Brexit and this week’s EU Council: What is at stake for European Businesses and Trade?

March 2018

This week, the Heads of State and Government of the EU Member States will meet for a summit of the EU Council, during which they will set its guidelines to negotiate the future relationship with the UK. The EU and UK are therefore entering a strategic phase which will define the nature of their relationship for decades and the new trade framework. This will undoubtedly have a significant impact on the continent’s economy defining the practicalities of this new relationship such as trade and customs between the EU27 and the UK.

“The Withdrawal Agreement published by the European Commission leaves little room for the UK to negotiate a more favourable deal on withdrawal conditions, as rejection of one will result in no deal”, Paul Verrips, Director for EU Affairs at Customs Connect, analyses.

Therefore, it is now instrumental for companies across the whole of Europe to concretely assess and analyse the various Brexit scenarios and their consequences, which revolve around the following possibilities: the UK stays inside the single market and/or customs union, the EU and the UK find a new agreement, or no deal is reached and the future relationship falls under the World Trade Organisation (WTO) terms.

Read more about Custom Connect’s Brexit Analysis Services here.

Being inside the Single Market would be similar to Norway’s model, thus ensuring economic continuity. However, this scenario contradicts the red lines set by the British government, which rejects the continuation of the ECJ jurisdiction, free movement, substantial financial contribution and loss of regulatory autonomy after Brexit. The latter three reasons imply that the Switzerland model is not applicable either. Remaining only inside the Customs Union would be similar to the EU-Turkey relation, but would also contradict the red lines, as it would prevent the independent trade policy that is desired by the UK.

An Association Agreement of a Free Trade Agreement would be the most natural option for the UK outside the Single Market and Customs Union. The level of integration and alignment of the UK with the EU would be inferior, but would not guarantee “frictionless trade” as Theresa May has expressed the wish, especially given such agreements’ complexity. An agreement such as CETA (between the EU and Canada) would thus lead to significant reduction in Single Market access. Paul Verrips, from Customs Connect underlines that “customs duty rates vary between 0% and 217%, with an average rate of 4.1% for imports into the EU”. Consequently, the customs and regulatory checks would damage the integrated supply chains, while being inconsistent with Northern Ireland commitments.

Lastly, a no deal scenario would be economically very painful, as WTO tariffs would apply, UK-based firms would not be recognised in the EU27, and there would be countless barriers to trade. Instead, the UK desires a ‘highly streamlined customs arrangement’, with no customs declarations. This could take the shape of a bespoke partnership, bringing with itself benefits without the obligations, an unrealistic perspective that has already been ruled out by the EU.

In any case, the next weeks will be crucial for the growth, trade and prosperity of Europe as a whole; the discussion might seem overly technical but it is essential to have a full understanding of their consequences. Ultimately, the political will of both parties to reach an agreement will have extensive, concrete impacts on the activity of companies and citizens on both sides of the Channel. The future remains unclear: Although the EU and UK have just reached a deal on the Brexit transitional agreement, customs have not yet been agreed upon.

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