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Johnson’s win elevates ‘no-deal’ Brexit risks to UK economy

July 23, 2019

LONDON (AP) — With Boris Johnson confirmed as the next U.K. prime minister, the outlook for the British economy has become murkier — and potentially more perilous. Johnson’s comprehensive victory over Jeremy Hunt in the battle to lead the governing Conservative Party has made it more likely that Britain could leave the European Union on Halloween without a withdrawal agreement, leading to tariffs and broad disruptions to trade.

Most economists think such a “no-deal” Brexit would cause a deep recession. Whether it would be as deep as the one after the global financial crisis — a contraction of more than 6% in the economy — no one knows, but almost all economists agree that jobs will be lost and the pound will slide.

And its impact could sap business confidence more broadly: the International Monetary Fund said Tuesday that a “no-deal” Brexit represents one of the key risks to the world economy. A “no-deal” Brexit means that on Nov. 1, tariffs will be slapped on goods traded between the U.K. and the remaining 27 EU countries. Other impediments to trade would be imposed, such as new restrictions on the movement of people and regulatory standards, including on Britain’s crucial financial services sector. Britain would also face the prospect of losing trade deals the EU has struck over the years, including with Canada and Japan — these account for around 11% of U.K. trade.

That raises the stakes for companies like the operator of the Channel Tunnel between Britain and France, which warned Tuesday that a no-deal Brexit is now “very likely.” British business associations quickly issued statements after Johnson’s election urging him to secure a deal.

Richard Branson, the Virgin Group founder whose has gone from owning a record label to planning flights to space, is among the high-profile business leaders who have also spoken out publicly against a no-deal Brexit. He believes the pound will slump in value to be worth just a dollar for the first time ever.

The currency has borne the brunt of Brexit uncertainty, falling more than 10% from $1.50 on the day after the June 2016 referendum. It’s near two-year lows at $1.2450. Though both sides of the English Channel will suffer in a “no-deal” scenario, Britain would suffer more. British exports to the EU account for around 13% of the country’s annual GDP, against around 3% of the GDP of the other 27 EU nations.

Planning for a no-deal Brexit, which Johnson is expected to accelerate in his first days in 10 Downing Street, will help marginally. Measures such as stockpiling medicines, sourcing more products from outside the EU, or modifying road links in southeast England to manage freight traffic can help, but only up to a point.

“Planning is unlikely to do much to mitigate the short-term disruption of ‘no deal’,” said John Springford, deputy director at the Centre for European Reform. For one, he said, there is too little time to build new border and road infrastructure to reduce congestion at the Channel Tunnel and ferry crossings and on the highways that bring trucks up toward London.

In his pitch to become prime minister, Johnson said he wants an agreement but that he would make sure Britain leaves the EU on Oct. 31. The U.K. Parliament is seemingly opposed to a “no-deal.” Many Brexiteers have suggested that Johnson suspend parliament to allow Brexit to happen anyway. The implications of that would be unpredictable. Johnson has said he doesn’t want to go down that path but hasn’t ruled it out.

Given these uncertainties, business executives are unsure how to plan and have reined in investment over the past two years. That’s one of the main reasons why Britain’s economy, which by some estimates is second only to Germany in Europe, has stuttered and talk of a recession has grown.

“With economic growth already faltering, a disorderly ‘no-deal’ Brexit could cause widespread disruption to trade, a sharply lower exchange rate, higher inflation and lower living standards,” said Arno Hantzsche and Garry Young of the National Institute of Economic and Social Research.

Johnson could push for a general election in the fall if he fails, as expected, to renegotiate May’s agreement. With opinion polls showing Britain’s electorate splintered, several outcomes are possible, including one whereby a new government backs another referendum to reverse the initial result.

Johnson could equally opt to ditch his “do-or-die” pledge and seek another extension, giving him time to put a crowd-pleasing tax-cutting budget in place for an election next year. Whatever happens — and given this is Brexit, anything can — the British economy is set to remain stuck in the mud for months. How it pans out will hinge on the decisions Johnson makes in his first weeks in power.


Brex-split: 7 lawmakers quit Labor over EU, anti-Semitism

February 18, 2019

LONDON (AP) — Seven British lawmakers quit the main opposition Labor Party on Monday over its approach to issues including Brexit and anti-Semitism — the biggest shake-up in years for one of Britain’s major political parties.

The announcement ripped open a long-simmering rift between socialists and centrists in the party, which sees itself as the representative of Britain’s working class. It’s also the latest fallout from Britain’s decision to leave the European Union, which has split both of the country’s two main parties — Conservatives and Labor — into pro-Brexit and pro-EU camps.

Many Labour lawmakers have been unhappy with the party’s direction under leader Jeremy Corbyn, a veteran socialist who took charge in 2015 with strong grass-roots backing. They accuse Corbyn of mounting a weak opposition to Conservative Prime Minister Theresa May’s plans for leaving the EU, and of failing to stamp out a vein of anti-Semitism in the party.

The splitters — who have between nine and 27 years’ experience in Parliament and represent constituencies across England — make up a small fraction of Labor’s 256 lawmakers, or of the 650 total members of Parliament. But this is the biggest split in the Labor party since four senior members quit in 1981 to form the Social Democratic Party.

Luciana Berger, one of those who quit Monday, said Labor had become “institutionally anti-Semitic.” “I am leaving behind a culture of bullying, bigotry and intimidation,” she said at a news conference alongside six colleagues.

Labor leaders have admitted that Berger, who is Jewish, has been bullied by some members of her local party in northwest England. Labor has been riven by allegations that the party has become hostile to Jews under Corbyn, a longtime supporter of the Palestinians. Corbyn’s supporters accuse political opponents and right-wing media outlets of misrepresenting his views.

There have long been signs that British voters’ 2016 decision to leave the EU could spark a major overhaul of British politics. May’s Conservatives are in the throes of a civil war between the party’s pro-Brexit and pro-EU wings. Labor is also split.

Many Labor members oppose Brexit — which is due in less than six weeks, on March 29 — and want the party to fight to hold a new referendum that could keep Britain in the 28-nation bloc. But Corbyn, who spent decades criticizing the EU before becoming a lukewarm convert to the “remain” cause in the 2016 referendum, is reluctant to do anything that could be seen as defying voters’ decision to leave.

“I am furious that the leadership is complicit in facilitating Brexit, which will cause great economic, social and political damage to our country,” said Mike Gapes, one of the departing lawmakers. The seven members of Parliament leaving Labor said they will continue to sit in the House of Commons as the newly formed Independent Group.

Corbyn said he was “disappointed that these MPs have felt unable to continue to work together for the Labor policies that inspired millions at the last election and saw us increase our vote by the largest share since 1945.”

The Labor lawmakers who quit in 1981 eventually became today’s Liberal Democrats, a centrist party that has failed to topple the dominance of the two bigger parties. The new group of seven stopped short of forming a new political party, but the seeds have been sown. The new group has a name, a website and a statement of principles, which argues for a mix of pro-businesses and social-welfare measures and a pro-Western foreign policy that is closer to the “New Labor” of former Prime Minister Tony Blair than to Corbyn’s old-school socialism.

Their statement said the Labor Party “now pursues policies that would weaken our national security; accepts the narratives of states hostile to our country; has failed to take a lead in addressing the challenge of Brexit and to provide a strong and coherent alternative to the Conservatives’ approach.”

The departing lawmakers said they would not be joining the Liberal Democrats, and urged members of other parties to help them create a new centrist force in British politics. “We do not think any of the major parties is fit for power,” said lawmaker Angela Smith. “People feel politically homeless and they are asking and begging for an alternative.”

Victoria Honeyman, a lecturer in politics at the University of Leeds, said history suggests the breakaway group will struggle to gain traction in British politics. “It’s very cold out there as an independent,” she said. “It’s all well and good leaving because you believe the party has moved away from you, but you can often achieve more from being inside the tent.”

In Brexit limbo, UK veers between high anxiety, grim humor

February 17, 2019

LONDON (AP) — It’s said that history often repeats itself — the first time as tragedy, the second as farce. Many Britons feel they are living through both at the same time as their country navigates its way out of the European Union.

The British government awarded a contract to ship in emergency supplies to a company with no ships. It pledged to replace citizens’ burgundy European passports with proudly British blue ones — and gave the contract to a Franco-Dutch company. It promised to forge trade deals with 73 countries by the end of March, but two years later has only a handful in place (including one with the Faroe Islands).

Pretty much everyone in the U.K. agrees that the Conservative government’s handling of Brexit has been disastrous. Unfortunately, that’s about the only thing this divided nation can agree on. With Britain due to leave the EU in six weeks and still no deal in sight on the terms of its departure, both supporters and opponents of Brexit are in a state of high anxiety.

Pro-EU “remainers” lament the looming end of Britons’ right to live and work in 27 other European nations and fear the U.K. is about to crash out of the bloc without even a divorce deal to cushion the blow.

Brexiteers worry that their dream of leaving the EU will be dashed by bureaucratic shenanigans that will delay its departure or keep Britain bound to EU regulations forever. “I still think they’ll find a way to curtail it or extend it into infinity,” said “leave” supporter Lucy Harris. “I have a horrible feeling that they’re going to dress it up and label it as something we want, but it isn’t.”

It has been more than two and a half years since Britons voted 52 percent to 48 percent to leave the EU. Then came many months of tense negotiations to settle on Brexit departure terms and the outline of future relations. At last, the EU and Prime Minister Theresa May’s government struck a deal — then saw it resoundingly rejected last month by Britain’s Parliament, which like the rest of the country has split into pro-Brexit and pro-EU camps.

May is now seeking changes to the Brexit deal in hope of getting it through Parliament before March 29. EU leaders say they won’t renegotiate, and accuse Britain of failing to offer a way out of the impasse.

May insists she won’t ask the EU to delay Britain’s departure, and has refused to rule out a cliff-edge no-deal Brexit. Meanwhile, Brexit has clogged the gears of Britain’s economic and political life. The economy has stalled, growing by only 0.2 percent in the fourth quarter as business investment registered a fourth straight quarterly decline.

Big political decisions have been postponed, as May’s minority Conservative government struggles to get bills through a squabbling and divided Parliament. Major legislation needed to prepare for Brexit has yet to be approved.

Britain still does not have a deal on future trade with the EU, and it’s unclear what tariffs or other barriers British firms that do business with Europe will face after March 29. That has left businesses and citizens in an agonizing limbo.

Rod McKenzie, director of policy at the Road Haulage Association, a truckers’ lobby group, feels “pure anger” at a government he says has failed to plan, leaving haulers uncertain whether they will be able to travel to EU countries after March 29.

McKenzie says truckers were told they will need Europe-issued permits to drive through EU countries if Britain leaves the bloc without a deal. Of more than 11,000 who applied, only 984 — less than 10 percent — have been granted the papers.

“It will put people out of business,” McKenzie said. “It’s been an absolutely disastrous process for our industry, which keeps Britain supplied with, essentially, everything.” He’s not alone in raising the specter of shortages; both the government and British businesses have been stockpiling key goods in case of a no-deal Brexit.

Still, some Brexit-backers, such as former Daily Telegraph editor Charles Moore, relish the prospect of a clean break even if it brings short-term pain. “Perhaps it is time for a Brexit recipe book, like those comforting wartime rationing ones full of bright ideas for dull things,” Moore wrote in The Spectator, a conservative magazine. He added that he and his neighbors were willing to “set out in our little ships to Dunkirk or wherever and bring back luscious black-market lettuces and French beans, oranges and lemons.”

Brexit supporters often turn to nostalgic evocations of World War II and Britain’s “finest hour,” to the annoyance of pro-Europeans. The imagery reached a peak of absurdity during a recent BBC news report on Brexit, when the anchor announced that “Theresa May says she intends to go back to Brussels to renegotiate her Brexit deal,” as the screen cut to black-and-white footage of World War II British Spitfires going into battle.

The BBC quickly said the startling juxtaposition was a mistake: The footage was intended for an item about a new Battle of Britain museum. Skeptics saw it as evidence of the broadcaster’s bias, though they disagreed on whether the BBC was biased in favor of Brexit or against it.

Some pro-Europeans have hit back against Brexit with despairing humor. Four friends have started plastering billboards in London with 20-foot-by-10-foot (6-meter-by-3-meter) images of pro-Brexit politicians’ past tweets, to expose what the group sees as their hypocrisy.

Highlights included former U.K. Independence Party leader Nigel Farage’s vow that “if Brexit is a disaster, I will go and live abroad,” and ex-Foreign Secretary Boris Johnson’s pledge to “make a titanic success” of Brexit.

The friends dubbed the campaign “Led by Donkeys,” after the description of British soldiers in World War I as “lions led by donkeys.” The billboards are now going nationwide, after a crowdfunding campaign raised almost 150,000 pounds ($193,000).

“It was a cry of pain, genuine pain, at the chaos in this country and the lies that brought us here,” said a member of the group, a London charity worker who spoke on condition of anonymity because their initial guerrilla posters could be considered illegal.

A similar feeling of alienation reigns across the Brexit divide in the “leave” camp. After the referendum, Harris, a 28-year-old classically trained singer, founded a group called Leavers of London so Brexiteers could socialize without facing opprobrium from neighbors and colleagues who don’t share their views. It has grown into Leavers of Britain, with branches across the country.

Harris said members “feel like in their workplaces or their personal lives, they’re not accepted for their democratic vote. They’re seen as bad people.” “I’m really surprised I still have to do this,” she said. But she thinks Britain’s EU divide is as wide as it ever was.

“There can’t be reconciliation until Brexit is done,” she said. Whenever that is.

Lessons for Brexit from Norway’s hard border with Sweden

February 10, 2019

ORJE, Norway (AP) — With fresh snow crunching under their boots and a handful of papers to be checked and stamped, truck drivers from Latvia, Sweden and Poland make their way across Norway’s Orje customs station to a small office where their goods will be cleared out of the European Union and into Norway.

While many border posts in Europe have vanished, Norway’s hard border with the European Union is clearly visible, with cameras, license-plate recognition systems and barriers directing traffic to customs officers.

Norway’s membership in the European Economic Area (EEA) grants it access to the EU’s vast common market and most goods are exempt from paying duties. Still, everything entering the country must be declared and cleared through customs.

Technological solutions being tested in Norway to digitalize customs procedures for cargo have been seized on by some in Britain as a way to overcome border-related problems that threaten to scuttle a divorce deal with the EU. But the realities of this northern border also show the difficulties that persist.

A divorce deal between Britain and the EU has stumbled over how to guarantee an open border between the United Kingdom’s Northern Ireland and EU member state Ireland after Britain leaves the bloc on March 29.

The Irish border area was a flashpoint during decades of conflict in Northern Ireland that cost 3,700 lives. The free flow of people and goods across the near-invisible Irish border now underpins both the local economy and Northern Ireland’s peace process.

The EU’s proposed solution is for Britain to remain in a customs union with the bloc, eliminating the need for checks until another solution is found. But pro-Brexit British politicians say that would stop the U.K. from forging new trade deals around the world.

Technology may or may not be the answer, depending on who you talk to. “Everyone agrees that we have to avoid a hard border in Northern Ireland, and … technology will play a big part in doing so,” said Northern Ireland Minister John Penrose.

But EU deputy Brexit negotiator Sabine Weyand said on Twitter: “Can technology solve the Irish border problem? Short answer: not in the next few years.” The Customs office at Orje, on the road connecting the capitals of Oslo and Stockholm, has been testing a new digital clearance system to speed goods through customs by enabling exporters to submit information online up to two hours before a truck reaches the border.

At her desk in Orje, Chief Customs officer Nina Bullock was handling traditional paper border clearance forms when her computer informed her of an incoming truck that used the Express Clearance system.

“We know the truck number, we know the driver, we know what kinds of goods, we know everything,” she told The Associated Press. “It will pass by the two cameras and go on. It’s doesn’t need to come into the office.”

That allows Customs officers to conduct risk assessments before the vehicle even reaches the border. So far, only 10 Swedish companies are in the pilot project, representing just a handful of the 400-450 trucks that cross at this border post each day. But if it’s successful, the plan will be expanded.

In the six months since the trial began, Customs section chief Hakon Krogh says some problems have brought the system to a standstill, from snow blocking the camera, to Wi-Fi issues preventing the border barrier from lifting, to truck drivers who misunderstand which customs lane to use.

“It’s a pilot program, so it takes time to make things work smoothly before it can be expanded,” said Krogh, who still felt the program could have a long-term benefit. The program also limits flexibility for exporters. If a driver calls in sick and is replaced by another, or extra cargo is added to a shipment, then all the paperwork must be resubmitted online.

Yet a greater barrier to digitalizing the border is the complexity of international trade. The Svinesund customs office, 90 kilometers (56 miles) south of Orje, is Norway’s major road border, with 1,300 trucks each day carrying goods into the country from all over Europe. Customs section chief Kristen Hoiberget has been following the Orje pilot program with interest but warns of systematic challenges to its expansion.

“It’s very easy to deal with a digital system when the goods are uniform,” said Hoiberget. “If you have one kind of goods in a lorry, it’s less complicated. But if you have a lorry that picks up goods at ten different places abroad, the complexity arises rapidly.”

He said most of the export information needed is available digitally but Customs, clearance houses and exporters all use different computer systems. “There are a lot of prerequisites to a digital border,” he said. “A frictionless border would need development and lots of legislation.”

Back in Orje, vehicles entering Norway are randomly checked, with officers mainly looking for alcohol and cigarettes, which are cheaper in Sweden. Border changes are coming, but certainly not in the tight two-month timeframe that any Brexit border changes would need.

“If you look 15 years ahead, I guess this office won’t be here. I won’t be sitting here stamping papers,” said Bullock. “But customs officers will still be on duty, to prevent goods coming into Norway that are not supposed to.”

As an AP journalist waited in the snow to watch a truck at Orje use the Express Clearance lane, a truck driver made his way across a large parking lot to the customs office. “You must be doing a Brexit story,” he joked. “They’ll be in the same boat soon.”

Lawless contributed from London.

Protesters at Irish border highlight Brexit as peace threat

January 26, 2019

LONDON (AP) — Hundreds of people assembled near the Irish border to highlight the risks Brexit poses to peace in Northern Ireland. The protesters gathered near Newry in Northern Ireland on Saturday to reject the possibility of a “hard” border with ID checks and customs controls going up between Northern Ireland and the Republic of Ireland after Brexit.

Some created a mock border checkpoint where actors dressed as soldiers and customs officers showed what such a protected boundary might look like. There is concern on both sides that a guarded border could jeopardize a hard-won coexistence since a 1998 agreement largely ended decades of sectarian and nationalist violence.

The British and Irish governments don’t want a hard border, but the European Union has said it’s likely unavoidable if the U.K. leaves the EU without a deal.

UK, EU leaders don’t budge on Brexit but agree to more talks

February 07, 2019

BRUSSELS (AP) — Britain and the European Union refused to budge an inch Thursday toward any compromise over Brexit, but at least they are on speaking terms again about their impending divorce. They agreed to further negotiations in the next few weeks, although that means any deal will come perilously close to the scheduled deadline of March 29. That risks a chaotic departure for Britain that could be costly to both sides — both to businesses and ordinary people.

“A no-deal is for us not an option. It is a disaster on both sides of the Channel,” said Guy Verhofstadt, the European Parliament’s chief Brexit official. Looking at the ever-tighter deadline, British Prime Minister Theresa May said after talks at EU headquarters in Brussels, “it’s not going to be easy.”

But she vowed: “I am going to deliver Brexit. I am going to deliver it on time.” May was able to clear the air after EU Council President Donald Tusk exacerbated the frosty climate Wednesday by wondering aloud what “special place in hell” might be reserved for those who backed Brexit with no idea of how to deliver it.

May said she had “raised with President Tusk the language that he used,” saying his words “caused widespread dismay” in Britain. Tusk’s comments were condemned by British Brexiteers but at least served to focus minds on how wide a gulf remains between the U.K. and the EU. It was little surprise that talks at EU Commission headquarters were described as “robust.”

At the end, May and EU Commission President Jean-Claude Juncker agreed on a renewed effort to hold more negotiations on seeking a breakthrough. The two leaders agreed to assess progress “before the end of February to take stock of these discussions,” a joint statement said. Two years ago, May set Brexit day as March 29 — and original plans were to have a deal in place six months ahead of time.

As the time shrinks between a deal and the cutoff date, the more difficult it becomes for businesses and authorities to adapt quickly to the fundamental changes that a withdrawal from the bloc would entail.

Both sides still disagree on whether the divorce agreement struck between May’s government and the EU — and then summarily rejected by Britain’s Parliament — can be changed to ease British objections.

“The EU27 will not reopen the Withdrawal Agreement, which represents a carefully balanced compromise between the European Union and the U.K., in which both sides have made significant concessions,” the joint statement said.

U.K. officials said May’s primary concern was not to be “trapped” in a system that could see Britain linked to the EU in a customs union for an indefinite time and not be able to set its own trade agenda.

Britain’s Parliament voted down May’s Brexit deal last month, largely because of concerns about a provision for the border between the U.K.’s Northern Ireland and EU member Ireland. The mechanism, known as the backstop, is a safeguard that would keep the U.K. in a customs union with the EU to remove the need for checks along the Irish border until a permanent new trading relationship is in place.

Thursday’s statement said that May “raised various options for dealing with these concerns in the context of the withdrawal agreement.” Many pro-Brexit lawmakers in Britain say they won’t vote for the withdrawal agreement unless the backstop is removed from the 585-page, which the EU leaders oppose vehemently.

Juncker and the other leaders have agreed to look for a compromise in a political text accompanying the withdrawal agreement, but not in the document itself. “What we would look at as positive from today is that there are going to be talks,” a senior Downing Street official said, speaking on condition of anonymity to discuss the UK-EU negotiations. “Obviously we’ve got work to do.”

In London, there was significant momentum from the opposition, with the Labor Party making perhaps its biggest move in months. Party leader Jeremy Corbyn dangled a possible way out of the impasse, saying his left-wing party could support a Brexit deal if May committed to seeking a close relationship with the EU after Britain leaves. That would include a commitment to maintain roughly equivalent standards in areas such as the environment and workers’ rights.

Corbyn’s key demand, set out in a letter to May, is permanent British membership in a customs union with the EU. May has repeatedly ruled that out, but it would solve the problem of the backstop by making customs checks on the Irish border unnecessary.

It is the firmest sign yet that Labour lawmakers might be willing to vote for a Brexit deal in Parliament. But the party — like May’s Conservatives — is divided. Corbyn’s position disappointed some Labor Party legislators who had hoped he would back calls for a second referendum on whether to leave the EU.

Britain’s Parliament is set to hold a debate and votes Feb. 14 on the next steps, giving lawmakers a chance to force May to change course toward a softer Brexit — if divided lawmakers can agree on a plan.

Corbyn said Thursday that Labor would “do everything we can in Parliament to prevent this cliff-edge exit.” “Half of our trade is with Europe. A lot of our manufacturing industries are very frightened, very worried,” he said.

Lawless reported from London.

Brexit could spell economic peril for parts of the EU

February 06, 2019

BARCELOS, Portugal (AP) — For the more than 120 workers at the Pedrosa & Rodrigues garment factory in northwestern Portugal, events in another country 2,000 kilometers (1,200 miles) to the north could jeopardize their livelihood.

Sales to Britain make up about half of this family business’s annual revenue of about 14 million euros ($16 million). But the U.K.’s impending departure from the European Union could make “Made in Portugal” labels less attractive once borders go back up between Britain and the 27 other countries in the bloc.

“The worst-case scenario is losing 7 million euros” a year, says Ana Pedrosa Rodrigues, the company’s client relations manager. “It would be extremely worrying.” Companies like Pedrosa & Rodrigues fear they could be part of the collateral damage from Britain’s withdrawal from the EU’s single market, which guarantees no tariffs on trade and free movement for goods, workers and money. As Brexit-inspired economic adjustments ripple across the bloc, small countries like Portugal could feel a lot of economic pain, although the extent of the disruption remains unclear because the terms of Britain’s divorce deal with the EU remain unresolved.

Some economic forecasts have produced scary numbers. The Portuguese government says Brexit could wipe out up to 26 percent of Portuguese exports of goods and services and shave 1 percentage point off the country’s GDP.

The Organization for Economic Co-operation and Development, a policy adviser to developed economies, estimates that if Britain leaves without an agreement on new trade terms with the EU, it could reduce the EU’s GDP by around 1 percentage point by 2020. That’s more than half a year’s economic growth at current rates. It could be three times worse for Britain, the OECD says.

The OECD notes that some countries, sectors and businesses across the EU will feel more pain than others. A report last year by the European Committee of the Regions, an EU advisory body, identified Ireland as the likely major casualty of Brexit due to its geographic proximity to Britain, which historically has tied them together commercially.

Some German regions, such as Stuttgart, that rely on auto industry exports to Britain could also feel the economic shockwaves, it said. Chemical and plastics companies in Belgium and the Netherlands are at risk, too.

In Portugal, which has had close ties with Britain since the Treaty of Windsor in 1386, the textiles sector based in the northwest is one of the country’s most exposed industries. It is largely located in what is one of the poorest regions of Portugal and western Europe.

The textile companies already have felt a chill, with sales to Britain dropping by more than 3 percent since the 2016 Brexit referendum, according to Paulo Vaz, director-general of the Portuguese Textile and Clothing Association, which represents about 500 companies in the sector.

He puts that down to the weak pound, which makes purchases from countries like Portugal that use the euro more expensive, and cautious spending by British consumers at a time when their financial future is uncertain.

He says these are tense times for Portuguese companies, especially with the U.K. playing such a central role in the local textile industry. “We’re talking about a market that is our fourth-largest, that’s worth around 450 million euros ($516 million) a year to us and that was growing, and that now can be severely harmed by all this,” Vaz said, referring to Brexit.

For some businesses, the British market is their lifeblood. The two-story Pedrosa & Rodrigues factory sits amid green fields on the fringes of a small town in Portugal’s industrial heartland, where textile companies are an economic mainstay and provide about 130,000 jobs.

Inside, there is a hum of sewing machines, a hissing of irons and a rumble of high-tech cloth-cutting machines. Ana Pedrosa Rodrigues remembers sitting as a child on the running boards of these machines after her parents started the company with five employees in a garage in 1982.

Ana and her two older brothers recently joined their parents at the company. The other employees include husbands and wives, fathers and sons, brothers and sisters. Generations of workers are common in the industry. Almost all of the workers live in town, many of them within walking distance, and have served on average of 19 years.

Pedrosa & Rodrigues has prospered in part by selling “affordable luxury” brands to some of Britain’s well-known fashion labels. The company makes ME+EM T-shirts that can be found at Selfridge’s in London and produces some of the All England Club’s range of Wimbledon tennis wear. In an ironic twist, it also delivers to British brand L.K. Bennett — a label occasionally worn by British Prime Minister Theresa May.

Every Friday, workers stack dozens of brown cardboard boxes at the factory’s loading bay and place them on trucks for the 2-3 day trip to warehouses in central Britain. At the moment, the trucks drive straight across the EU’s open borders. If they are shut, the paperwork, delays and tariffs could add 12 percent to the cost price.

A loss of British business would translate, inevitably, into job losses— and not just at this company, Ana Pedrosa Rodrigues says. “We are at the front end of a supply chain, and the losses would have a knock-on effect for our suppliers,” she said. That includes the fabric producers, dying companies, printers and embroiderers. Most of them are their neighbors. “Nobody would escape the impact.”

Sofia Cardoso, a 43-year-old employee of Pedrosa & Rodrigues whose husband also works for a textile company, refuses to be gloomy, saying the sector has built up a lot of resilience over its long history.

“We’ve been through crises before and we’ve survived,” she said. “I think we’ll get through this one too.”

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