Britain must be prepared to win and lose contracts to maximise opportunities around the world, writes Brian Monteith
Attitudes to the new passport contract and GKN bid display cultural nihilism. It was a seminal moment. It is possibly the most important development since the Brexit deliberations began last year.
The UK has got its way against the EU on negotiating, signing and ratifying trade deals from the end of March next year, so those agreed in time can go live on 1st January 2021.
It cannot be underestimated how important this development is. It allows the UK to set up the grandfathering of the existing 34 EU FTAs – of which the likes of Switzerland, South Korea and Turkey are in the top 15 of our markets that account for 71.8% of all UK exports. That should mean a seamless switch from being inside the Customs Union to being outside it.
It also allows us to negotiate bespoke FTAs with other vital markets such as the US (13.1% of total UK exports), China & Hong Kong (6.9%), the United Arab Emirates (2.1%) and Japan (1.6%). These will be the priority – along with India, Brazil and Australasia – out of the 105 countries that have signalled they would like to establish a new trade deal.
The reason this EU concession matters is that while bi-lateral trade deals are not a prerequisite for bountiful trade – there is for instance, no FTA with our largest market, the US – they do help eliminate tariffs and regulations that can unlock exponential economic growth that benefits both partners.
Trade negotiations can now be set up to start from next April and go live after Hogmanay 2020.
It is argued, usually by those doubting the merits of Brexit, that the UK is too small an economy to be of interest to other countries or have enough heft to negotiate an attractive deal. This is patently absurd. The fifth largest economy in the world, the UK will be attractive to all the others ranked below it, and once outside the EU it can negotiate far more quickly and for its own particular benefit than the EU ever could with all the petty interests of minor economies holding us back.
The negotiations with India for instance started in 2007, stalled in 2015 and are currently in abeyance. The UK can do better than that in a market of some billion potential customers that has its own automotive, aviation and space programme – and likes whisky.
This good news has to be tempered, however, by the UK’s poor cultural attitude towards free trade and the need to constantly change and constantly evolve so we are competitive enough to take advantage of the trading opportunities. Two current examples illustrate the outdated thinking that will hold us back – the negative reaction to the award of the new UK passport contract to an Franco-Dutch company, and the union-led opposition to the Melrose bid for engineering firm GKN.
The existing UK passport contract with DeLaRue – the British banknote, passport and security printer – was coming to an end and somewhat ironically had to be put out to tender under EU rules. A rival bid by Franco-Dutch company Gemalto has been announced as the winner, with an advantage of apparently £120 million over DeLaRue’s cost – a considerable saving to the taxpayer.
This decision has outraged many Brexiteers who say examples of such prestigious and iconic work should stay in Britain. This is palpable nonsense.
DeLaRue itself wins many contracts from abroad and if we are going to benefit from free trade deals then we must support the ability of our businesses to win overseas contracts – while accepting some overseas companies will win business here too. We all then benefit from lower prices and better quality – or whatever other aspects of a contract have been stipulated.
The engineering firm GKN is a legendary British engineering brand dating right back to the early days of the industrial revolution when in 1767 John Guest was appointed an ironworks manager. Generations of innovation, success and ennoblement for the industrious Guests followed, when in 1900 they merged with Arthur Keen to form Guest, Keen and Co Ltd. and in 1902 then acquired Nettlefolds to become Guest, Keen and Nettlefolds – now known world-wide as GKN.
Its specialisation is in the automotive and aviation industries but lately its performance has been sub-optimal, to say the least.
It posted two profit warnings last year that were realised and among many weaknesses is carrying an embarrassing pension deficit. A company that has expanded by acquiring British and overseas companies (such as Dutch aviation company Fokker Technologies), GKN is now the subject of a take-over bid itself which closes on Thursday – from the British transformational specialists Melrose.
The GKN management refused to enter into dialogue with Melrose. Their response reeks of panic rather than a rational business strategy, advocating the sale of GKN’s Driveline division to US a competitor for £800m less than their own previous valuation, and also sell the Powder Metallurgy division. By contrast Melrose has offered to plug the pension deficit with £1bn and halt the sale of these divisions.
What might be a textbook commercial acquisition that brings about necessary change in company management, and is decided by shareholders, has now deteriorated into a union flag-waving jingoistic rearguard action from the Unite trade union and its political pawns, the parliamentary Labour Party who warn of lost British jobs.
In GKN we have a company that has in the past excelled but now needs to improve if it is to remain a world beater. Ironically, if GKN is not taken over by Melrose that specialises in reviving failing businesses and will ensure a British company with a British board – then it will no doubt become the target of international competitors with a real threat to British jobs.
These two examples demonstrate how our culture towards trade needs to change. We need to be open to winning – and losing – contracts and we need to recognise the need for change, for self-improvement and challenging the old norms and past standards – that made GKN successful in the past.
If British companies are to be world class, if they are to benefit from the Brexit bonus that more free trade augurs then wrapping ourselves in the flag will not be good enough.
Instead of Global Britain we shall have Little Britain – and all be the smaller for it.
Brian Monteith is a director of Global Britain