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Long Live Brexit Uncertainty

December 17, 2019, 10:18 AM UTC

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Good morning. David Meyer here in Berlin, filling in for Alan.

Brexit uncertainty is dead; long live Brexit uncertainty.

Last week’s U.K. election result thoroughly killed off any hope Remainers might have had about Brexit being cancelled. Conservative Prime Minister and arch-Brexiteer Boris Johnson won a huge parliamentary majority and can therefore do pretty much whatever he likes. There will be no second referendum. Brexit is happening at the end of January.

However, this does not mean businesses now know what will happen next.

After the U.K. formally leaves the EU, the two sides will use an 11-month transition period to negotiate their subsequent trading relationship, which is due to take effect at the start of 2021. As the European Parliament and the parliaments of all 27 remaining EU countries would need to ratify any trade deal, the timescale becomes even more compressed.

Comprehensive trade deals generally take at least several years to write and ratify. But, according to multiple reports this morning, Johnson will outlaw any potential extension of the transition period beyond the end of 2020. He promised during the campaign that there would be no extension, but putting that into law removes any option for future flexibility.

Given the extremely short timetable for negotiations, the U.K. and EU will at best achieve only a bare-bones trading agreement, meaning disruption for businesses whose activities aren’t fully covered by the terms. In the worst-case scenario, there won’t be any trade deal at all, creating the same catastrophic result as we would have seen if the U.K. crashed out of the EU without a Brexit withdrawal deal.

These are the two options—without an extension to the transition period, there is no time in which to agree a robust, comprehensive trading relationship. No surprise then that the pound greeted the no-extension news by losing most of the gains it made on the Conservatives’ crushing victory.

Johnson is probably using the continued threat of “no deal” as a tool of brinksmanship—a tactic that helped him secure a fresh Brexit withdrawal agreement when most observers, me included, thought that was impossible. However, the EU’s negotiators will not enter these negotiations in a compromising mood. There is no longer any possibility of the U.K. staying in the club, so the gloves will come off.

Whatever happens, industry faces a lot of disruption. And it doesn’t even have the luxury of knowing how much, or what kind. The only certainty is that the cliff edge is a year away.

More news below.

David Meyer


Boeing Suspension

Boeing will from next month suspend production of the embattled 737 Max, which remains grounded around the world following two fatal crashes. The aircraft's re-certification has been pushed back into 2020 and its continued production is, for now, apparently not viable. But Boeing insists that it won't lay off the workers who build the 737 Max. Fortune

Amazon v. Fedex

Amazon has for a while shunned FedEx for its own U.S. deliveries, but now it's also banned third-party sellers from using FedEx's ground delivery service for Prime deliveries. Amazon says the ban will remain in place until FedEx's delivery performance improves. FedEx says it "limits the options for those small businesses on some of the highest shipping days in history." Wall Street Journal

Tech v. Trump

U.S. tech firms are pushing back against the Trump administration's desire for them to stop sourcing supplies from Chinese companies such as Huawei. An industry executive told the Financial Times: "This was the latest attempt by the Trump administration to get us to shut out Huawei. But if we had come together to act against a global competitor like this, we would almost certainly have been sued [under competition laws]." FT

Tokyo v. Tech

The Japanese government is set to force the likes of Google and Facebook to disclose the terms of their contracts with customers, and also to be more transparent about their operations. Economy Minister Yasutoshi Nishimura: "We want to put the new law into effect in the way that would make business transactions become transparent without imposing excessive burdens or hampering innovation." Reuters


Child Labor

Human rights advocates have sued Apple, Alphabet, Microsoft, Tesla and Dell over their products' use of cobalt from the Democratic Republic of Congo. As Fortune has reported, the cobalt—needed for lithium-ion batteries—is often mined by children working 12-hour days. International Rights Advocates, which brought the suit in Washington, D.C. on behalf of killed and injured boys, says the tech firms' revenues would not be possible without this material. Fortune

Uber Stock

Uber co-founder Travis Kalanick continues to offload his stock, following the Nov. 6 end of his share lockup. He got rid of $350 million in stock this month alone, with the remainder now accounting for only a fifth of his $3 billion fortune, down from three quarters before the lockup ended. Fortune

Chinese Debt

Moody's has followed Fitch in warning about the danger of Chinese corporate debt. Moody's chief economist, Mark Zandi, says the debt is the "biggest threat" to the world economy, with Chinese companies struggling to deal with the impact of the trade war and other factors. CNBC

Roche and Spark

Roche's takeover of gene therapy outfit Spark Therapeutics is set to go ahead following regulatory approval in the U.S. and U.K. Competition regulators green-lit the $4.3 billion deal without any requirements for asset sales. Reuters

This edition of CEO Daily was edited by David Meyer.