LONDON – In recent days, negotiators have seemed tempted to close a post-Brexit trade deal between the UK and the European Union. But time is running out by just two weeks until the deadline of 31 December, when the UK withdraws from the European Union’s economic zone, the single market and the customs union.
This could mean new heavy taxes on traded goods, blocked ports and some types of food that disappear from the shelves of British supermarkets, as well as conflicts over fishing rights.
The trade agreement between the two sides would respect the rules of the World Trade Organization and would offer great success to companies on both sides of the English Channel, but especially in the United Kingdom. That is why the negotiators are talking about a “moment of truth” in their efforts to avoid a chaotic final chapter of the Brexit saga.
How bad could it be “without understanding”?
Pretty bad. Britain has spent decades integrating its economy into mainland Europe, and companies import and export goods freely without paying taxes – known as tariffs. This would change if no trade agreement was reached, with tariffs applied to a range of goods crossing the border. Cars, for example, would attract 10% rates. Farmers could also be hit The average tariff for lamb is 48% – threatening some exporters with ruin, and dairy products would be subject to tariffs of about 35%.
The other big risk is that the additional bureaucracy will clog the ports. Some of this is inevitable on January 1 – with or without a trade agreement – as controls will increase and traders will have to fill in millions of customs declarations that they have not needed so far. But no agreement would aggravate this, and if the ports get stuck on one side of the English Channel, the trucks get stuck on both. According to what the government calls a “reasonable scenario in the worst case scenario”, up to 7,000 vehicles could accumulate on motorways with delays of up to two days. In Kent, in the south of England, a 27-acre site is being built to handle empty trucks, and other contingency plans include one for carrying out portable toilets for stranded drivers.
OK, so it’s bad news if you’re a farmer, carmaker or truck driver, but what about other people?
About a quarter of all food consumed in the UK is produced in the European Union and the disruption would occur at a time when imports of fruit and vegetables are high in winter. Food prices are likely to rise, and a supermarket chain has estimated that tariffs could increase global UK bills by 3-5%. There could also be shortages of products, largely perishable. The supply of others could be affected, including some medicines, although the government says it has contingency plans to use a variety of different ports and also to supply, including Covid-19 vaccines.
Surely all this would hurt Europeans as well?
That’s right, and the UK would raise money in tariffs because it imports more goods than it exports to the European Union (in 2019, it registered a global trade deficit with the block of 79 billion pounds, or about 105 billion dollars). The problem is that the European Union is the UK’s largest trading partner and accounts for 43% of its exports. No single nation in the European Union would be so badly hurt by any agreement, except Ireland. An official estimate suggests that a lack of a trade agreement would reduce Britain’s economic output by 2% and increase inflation, unemployment and public borrowing.
Would the planes continue to fly?
It is probably a basic agreement to keep the planes flying and the Canal Tunnel train running. The European Commission has announced contingency plans to maintain aviation safety measures to avoid grounding aircraft and to keep freight and passenger transport links open for six months. However, this should be reciprocal, and European freight rules come with certain conditions of “fair competition” that the UK may not accept. The EU side has also proposed maintaining fishing rights for the same year, allowing European vessels to continue sailing in British waters, although the UK has rejected the idea.
Speaking of fishing, what would be the situation there?
A big mess. Without an agreement in place, French, Dutch and Belgian boats would lose access to British waters, where they have been fishing for decades (or, in some cases, centuries). This could lead to clashes at sea, and Britain has put four naval ships on hold to protect its waters. But there could be big problems for British fish exporters selling on the profitable mainland market, and French fishing vessels could disrupt trade by blocking ports.
Other problems?
A lot. There would be less cooperation on security and data exchange, and the UK would lose its current rapid access to European criminal records and fingerprint databases. Nor could the UK get much cooperation on the rules under which its financial services industry can trade on the continent. And there would be no prospect of the British keeping free healthcare in the European Union or enjoying student exchange programs. But the rights of European citizens who are already in the UK to stay (and vice versa) are guaranteed under a Brexit withdrawal agreement. It also laid down rules to avoid a hard border in Ireland and Britain has given up the threat of breaking parts of this treaty.
Looking across the abyss without an agreement, can the negotiators reach an agreement?
Although most of the issues have been resolved, there is no certainty that an agreement will be reached ahead of time. But given the problems at stake, analysts do not see any transaction as a sustainable solution. The United Kingdom is the smallest party in this trade negotiation, but its economy is large and is right on the threshold of the European Union. At some point, the two sides will have to reach agreements not only in the field of trade but on everything from fishing to financial services. The question is whether this happens before or after a New Year’s Brexit crisis.