Brexit brings new uncertainty for U.S. exporters

For U.S. exporters already dealing with multiple sets of regulations, duties and tariffs across the globe, the post-Brexit world is a mess that will take years to sort out.In the decades since the European Union was created, American exporters have, with some exceptions, been able to count on a uniform set of regulations and standards. That could end now as Britain will be freed from EU rules and could begin the years-long process of replacing them with its own, impacting companies ranging from behemoths such as Boeing and Caterpillar — as well as smaller ones fighting for a toehold in the vast market.“Every place there’s a regulation is a place this could balloon out of control,” said Chuck Wetherington, president of BTE Technologies Inc., a Hanover, Maryland-based medical equipment exporter.“Our industry is screaming for harmonization, and instead we’re getting more and more disharmony.”U.S. trade with the 28-member EU totaled $1.1 trillion last year — making it the world’s largest bilateral commercial relationship. Of that, 21 percent was with the U.K. alone, according to Commerce Department data, covering a vast swath of goods and services from air travel to wheat.About a third of BTE’s medical equipment exports go to Europe, and a third of those go to the U.K., Wetherington said. BTE uses computers and robotics in highly engineered machines to simulate human movement and accelerate rehab for people recovering from injuries.The immediate impact of the decision by the U.K. to leave the EU will be a drag on buying, as potential customers wait to see what happens with regulations and reimbursements, Wetherington said. He compares the shock to what happened with the Affordable Care Act in the United States, when challenges to the law dragged on and slowed his sales.Even if Britain ultimately adopts regulations identical to Europe’s, it will take a couple of years, Wetherington said. Meanwhile, there’s a new “regulatory island,” he said, with its own rules for tariffs, duties and material standards. The European market will be more like Asia, where BTE has to comply with different rules in Japan, South Korea, Hong Kong, China and Malaysia.Other industries are going through similar analysis.Brexit could hurt planemaker Boeing, the largest U.S. exporter, if it causes air travel to dip or triggers a worldwide recession. Since airplane sales tend to mirror global growth, “the key Brexit risk is that financial contagion from the vote slows growth in the real economy,” said Seth Seifman, an aerospace analyst with JPMorgan Chase Bank, in a report to clients Friday.Plane sales could also be clipped by uncertainty over whether U.K. airlines will still enjoy full access to Europe’s single aviation market, or if they will be forced to renegotiate complex revenue-sharing agreements with their North American counterparts.“As a global business, we constantly manage changes in political circumstances and we will continue to do so now with the evolving situation in the U.K. and Europe,” Boeing said in a statement.The regulatory changes won’t be known for some time. Once the U.K. notifies the EU of its intention to leave, it will have two years to negotiate the exit under the terms of its treaty. But the process could take more than five to 10 years, given its breadth and complexity, according to an International Air Transport Association report.For some technology companies, there could be an upside. The U.K. might be inclined to ease rules on privacy policies, since the European Union has some of the strictest in the world, said Todd Thibodeaux, president and chief executive officer of CompTIA, a global technology trade association. That would benefit companies like Google, Facebook and Apple, he said.“Over time, we may see opportunities open up and the U.K. go after some sectors like Ireland has,” Thibodeaux said.Caterpillar, the world’s biggest maker of machinery for mining and construction, issued a statement from U.K. Country Director Mark Dorsett urging both the U.K. and EU to make a priority of creating single-market access to reduce the impact on business and the economy.“As a global manufacturer with a large footprint in the U.K. and across Europe, we call on the British government and its European partners to make all efforts to move forward swiftly to negotiate a new settlement,” Dorsett said.Ford said it expects weaker sales as a result of the fallout. “While we are hedged against the U.K. pound sterling in the short term, we would expect that the combination of a softer industry and a weaker sterling would have an adverse impact on our operations in the longterm,” Ford said in a statement.Brexit could force a shakeup in the way the U.K. and Europe meet carbon-cutting targets agreed to as part of the landmark international accord reached in Paris last year. The U.K.’s pledge fell under the EU’s umbrella — and depending on when Britain’s exit is finalized, it might be forced to offer a new plan.Drawn-out negotiations between the U.K. and Europe — including the potentially two years’ worth of talks — would keep existing climate commitments the same if the Paris deal is ratified and comes into force first, said Tom Burke, chairman of the London-based sustainability group E3G and an environmental policy adviser to Rio Tinto Plc.As long as those talks are still under way, “we remain a member bound by every European law and all the treaties we’re obliged to remain until that process is over,” Burke said. “The Paris agreement will be ratified this year, and Britain will have ratified it as part of the EU.”One of the Paris deal’s major architects, the head of the UN Framework Convention on Climate Change, Christiana Figueres, said Wednesday that the U.K … divorce from the EU would require “a recalibration.”In that case, the decision facing the 27 remaining member nations will be whether — and how — to boost their individual pledges to meet the bloc’s broader climate commitment. The alternative is lowering the EU commitment overall to make up for the loss of the U.K., which has been one of the EU’s largest greenhouse gas emitters and a leader in tackling climate change.Britain’s exit may complicate efforts to further ease trade between the U.S. and the European bloc. The Obama administration has been working with the EU to forge the Trans-Atlantic Trade and Investment Partnership, a free-trade deal that seeks to cut tariffs and untangle a patchwork of regulations items from autos to songwriting royalties.In a visit in April to London, Obama said Britain’s departure from the pact could force it to “the back of the queue” in negotiations.The U.K.’s exit from the European bloc will be protracted, and the U.S. and EU could conclude their trans-Atlantic trade deal in the meantime, said Bill Reinsch, a fellow at the Stimson Center in Washington. Ireland may be the big winner, because of its shared common language with the U.S. and access to the European market.

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