an unattractive solution.

In all this, the other great elephant in the room is free movement of people. The EU argues if Britain wants to stay in a customs union, it must accept free movement of people to some extent. Since Brexit was largely about what Britons contended was too much immigration, that’s unacceptable to May.

India angle

How does all this pan out for India? EU diplomats note while Britain has batted for India in Brussels, there are big sticking points in the UK-India relationship. Most importantly, May’s stood firm against dispensing more visas for Indian software-service executives. Also, there’s the perennial problem of Indian duties on Scotch whisky which are still around 150 per cent.

These issues will also stand in the way of Britain striking a free-trade deal with India. Research shows it takes six years to strike a free trade deal with India and sometimes longer.

India and the EU have been negotiating a free-trade deal since 2007. And will Brexit mean Britain will be willing to take more chefs for Indian restaurants and doctors from India? So far, signs aren’t promising.

Britain still occupies a pivotal place in the globe and it’s been crucial for Indian business. But the country may become a less-preferred destination for Indian and other foreign firms as the Brexit problems pile up and chaos looms.

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