Rules and Britannia

NO, GOOGLE is unlikely to move jobs to continental Europe, nor invest more there, said Eric Schmidt, the executive chairman of Alphabet (parent of the online giant) at a conference in Paris last week. Just because Britons voted to quit the European Union, businesses need not react hastily. But he added a warning that Britain and the EU must not let a digital gap open up; they need as “great a unification as possible” in technology regulation.

Tech bosses fret that Britain and the EU will end up with different policies towards their most important resource: data. On July 12th the EU is expected, at last, to approve “Privacy Shield”, an agreement to let companies transfer personal data across the Atlantic. (In October the European Court of Justice struck down an old deal as unsafe.) But if Britain leaves the union, nobody knows whether the new shield will cover it, too. So might the EU block data flows across the Channel, unless Britain negotiates a privacy agreement of its own? Since some in Brussels are suspicious of intrusive British surveillance, that could prove messy.

Uncertainty leaves not just big cloud-computing firms such as Google unsure where to put data centres. After the Brexit vote, the U-word is muttered everywhere in boardrooms—from carmaking to airlines, energy to telecoms. Shareholders are already feeling the pain, although not all recent losses on stockmarkets are due to Britain’s referendum (see chart).

Before the vote, European corporate leaders gave surprisingly little thought to what a split might mean for them. Matthias Wissmann, head of VDA, a German car lobby, says car firms made “no contingency plans” and the result caught them unaware despite Germany’s export of €89 billion ($99 billion) of goods, especially cars, to Britain each year. A survey, pre-referendum, by BDI, Germany’s industry federation, found that nearly 70% of firms had no clue how to respond to Brexit. The boss of a big French defence firm says nobody, banks aside, made serious plans for it, beyond currency hedging.

Regulatory uncertainty will dog firms for at least as long as Britain and the EU are negotiating a divorce agreement, which will determine whether British access to the single market will continue. Airlines are particularly exposed. Since the 1990s EU-based ones have been free to fly between any European airports without regulatory approval. Open-skies agreements with America and other third parties give EU airlines flexibility on long-haul routes, too. Outside the single market separate regulations kick in, for example on ownership and the need for official route approval. Firms with extensive continental operations, such as easyJet or IAG, will be sorely tempted to shift headquarters inside the EU. Dreams of a “European Single Sky”, to centralise air-traffic control and cut costs, are fading on the assumption that liberalising Brits will no longer push them.

Aircraft-makers, too, are facing a lack of regulatory clarity. Britain boasts the world’s second-largest aerospace industry, which, among other things, builds wings for Airbus aircraft. Before the vote, the firm already warned that Brexit could jeopardise future investment. Nobody knows whether the EU’s “launch aid” for aerospace, which helps with the setting up of big new plants, will still apply to Britain.

Energy is another big source of uncertainty. On July 4th Électricité de France, a French utility, reiterated its plan to build an £18 billion ($23 billion) nuclear-power station, Hinkley Point C, in Britain. The project is underpinned by British state aid, in the form of long-term electricity contracts and a debt guarantee. The European Commission agreed to these subsidies in 2014, but that could change if relations sour. Even before the vote, Austria’s anti-nuclear government had brought the matter to the European Court of Justice. Britain, at least, might be blocked from selling subsidised surplus electricity from Hinkley Point into the European grid, adding to doubts over Hinkley Point’s viability.

Pharmaceutical companies, for their part, were expecting a “unitary patent system” for Europe by 2018, with an intellectual-property court in Britain specialising in drugs and chemicals. This would have brought work resolving legal disputes into London, and boosted the pharma credentials of a country that is already home to the EU body that approves drugs for the entire European market. That now looks unlikely: Britain may not ratify the agreement, and will probably not get the court.

Similarly, in the chemicals industry, firms fret that British partners may no longer be covered by a EU framework, REACH, by which chemicals registered centrally can be sold in all member states. An industry insider in Germany says that without shared standards “customers may ask questions about the security of the supply chain”, and may be put off trading with British suppliers or investing in Britain.

The list goes on. In telecoms it is unclear whether British mobile carriers would be free to levy roaming costs on customers travelling inside the EU; such charges are to be scrapped in the union. For big food firms, such as Mars, worries about currency swings and tariffs are compounded by dismay that standards for factories, labels on packages, product recalls and employment conditions may soon differ in Britain. Matthias Berninger, the firm’s vice-president for public affairs, expects more complexity because British politicians will not “copy and paste European rules”.

All this uncertainty means that firms planning to invest in Britain are putting decisions on hold. A leading Swedish industrialist, Jacob Wallenberg, says he knows “companies that have withdrawn investment decisions from Britain since the referendum”. Given the British economy’s reliance on inflows from abroad, any slowdown is worrying: Britain holds roughly 7% of the world’s stock of foreign direct investment, some £1 trillion, and more than anywhere except America. Around half of Britain’s foreign direct investment comes from the EU.

Yet dramatic divestment may not loom. Instead the fear is of a “slow erosion”, says Juergen Maier, head of Siemens’s British operations. “Lots of little decisions” may be made away from Britain, to build plants or run research projects elsewhere. He points to researchers and firms that could be excluded from the EU’s €80 billion Horizon 2020 fund, which supports science and innovation.

Even if concerns over regulatory gaps prove overdone, there is a second worry: that future policy in the EU, drafted without direct British influence, will become more hostile to business. Mr Wallenberg calls Britain a free-market country and is concerned that new regulations will be dominated by a statist axis of Paris and Berlin. He is not alone. “Europe loses a sensible voice and a counterweight to the protectionists,” says an executive at a German chemicals firm. Surprisingly, perhaps, the chairman of a French industrial company volunteers: “A lot of us don’t like the idea of the Brits out. We like their business-friendly agenda.”