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What Theresa May's Brexit speech means for procurement.

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Milan Panchmatia, managing partner at 4C Associates, talks about what Britain's aims for brexit might mean for procurement 

 

Theresa May, the Britain's prime minister, made a speech last week that sought to provide more detail about the kind of relationship the country will have with the European Union (EU) after it leaves. It specifically explained how the Government will manage the transition from a central player in the EU to a solidly independent trading nation. It left a few questions hanging and some of those are particularly significant for procurement.

 

While there is still more than two years from any conclusion to this process, hope remains that the UK Government will be able to deliver the best trading deals it can with the EU and elsewhere. It was encouraging to hear certainty in Theresa May's statements in what looks to be a classic piece of pre-conditioning, which will hopefully allow the country to forge ahead and make free-trade deals with many other countries.

 

Further, the news this week of May's Green Paper for British industry, outlining government support to businesses by addressing regulatory barriers and agreeing trade deals, shows that the Prime Minister understands that the removal of trade barriers remains key to underpinning the UK as a world-leading economy. For the UK to be successful, it needs to be able to establish, swiftly and freely, its own tariff schedule at the World Trade Organization (WTO).

 

These trade deals will not come without concessions and there have already been moves by the likes of Australia and India over the issue of work visas and how they might be applied in the context of new trade agreements.

 

May said in her Brexit speech that ‘no trade deal is better than a bad trade deal.' From a procurement perspective, I agree. It is however, important to ensure that there is fall-back plan in place. Should the UK end up in a ‘no deal' situation, it would end up defaulting to the higher tariff schedules under WTO Rules, something that would impinge on a lot of businesses and their supply chains.

 

This posturing from the PM could also conflict with more than one of her goals including the newly vaunted ‘interventionist industrial strategy'. Cultivating world-leading sectors is an aim worth fighting for, but if the UK defaults onto WTO tariffs the country will remain uncompetitive and that will not allow these sectors to either gain traction or flourish over the longer term.

 

Any trade deal may rely on working with other nations under the WTO rules. The UK is a member of the WTO both on its own and as a member of the European Union, and because of this it's not possible to just ‘cut and paste' these terms and conditions. It's likely that these T&Cs will need to be rewritten when the UK leaves the WTO (as part of the EU's membership). The EU's own commitments to other WTO member states will no longer be valid. Resolving this will be time sensitive, complex and will require negotiation between WTO members covering issues such as tariff quotas and subsidies. The impact on input and output pricing is likely to be extensive and a cause for concern among procurement professionals.

 

Whilst UK consumer confidence remains buoyant and sales remain positive, there's still a long way to go before uncertainty disappears. Driving towards a solution that is palatable for the electorate, regional and central government as well as potential trading partners and businesses, is going to require a level of sophistication, which is yet to be seen.

 

Milan Panchmatia is a managing partner at 4C Associates 

 

This contributed article has been written by a guest writer at the invitation of Procurement Leaders. Procurement Leaders received no payment directly connected with the publishing of this content. 

Milan Panchmatia
Posted by Milan Panchmatia

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