The stakes for the United Kingdom have never been as high with days left for it to reach a trade deal with the European Union.
But the three sticking points of fishing rights, government aid for companies and how disputes are settled stull threaten to collapse the trade talks.
While costs for UK companies would be higher just because of Brexit, the consequences of a no trade-deal Brexit could be catastrophic. The UK will have to revert back to the World Trade Organization terms of trade in trading with its single largest export market resulting in tariffs and other barriers to the movement of goods and services to and fro.
The tariff-free, quota-free access to the EU market of 450 million consumers who consume almost half of UK’s exports while also having a similar share in imports will be lost to the British companies that are already reeling from the pandemic hit.
But according to the Ifo Institute, a German research group, accounting for just 4 per cent of the total exports and 6 per cent of the exports of the EU in 2019, the importance of the UK for the bloc is not as high.
“Brexit means both sides lose, but the United Kingdom loses considerably more,” Lisandra Flach, director of the Ifo Center for International Economics, said in a statement.
Even with a free trade agreement in place between London and Brussels, the new trade arrangement and trading relationship will potentially lead to a 4 per cent loss of output in the long run compared to the UK remaining in the EU, the UK Office for Budget Responsibility (OBR), which produces economic forecasts for the government, had said in November.
But according to the OBR, in the case of a no-deal Brexit, the loss in output could be as high as 6 per cent for the UK in 2021 which is equivalent to about £40 billion ($53 billion) and could result in an additional 300,000 people being thrown out of employment by the second half of next year.
“The long-term effects [of a no-deal Brexit] would be larger than the long-term effect of Covid,” Bank of England Governor Andrew Bailey told parliament last month. “It takes a much longer period of time for what I call the real side of the economy to adjust to the change in openness and to the change in profile in trade,” he said.
There is expected to be large disruption in operations and supply chains of businesses after the transition period ends on December 31.
According to the UK revenue authority, the burdensome customs checks would cost the UK businesses £7.5 billion ($10.5 billion) annually in import and export declarations even with a deal.
And a no-deal will make the situation worse. According to the Society of Motor Manufacturers and Traders, tariffs of 10 per cent could be faced by British carmakers without any deal which is equivalent to £47 billion ($62.4 billion) in lost trade over the next five years. An average tariff of 22 per cent will be levied on UK food products while lamb along will face a tariff of 40 per cent on export.
According to UK’s Minister for the Environment George Eustice, there will also be an increase in the cost of food coming into the UK. New tariffs could add nearly 2 per cent to food prices in the UK, he said in an interview during the week end to broadcaster LBC.
According to customs data, the EU accounts for about 70 per cent of the imports of food and beverage to the UK in terms of value. Warning of a likely increase in food prices in the absence of a deal was issued last month by Marks & Spencer, one of UK’s biggest supermarket chains.
Therefore, there can be a rise in food product prices in the UK while a drop in exports to the EU
(Adapted from CNN.com)