Leaving the EU Single Market and potentially the customs union - the only trading environment many manufacturers have ever known- will be painful and costly. To do so without a replacement trade deal in place would be hugely problematic for businesses.
Why? Because this is no ordinary Free Trade Agreement (FTA) scenario, as the government has said many times. We agree on that.
The reason the UK- EU situation is so different is because unlike any other FTA where both parties are aiming to open themselves up to each other’s markets and reach economic convergence, the EU and the UK are already converged - as no two other trading blocs are anywhere in the world.
Walking away from a deal in a typical FTA scenario would leave both parties no worse off than when they came to the negotiating table. For a completely converged UK and EU to tear down the entire system virtually overnight and walk away from the negotiating table with no alternative to fall back on - could only result in significant immediate cost and pain - for manufacturers and consumers.
Manufacturers must have a trade deal in place and the UK should aim for:
- Being a fully-fledged WTO member: to operate without discrimination inside internationally agreed trade rules, including for any future FTAs the UK secure
- Continuing its key role in developing product standards: harmonised product standards between the EU and UK are vital in allowing the smooth flow of many manufactured goods across borders
- Zero tariffs: even a low tariff rate would impose a substantial cost on exporters, for manufacturing average tariffs are approximately 5.3%
- Favourable rules of origin: these rules must allow British processed goods with component parts from other countries for example to be recognised as British made, and then attract zero tariffs
- Mutual recognition and enforcement of customs procedures: without this, significant non-tariff barriers such as proving equivalence, customs checks, times delays, documentation and administration processes could hurt manufacturers
- The ability to strike trade deals with the rest of the world: the UK can’t be left out of the current EU preferential trade deals and not have the ability to strike its own.
- A transition period: is essential to allow the industry to adjust to the significant changes which are currently embedded in the trading environment
What’s more, this deal needs to be industry-led. As with other major trade negotiations in the world, industry is instrumental in contributing to and formulating negotiating positions, working hand-in-glove with government in crafting positions and even attending negotiations, through a formal government-industry mechanism. For British manufacturers, this is a must.
In our briefing note, UK Trade with the EU: A New Trading Order for the Manufacturing Industry we set out the sector’s first formal thoughts on the future trading relationship with its most significant export partner – the EU.