Author Mark Fairlie
On Monday, Theresa May met with the European Commission President, Jean Claude-Juncker, to discuss Brexit negotiations. Discussions broke down following a failure to resolve a dispute on issues surrounding the border between Northern Ireland and the Republic of Ireland after Britain has left the EU.
The current deadlock on the border issue has meant that long-awaited talks on a post-Brexit trade agreement have been put on hold. Representatives from both sides expressed hope that trade arrangements can begin during the EU leaders’ summit meeting next week.
In the run-up to the referendum, both sides took different positions on the importance of trade with the EU to the UK economy. The ‘Remain’ side believed that as 44% of British exports are sold to other EU countries, leaving the union would put a barrier between ourselves and our major trade partners.
Although the USA buys more British goods and services than any other country, seven out of the top ten largest UK export markets are in the EU, according to BBC News. Germany, followed by China and the USA trailing, are the three largest countries importing goods and services into the UK.
‘Leave’ campaigners believe that EU membership and the ban imposed by the EU on Britain making trade deals unilaterally hold the UK’s economy back. They want Britain to focus on forging its own international trading relationships with a particular emphasis on making agreements with fast-growing markets like India and China.
Tariffs and quotas
UK companies are currently able to trade with countries in the EU on a tariff- and quota-free basis.
Many predict that during the coming trade negotiations, Brussels may seek to impose a 5% tariff on all UK car exports. Industry leaders have expressed concern over the future of trade with Europe as 56% of UK-manufactured cars are exported into the trading area.
While Britain could impose a similar traffic on EU cars imported into the UK, there appears little desire to do so on either side as this would put upward pressure on the prices of all cars across the continent.
Both sides are expected to be keen not to impose tariffs on the other across a range of products and services for the same reason. There is a concern though that this may be difficult politically.
John Forrest, head of international trade at DLA Piper, states that the UK will only be able to negotiate a single deal with the remaining 27 EU states. “It will definitely not be on a country-by-country basis,” he told the Guardian.
“The EU maintains a single harmonised customs border and the UK will simply negotiate the continued terms of trade with the EU.”
This means that any deal reached in the negotiations will apply for all EU nations the UK trades with no matter how unattractive the tariffs and quotas may be.
According to the Independent, the average EU tariff stands at 4.8%. Applied to the UK’s total exports, this could cost around £4.5billion. The tariff rate can vary greatly depending on the nature of the goods; with pharmaceutical products carrying no charge, footwear being charged at 11%, and tobacco reaching as high as 45%. Certain industries in the UK are set to face more challenges than others.
Trading with other countries outside the EU may also prove more difficult post-Brexit. The UK will no longer be part of more than 50 free trade deals when it leaves the European Union, losing the right to import and export freely in significant markets such as Mexico, Korea and Switzerland.
Many believe the UK may still be able to become a member of the European Economic Area (EEA) or the European Free Trade Association (EFTA), striking similar deals as the four existing non-EU members.
Economic growth ‘steady but sluggish’
The Confederation of British Industry (CBI) chief economist, Rain Newton-Smith, announced that following “a timid 2017, UK economic growth is set to remain steady but sluggish, with less pep than we’ve seen over the past few years.”
This steady but sluggish growth has been linked to rising household spending and inflation peaking at 3%, however, trade has also been cited as a major player in the current slump in growth.
The number of goods Britain exported fell by 4.9% in June this year, according to the Office of National Statistics. This was the largest monthly drop since the Brexit vote.
Newton-Smith stated that the current “lacklustre rates of growth” are a result of several years of persistently weak productivity which “pushes down the UK’s supply potential”.
However, some economists see a reason for hope. The CBI’s principal economist, Alpesh Paleja added
“the global economy is firing on all cylinders, with the upturn in growth becoming more broad-based. We expect this to continue in the near-term, which will provide a supportive backdrop for trade and economic growth in the UK.
“Coupled with a lower pound, now is a good time for businesses to look at new exporting opportunities across the world.”