20 February 2017

The Guardian: 'No deal' Brexit would mean £6bn in extra costs for UK exporters

Theresa May has insisted “no deal is better than a bad deal” when it comes to the terms of Britain’s departure from the EU, suggesting the prime minister believes falling back on World Trade Organisation rules is a credible alternative if she cannot get her preferred option of a new free trade agreement with the EU.

Yet the implications of such a dramatic plan B remain poorly understood, even within Whitehall, where civil servants are scrambling to assemble the detailed market data needed to negotiate quotas that might cushion a hard landing. One senior official said the picture remained hazy because civil servants “haven’t done the homework yet”.

However, without EU cooperation, the cost of the prime minister’s “no deal” scenario is clear. As part of a series examining the plausibility and impact of a hard Brexit, the Guardian has analysed the latest international trade figures compiled by the UN and World Bank – showing that the $204bn-worth of British goods bound for Europe each year would be hit with $7.6bn in new tariffs under current WTO rules, equivalent to £6.1bn at today’s exchange rate.

“This would be a pretty big shock and it is very clearly unwelcome,” said Prof Alan Winters, director of the UK Trade Policy Observatory at Sussex University. “At the end of the two years, it’s up to the Europeans to decide if we have a deal. The government has got to pretend that it is OK if we don’t, otherwise they have no leverage. This is a piece of political spin to try to persuade us that if this happens, it is not a catastrophe.”

Although tariffs are typically paid by importers, relatively low-margin sectors such as agriculture and car manufacturing – which currently enjoy tariff-free trade with the EU – would be hit hardest with tariffs ranging from 10% for cars and 16% for lorries to 23% on ham and 109% on sugar beet. [...]

Previous attempts to estimate the bill for this hardest of Brexits have averaged its impact across industries and left out additional tariffs that are calculated by volume, but the Guardian analysis examines the total impact across 4,500 separate lines of trade.

This reveals new potential casualties – such as the British fashion industry, which alone faces an extra customs bill of more than $1bn – and pockets of high tariffs affecting leave-voting areas such as Stoke-on-Trent and its ceramics industry.

“The government will come under a lot of pressure from different sectors to cushion the blow,” said Winters. “But you can’t avoid the hit; you can only spread it around.”

This mutual dependency also threatens British consumers. A WTO estimate before the referendum calculated that British consumers faced total annual tariffs on EU imports of £9bn, which could not be waived without also allowing a flood of cheap imports from the rest of the world. That would make exports to Britain more expensive and possibly uncompetitive, something Brexit supporters hope could stimulate domestic producers but may also just fuel inflation. [...]

Full article on The Guardian

Related article on The Guardian: How difficult, and how costly, is a hard Brexit?

Leaving the EU without a deal and falling back on WTO rules would mean paying customs duties on British exports to the EU. Guardian calculations put the annual bill at $7.6bn just in tariff costs.

© The Guardian