Snail’s pace of Brexit negotiations vexes Swiss firms

Swiss firms are waiting to see which Britain Theresa May leads out from the shadows of negotiations Keystone

While Switzerland is not involved in Britain’s divorce from the European Union, many Swiss businesses are closely watching negotiations unfold. And if a recent British Swiss Chamber of Commerce (BSCC) meeting is anything to go by – most don’t like what they are seeing. 

“In both the UK and Europe, the negotiators are ignoring business interests. At the moment, Brexit is a big vanity project for politicians and not at all about the reality of what will happen,” said one participant at the event in Zurich.

“It took Switzerland three years to negotiate a solution with the EU on migration. Britain has to negotiate everything from scratch. I dread to think how long this could drag out,” added another.

The spirit of British wartime PM Winston Churchill (pictured on a visit to Zurich in 1946) was invoked at the BSCC meeting to emphasise historical Swiss-British ties Photopress Archive/Keystone

British and EU negotiators come to table on October 19-20 to thrash out some of the basic outlines of a future deal. This includes the option of a transition period to help smooth the path to the new landscape, migration and work visas plus the size of Britain’s divorce bill.

However, it remains unclear just how much progress can be made during the summit. The situation has become muddied by a muddled general election in Britain and apparent in-fighting between top government ministers. 

Poison of uncertainty

“Both sides know what they don’t want, but they have yet to define exactly what they do want,” said one BSCC panelist. And there lies the problem for companies in both Britain and Switzerland. They have insufficient clarity on how to plan their businesses in the mid to long-term.

“We have set up our business in the UK based on the legal foundations falling within the scope of the EU. Business is being impacted now with the poison of uncertainty and the level of anxiety is quite high. We face the difficulty of explaining to our customers why we might not be able to offer the same conditions as we do now,” said an executive at a large Swiss insurance firm.

“We are certainly hearing some frustration and that’s stemming from the uncertainty. Uncertainty is something that can delay investment or business decisions,” James Woodeson, BSCCExternal link Secretary General, told swissinfo.ch. “There is a bit of vacuum on clarity at the moment.”

Swiss firms exported CHF11.4 billion ($11.7 billion) worth of good to Britain last year – a dip of -2.1% on 2015. This was a poor performance considering that global exports from Switzerland rose 3.7% last year, and by the same degree to the EU. Imports from Britain to Switzerland (CHF6.4 billion) also fell, by -2.4%.

Despite this hiccup, Britain remains Switzerland’s sixth largest trade partner, according to Swiss government statistics. The City of London is also a vital partner for Swiss financial services, while British guests are one of the mainstays of the Swiss tourism market.

With Brexit negotiations at such a raw stage, the list of potential banana skins appears daunting: workforce disruptions, increased regulations, getting goods through customs and EU access for banks, to name a few.

The Swiss Clock in London: a material sign of Switzerland’s presence in Britain Getty images

“If delegation of funds to third [non-EU] countries becomes a problem, it would become difficult for Swiss banks to remain in London. But the big problem is that there is no European alternative. Today, there is no comparable talent pool in Frankfurt or Paris. These centres are daydreaming if they think they can transfer asset management out of London,” said Anne-Marie de Weck, BSCC President and a former managing partner at Lombard Odier.

Cause for optimism

Companies are adopting different strategies depending on their size and the industry they operate in, according to James Woodeson: “If small companies make changes now based on incomplete information they might lose customers, which could have a significant impact on their operation,” he said.

“For global multinationals, Brexit is not the only issue they have to contend with. Some of these companies are prepared to wait until the transition period is clearer. But others have no choice but to assume the worst-case scenario and plan for that event.” 

But Woodeson is adamant that Brexit does not necessarily spell bad news for Swiss-British trade. On the contrary, he expects some industries and firms to profit from the break-up. This is reflected in a BSCC surveyExternal link from July in which two-thirds of respondents said they had so far not seen any effect from Brexit and 17% saw it as an opportunity.

“The cultural similarities between the two economies and advantages that presents suggests to me that the world will keep turning after Brexit,” said Woodeson. “In times of uncertainty and change new opportunities emerge. And there will be people with enough entrepreneurial spirit to take advantage.”

Brexit: potential winners and losers

Winners: 

The biggest winners are most likely going to be professional services (consulting, tax advisory and lawyers). This group expects a bonanza as companies grapple with new regulations and contracts post-Brexit.

While asset managers and investment bankers have cause for concern, some private banks are cautiously optimistic that the dislocation will send more clients their way, seeking a less volatile place to house their wealth.

The growing digital financial technology (fintech) innovation drive could benefit if some banking operations move out of London. Woodeson believes start-ups with the latest innovations could slip into the gap created by departing firms.

Losers: 

Exporters may face supply chain and logistics disruptions and extra complications getting goods over the border.

The City of London could lose its ‘passport’ to the EU market, forcing asset managers and other banking operations to other locations.

This could have a knock-on effect for the airline industry as flights to London (an extremely busy destination at the moment) fall off. Airlines could also face extra red-tape as Britain controls vital airspace for transatlantic routes.

The pharmaceutical industry also faces an administrative nightmare when the EU Medicines Agency moves out of Britain. This body monitors drug trial results and gives recommendations to the EC on whether to license new medicines. Pharma companies may face separate regulatory processes in both the EU and Britain in future. 

In the balance:

Swiss firms will hope that the foreign exchange markets react favourably to the eventual Brexit deal by boosting the British pound. However, if the sterling falls, that would harm exporters and the Swiss tourism industry.