Parliament rejects Brexit proposal, business uncertainty lingers
UPDATE: March 12, 2019: Parliament has rejected Prime Minister Theresa May's Brexit proposal with a vote of 391 to 242. The legislative body will reconvene tomorrow to vote on whether it wants to break away from the EU without a plan. "I profoundly regret the decision that this House has taken tonight," May said after today's vote.
- The British Parliament is scheduled to vote today — at approximately 7 p.m. in London — on a revised Brexit withdrawal agreement drawn up by Prime Minister Theresa May. The agreement seeks to prevent a hard border between the Republic of Ireland, a European Union (EU) country, and Northern Ireland, part of the United Kingdom (UK).
- A legal opinion by Britain's Attorney General Geoffrey Cox could complicate matters for May. Cox concluded May's new agreement, reached in eleventh-hour negotiations with the EU, does "reduce the risk" of this hard border, but does not eliminate it. Some commentators have concluded this opinion is bad news for anyone looking for the agreement to pass as it heads to a vote, according to the Associated Press.
- If the agreement today fails to pass, Parliament will take up other votes later this week, including whether it wants to exit the EU without a plan, referred to as a "no-deal" Brexit; or if it wants to extend the deadline for reaching an agreement, currently March 29.
For businesses who deal in cross border trade between the EU and the U.K., all of this means one thing: uncertainty.
Many companies have been working for months to stockpile merchandise to ensure consumers will have the goods they need. The government has put in place a process to make it possible for companies to have a "simplified" customs process if there is a no-deal Brexit. Still, businesses warn increased tariffs will hurt businesses and potentially leave the U.K. without the goods it needs.
One industry that's been especially vocal in recent weeks has been the auto industry. Honda, while not citing Brexit, has decided to move manufacturing out of the U.K. (The union that represents workers at the Honda plant did blame Brexit for the company's decision.) Meanwhile, leaders at both BMW and Toyota have said in recent days that a no-deal Brexit could make it difficult for them to stay in the country.
David Closs, the McConnell Endowed Chair of Business Administration at Michigan State University's Supply Chain Management Department, said the way vehicles are put together in modern manufacturing relies on the easy flow of parts across borders.
Looking at North America, parts for cars flow between Mexico, the U.S. and Canada fairly easily with some parts crossing multiple times before ending up in the final car, Closs said.
"That was true in the EU as well," Closs told Supply Chain Dive. "And now all of the sudden we’re changing that situation and there is a lot of uncertainty around what is going to happen when they ship components and cars across the border between the EU and Great Britain."
A no-deal Brexit could result in border delays for businesses trying to move products between the EU and the U.K. If this is the case, automakers will start holding onto more inventory at their manufacturing plants.
Modern car manufacturing is very flexible. Car companies will keep just hours worth of components in their plant, which allows them to switch between manufacturing of multiple models on the fly based on what's actually selling. But building up inventory in preparation for border delays makes companies less able to do this, Closs said.
"That's not going to be good for them," he said.
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