UK Toyota Shows Theresa May Is in a Double Brexit Bind

13 September, 2017

Toyota Shows Theresa May Is in a Double Brexit Bind

- Carmaker warns production could shift from U.K. amid doubts
- Hammond plans ‘status quo’ exit: single market, customs union

Prime Minister Theresa May is in a double bind as she tries to navigate the politics of Brexit while keeping businesses on side: Even when she thinks she’s giving companies what they want, they say she’s made it worse. 

May is set to ask the European Union to let Britain keep access to its single market and customs union for a period after Brexit to help businesses adjust -- but a Toyota Motor Corp. executive warned the increased uncertainty of a transition phase could force it to move production elsewhere.

May is preparing to deliver a speech outlining her current approach to the divorce. Chancellor of the Exchequer Philip Hammond on Tuesday gave an insight into its contents by saying the government wants a "status quo" transition.

Many business leaders share Hammond’s desire for a long, steady transition period, while others say the continually shifting sands underlying the U.K.’s Brexit policies will make it impossible to plan for the longer term. Toyota Executive Vice President Didier Leroy said there was a “strong need” for clarity on the shape of Brexit.

“We will not postpone a new product for three more years just because the negotiation is going to take three more years,” Leroy told Reuters in Frankfurt on Tuesday. “It’s clear that if we have to wait two to three more years to have a clarity on this topic, we will have a big question-mark about our future investment in the country.”

A subsequent statement from the company said it has "no imminent decision or change of stance” toward this business in Britain, although it added easy market access to the EU is vital for maintaining competitiveness.

Speaking at the same event as Leroy, PSA Group Chief Executive Officer Carlos Tavares told reporters on Tuesday that he was impatient to get guidance on Brexit to make investment decisisons. He said Brexit was already preventing investment and that by the end of the year the company will pick two scenarios for the split on which it will base its future decisions.

Photo: Graphic: Where Brexit Matters Most

General Agreement

Hammond’s transition plan will grate with the most ardent supporters of Brexit as well as EU officials who don’t want to reward Britain’s decision and also want it to focus harder on settling the terms of divorce before discussing the future. A simple transition extending existing rules will also find favor with those businesses and banks that are desperate for the separation to be as smooth as possible so they have time to adjust.

“There is general agreement that it would not make sense to ask business to face two sets of changes,” Hammond told a House of Lords committee in London. “That implies that a transition or interim period would need to look a lot like the status quo.”

Hammond spoke as Brexit negotiators postponed next week’s scheduled round of talks in Brussels until Sept. 25. The aim is to give both sides more time to ensure they make progress when they do convene, a U.K. government spokesman said in a statement.

Cabinet Consensus

Other officials said it was to give May space for her speech. The likeliest time spot is looking to be after her return from attending the United Nations in New York, around Sept. 22.

When May does speak she’s likely to flesh out her Brexit strategy three months after an election cost her Conservative Party its parliamentary majority. That loss and the blow to her authority likely means she will have to soften her approach to Brexit from the hard and uncompromising one she outlined in January.

May’s damaged standing received a boost Tuesday when she won a vote in the House of Commons to guarantee her Tory government has a majority on key law-making committees, which scrutinize bills, despite not having won a majority in the election.

Hammond’s comments were an expansion of his remarks in July, when he said people should expect few immediate changes when Britain leaves the EU. But back then, his language was more coded.

His willingness to be explicit about his goal suggests a Cabinet consensus has since been formed. Brexit Secretary David Davis made similar comments last week.

Hammond suggested the the U.K. would be allowed to conduct negotiations on trade deals during the transition, but not implement them until the end of it.

George Bridges, a minister in Davis’s department until June, wrote on Tuesday that he was “delighted” that the government had “grasped” the need for a transition period with minimal change. He suggested this should last until the end of 2020, with the U.K. continuing to pay into the EU budget throughout that time.


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