British bike maker pedals on, with Brexit deal up in the air

The team at Brompton Bicycle Ltd. thought they were prepared for Brexit. Bosses at the British firm, which exports hand-made folding bikes to 47 countries, looked at the uncertainty swirling around the U.K.’s decision to leave the European Union and started stockpiling parts.

Yet with just over a month to go until Britain makes a sharp economic break with the EU, Brompton faces uncertainty about supplies and unexpected new competition from China, all amid a global pandemic. Its experience is evidence that Brexit is set to be bumpy, even for businesses that have tried to get ready.

“We’d built up this fantastic stock for the worst-case Brexit scenario,” said Brompton chief executive Will Butler-Adams. Then the coronavirus pandemic struck. Orders dried up as stores closed during the spring lockdown, only to surge once it was lifted. “We struggled to get the parts back in again,” Butler-Adams said. “So we’ve had to eat into our Brexit stock, which has saved us in many respects. But it now means, having been prudent and got it all organized three years ago, we’re now sitting here with a month to go and we’ve got no Brexit stock and we’re facing Brexit.”

Brompton is just one of thousands of British companies bracing for huge changes on Jan. 1, when Britain leaves the economic structures of the 27-nation bloc. The U.K. split from the EU politically early this year, but remained part of the bloc’s economic embrace during an 11-month transition as the two sides tried to negotiate a new free-trade deal to take effect Jan. 1.

But months of tense and often testy negotiations have not resolved differences on fishing rights, fair-competition rules and how to settle future disputes. Intense talks must produce either a breakthrough or a final breakdown in coming days. If there is no deal, New Year’s Day will bring tariffs and other barriers to U.K.-EU trade. The burden will fall most heavily on Britain, which does almost half its trade with the EU.

Things will be smoother with a deal, which would remove quotas and tariffs on goods, though businesses still face new obstacles and red tape. Brexit means millions of customs declarations to be filled in, thousands of new border staff to check shipments, and construction of vast parking lots for trucks as a new border is built after decades of seamless trade.

Trade expert David Henig of the European Centre for International Political Economy said Jan. 1 marks “the biggest one-day change in trading relations that any country since 1945 will have experienced.” “This is going from a permissive regime, where more or less we can trade anything with the EU that we like, to a permission-based one where we have to check for everything that we want to trade — whether that’s goods or services — whether we’re allowed to do it,” he said.

Supporters of Brexit say any short-term pain will be worth it, because, freed from EU rules, the U.K. can set its own priorities and forge new trading relationships around the world.

But most economists say the economy will suffer. Britain’s independent Office for Budget Responsibility says a no-deal Brexit will wipe 2% off U.K. GDP in 2021, on top of the pandemic damage. Brompton boss Butler-Adams is an optimist, an ebullient enthusiast for cycling and British manufacturing. He’s confident Brompton, which exports 75% of its bikes, can thrive despite Brexit.

The firm is expanding its factory on the outskirts of London, where workers assemble commuter-friendly bikes that fold to about the size of a briefcase. The company employs 500 people and plans to hire 200 more in the next year. Brompton has added e-bikes to its repertoire and is planning a major push into cycle-loving Germany.

But Butler-Adams was taken aback by news that one of the British government’s first post-Brexit trade decisions will be to abolish an anti-dumping tariff imposed by the EU on Chinese bicycles. Brompton and other British manufacturers say removing the 48.5% tax will flood the market with cheap bikes subsidized by the Chinese state.

“We can’t compete. That is not a level playing field,” Butler-Adams said. Brompton has urged the government to change its mind, arguing that officials used outdated statistics to conclude British-produced bikes amounted to under 1% of domestic sales, the threshold for retaining the tariff. The Department for International Trade said it had consulted with British bike-makers and “assessed evidence received against specific criteria,” but did not overturn the measure.

“We recognize the challenges that the industry faces, however British consumers will bear the brunt of higher prices if anti-dumping measures were retained or carried across from the EU,” it said in a statement.

Prime Minister Boris Johnson’s government could have extended the post-Brexit transition period, and was urged to do so by many businesses after the coronavirus started ruining lives and the economy. The government refused, and told businesses to prepare for changes on Jan 1

Many firms complain that they don't know what those changes will be — in part because they are still being negotiated. The government acknowledges there could be delays and disruptions to trade, including a “reasonable worst-case scenario” of 7,000 trucks backed up near the port of Dover, and two-day waits to cross the Channel.

With time evaporating for a deal to be approved and ratified by Britain and the EU before the end of the year, it is still unclear if there will be an agreement. A deal requires the EU to curb its demands on fishing and Britain to give way on competition rules, difficult issues for politicians on both sides.

“It’s about resolving the politics,” Henig said. “If it was about resolving the technical detail, we could have a deal tomorrow.” Butler-Adams says a deal will make things easier, though he struggles to see any business upside to Brexit. But he remains optimistic about the future, whatever happens.

“Of course, we’d all prefer free trade, we’d all prefer minimum bureaucracy,” he said. “(But) we shouldn’t just give up when there is a little barrier of bureaucracy and tax. We’ve got to just keep pushing on because there’s still opportunity there.”