Companies' Brexit Challenge: Preparing for the Unknown
September 20 2018 - 5:59AM
Dow Jones News
By Saabira Chaudhuri and Robert Wall
LONDON -- Some of the world's biggest companies are drawing up
plans for the unplannable: a March divorce between Britain and the
European Union, in which even some basic parameters have yet to be
hammered out.
Big pharmaceutical firms like Pfizer Inc. and GlaxoSmithKline
PLC are stockpiling medicine, on orders from the British
government, just in case of long delays at the border. Cadbury
maker Mondelez International Inc. is boosting supplies of chocolate
and other ingredients for the same reason. Airbus SE, the European
plane maker, is asking suppliers to keep extra parts -- potentially
worth billions of dollars -- on hand ahead of the March
separation.
On Tuesday, BMW AG said it was moving up its annual weekslong
maintenance shutdown at a plant in Oxford, England, to fall right
after Britain's planned departure. It said that will better protect
it from any supply-chain disruptions that might stem from a
disorderly breakup.
Britons voted to leave the EU in 2016. The deadline to do so: 11
p.m. local time on March 29. That is now just a little more than
six months away, but London and Brussels have failed so far to
agree on a deal outlining the terms of the U.K.'s exit.
Companies with business on both sides of the English Channel are
grappling with many big, unanswered questions -- like whether, or
how, goods will be inspected along Britain's now-seamless border
with Europe.
In the event the two sides don't make a deal, those goods could
be subject to new tariffs. Companies also still don't know exactly
how their industries will be policed in the U.K., once the country
is outside the EU's regulatory net.
Airbus Chief Executive Tom Enders in July called the lack of
certainty surrounding the terms of Brexit "discomforting." British
and European negotiators say they expect to reach a deal, but with
so little time remaining, both sides have started to warn about the
increased likelihood of a "hard" Brexit -- a split without any
agreement at all.
The U.K. government has recently rolled out a series of
technical papers spelling out, industry by industry, the potential
fallout from a no-deal exit. British cellphone subscribers, for
instance, might not enjoy free roaming, like they do now, in the
rest of Europe. A British driving license may no longer be valid on
the continent.
The government also has warned companies about a range of
possible disruptions to companies that a no-deal Brexit could
trigger. Warning photos on cigarette packaging in the U.K. would
have to be replaced, because the copyright for the current ones is
held by the European Commission, the government has said.
If there is no deal, Britain would no longer be part of a
Europe-wide regulatory network for medicines. The U.K. has said
tariffs for goods coming into the U.K. will default to rates set by
the World Trade Organization. Frozen orange juice from Spain, now
tariff-free, would be taxed at 24.4% based on WTO rates.
Financial-services firms have been girding for Brexit almost
since the referendum. Banks like Credit Suisse Group AG, Deutsche
Bank AG, UBS Group AG and HSBC Holdings PLC are preparing to move
some of their employees out of the U.K. to European cities like
Frankfurt, Paris, Dublin and Madrid. Some have begun redrawing
contracts previously struck between U.K. units and EU clients to
apply to their European units.
The pharmaceuticals industry has been a particular focus of
concern. The British government has ordered pharmaceutical
companies to increase stockpiles of medicine, to prevent shortages
in the event of any customs-related disruptions at the border.
Almost three quarters of Britain's pharmaceutical imports come from
the EU, according to a recent parliamentary report.
Pfizer said in July that it expects preparations for Brexit to
cost it some $100 million, citing regulatory, manufacturing and
supply chain issues. It didn't detail those costs. Glaxo put its
Brexit bill at GBP70 million, or about $92 million, over the next
two to three years. It said it would need to expand facilities in
the U.K. and Europe to satisfy regulatory requirements if there is
no deal on medical regulation. It estimates Brexit will cost it
another GBP50 million a year on things like added customs and
administrative costs.
Dechra Pharmaceuticals PLC, a small British firm that makes
medicines for animals, said it is spending GBP1.2 million to build
a new center in Europe to test products from its manufacturing site
in Skipton, England.
"Everything we ship from Skipton into Europe will need to be
tested again," Chief Executive Ian Page said in an email statement,
"unless common sense prevails."
Write to Saabira Chaudhuri at saabira.chaudhuri@wsj.com and
Robert Wall at robert.wall@wsj.com
(END) Dow Jones Newswires
September 20, 2018 05:44 ET (09:44 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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