Brexit by the BCC

The British Chamber of Commerce for Luxembourg is an English-speaking forum for contact and communication among decision makers, opinion formers and participants in Luxembourg’s local and international business communities. The Chamber’s objectives are to follow and influence developments in the economic and business world in Luxembourg affecting members’ interests, and so contribute to making Luxembourg an attractive place to do business, and to promote trade between Britain and Luxembourg. The Chamber is not primarily a lobbying organization and most of its activity consists in organizing events on economic, commercial, legal and regulatory matters to inform its members on such issues. Interview with Robert Deed, Financial Secretary & past Chairman of the BCC.
 
Did you have a role on the Brexit debates?
In principle we have been neutral on this matter. We do not know the political views of our members and it is not our role to represent or promote their views. However, a significant majority of our members do business in the context of the EU single market and the law and regulations that frame it. It would be surprising if they were not therefore generally in the «Remain» camp.
We have organized many events this year to inform our members about the issues, with speakers as diverse as Lord Ashdown, Nigel Farage, Luc Frieden and Viviane Reding, putting forward facts and opinions on the subject.
We have a business lunch on the Brexit topic, on 23 September, with guest speaker Nicolas Mackel, CEO of Luxembourg for Finance, on the subject: “Brexit – is Luxembourg out to steal London’s financial crown?”
 
The consequences?
It is very unclear at this stage what the consequences will be, as the negotiating positions of the United Kingdom and the EU have not been formulated or announced. Defining the UK’s position will be a huge challenge for the new government of Prime Minister Theresa May, as the «Leave» vote included a huge range of views many of which had only one thing in common: to leave. The point of departure (to leave) was shared by a range of political groups and views. But the destination has not been defined by anyone and it is clear that this is far from shared.
The «Leave» campaign encompassed a spectrum from the political right to the left, from the ultra-liberal free traders, who regard the EU as an artificial bloc that stifles free trade, to interventionists and protectionists. Even on the apparently common ground of immigration, there is significant variation, between those who seek the sovereign right to determine immigration levels, but see the economic need for roughly current levels, to neo-fascists who believe they have voted to expel existing immigrant populations.
Above all there is a wide gulf among the “Leave” voters, between globalisers and those who seek a more enclosed and protective society.
The only good thing to be said for this confusion is that the new UK government is not tied to any post-Brexit prescription. The question is whether, in choosing its «model» for negotiation, the May government will feel beholden to the national interest or to their reading of the political barometer. If the former, they will go for what has become known as the Norwegian model, which means full EEA membership, with attendant obligations to respect free movement of people, to respect EU single market rules and to contribute to the EU budget, but with no say in the formulation of rules or the setting of budgets. If the latter, they will opt for a relationship with both Europe and the rest of the world, in which the UK can control immigration, but would have to rely on World Trade Organisation (WTO) rules (the lowest common denominator of trade terms) or bi-lateral free trade agreements (FTAs) to govern its trade with the rest of the world, including the EU.
In these calculations the most vulnerable element is the economic field in which the UK has the greatest competitive edge: services and particularly financial services. Services of all kinds contribute some 80% of UK GDP. The EU single market in services remains incomplete. Outside of the EU, services remain a largely untradeable commodity, falling outside the scope of most FTAs, whether bi-lateral or multi-lateral.
So it seems essential for the UK’s future prosperity that, whatever model it adopts, it must be one that maximises trade in the UK’s most successful product.
However, there is a significant element in the «Leave» vote that bought the myth that, by leaving the EU, the UK could revitalise its dwindling manufacturing capability. Those that fell for this myth (and there are increasing grounds for believing that these include some government ministers) also despise services industries, which they associate with the banks and fund managers who they believe caused the 2008 financial crisis.
So there is a real chance that, through a combination of self-harming disregard for services industries and an equally self-harming zeal to control immigration (on which the UK economy depends for labour in both its private and public services), the chosen model could be one that makes world markets difficult for the UK’s service industries, including financial services.
Clearly some services will transcend the borders thus erected: advisory services, including legal and investment banking among them. But other services including market making and clearing in Euro denominated securities, private banking, asset management and insurance could be strongly motivated to relocate parts of their operations, particularly those involved in European distribution, to bases within the EU.
This is where some opportunities may exist for Luxembourg. Probably the greatest opportunity for successful partnering by Luxembourg with UK firms (to respect the terminology used by the Luxembourg Government) will be in the area of investment fund distribution activities, where a UK base may make less sense, or even be unsustainable, in future.
 
Source: The British Chamber of Commerce for Luxembourg