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[...]To start with the good news, we calculate that 34% of UK exports to the EU will remain tariff-free under a ‘no deal’ scenario, as long as the UK remains a member of the WTO. The green bars in both figures represent the value of UK exports that face no trade policy uncertainty in exporting to the EU – even under a ‘no deal’ Brexit, these exports will pay no tariffs and face no quantitative restrictions in the EU. From Figure 1, we can see that these tariff-free exports are largely in fuels and chemicals. Figure 2 refines the large chemical product group into chemicals and pharmaceuticals and shows that most pharmaceutical exports will enter the EU duty-free even if the UK leaves the EU without a deal.
Similarly, the blue bars quantify the value of exports that face low uncertainty – worst-case scenario tariffs of 1-5% ad valorem. Concern rises for yellow exports where tariffs could rise to 5-10%. The UK’s main concern comes from the orange exports suffering high uncertainty, with EU tariffs that could rise to 11-15%, and the red exports exposed to extreme levels of trade policy uncertainty – a worst case ad valorem tariff over 15% or the imposition of a quota or an EU trade remedy.
The bad news is that 27% of UK exports face high or extreme trade policy barriers in a ‘no deal’ scenario (this is represented by the sum of the orange and red bars in the figures). Products facing a risk of high or extreme trade policy barriers are predominantly concentrated in high-skilled and technologically advanced manufactured products, including transportation equipment and machinery. There is also considerable risk facing one of the UK’s environmentally friendly exports – biodiesel – a high-value export that has been the target of EU antidumping activity.
A gentler Europe in a ‘no deal’ scenario
Despite Europe’s history as an active user of antidumping policy against high-income trading partners, some might argue that antidumping duties against the UK are unlikely. If the EU commits to refraining from using antidumping duties on UK exports, then the ‘no deal’ scenario is slightly less gloomy. Figures 3 and 4 repeat the tariff-risk analysis in Figures 1 and 2, but omit antidumping duty risk. This is an alternative, extreme assumption. Under this assumption, the share of UK trade to the EU at risk of high or extreme trade policy barriers falls to 15% (from 27%) and the value of exports falls to £25.4 billion (from £47 billion). Thus, this is the lower bound of how bad things would get under a ‘no deal’ outcome in which the EU never used antidumping policy against the UK.
The preceding analyses have omitted other important sources of trade policy risk facing the UK. With the UK’s exit from the EU comes the danger that the UK will not be able to roll over the FTAS it subscribes to as a member of the EU. This could result in higher baseline tariffs as well as the loss of quota rights in these non-EU markets. The UK also faces considerable uncertainty over access to different sectors of the US market arising from the protectionist agenda of the Trump administration. These additional risks in markets outside the European Union underscore the difficulties that lie ahead.
Conclusions
On 6 December, the UK’s Parliamentary Select Committee on Brexit held a hearing on the impact of Brexit, emphasising the need for sound quantitative analysis at the sectoral level. In this column, we have offered a detailed assessment for manufacturing exports.
In summary, if the UK leaves the EU with no trade deal, firms in the UK will face significant policy barriers to export to the EU across a wide range of products. Under a ‘no deal’ scenario, £47 billion in UK exports to the EU would face high or extreme tariffs, quotas, or antidumping duties.
If the UK chooses to leave the Customs Union and attempts to negotiate a bespoke trade deal with the EU, then these products should be the priority in the trade negotiations.