UK risks losing up to 14 percent of exports in no-deal Brexit: UN study

Potential losses under a “no-deal” Brexit from tariffs are estimated at between $11.4 billion and $16 billion of current exports – and the new study says NTMs would double those losses.

The United Kingdom (UK) risks losing up to 14 percent of its exports to the European Union (EU) in a so-called “no-deal” Brexit, according to a new study by the UN Conference on Trade, Investment, and Development (UNCTAD).

Brexit Beyond Tariffs: The role of non-tariff measures and the impact on developing countries maintains that without UK-EU agreements, or non-tariff measures (NTMs), in place, post-Brexit exports could fall by $32 billion.

Potential losses under a “no-deal” Brexit from tariffs are estimated at between $11.4 billion and $16 billion of current exports – and the new study says NTMs would double those losses.

The study also projects that even if a “standard” free trade agreement were to be signed by the parties, the UK’s exports could still drop by nine percent.

This is because standard trade deals normally focus on reducing or eliminating tariffs rather than NTMs and Britain has already indicated it will diverge from the EU in terms of regulation.

As the EU market accounts for 46 percent of the UK’s exports, a no-deal Brexit would deal a major blow to the UK’s economy, according to the study by the Geneva-based agency. 

Moreover, mounting trade costs due to NTMs and potentially rising tariffs would more than double the adverse economic effects of Brexit for the UK, EU and developing countries, the study notes.

NTMs include regulatory measures protecting health, the environment and traditional trade policies, such as quotas.

Regulations affect most of the products we use in our daily lives, from packaging requirements and limits on pesticide usage to restrictions on toxins in toys and emission standards for cars.

“EU membership has its advantages to deal with non-tariff measures that even the most comprehensive agreement cannot replicate. This offers important lessons to other regions trying to deal more effectively with such non-tariff measures,” said UNCTAD Director of International Trade Pamela Coke-Hamilton.

Developing countries boon

On the flip side, a no-deal Brexit could offer opportunities to developing countries, as trade barriers between the UK and the EU would benefit third countries' suppliers. 

However, the study finds that a positive third-country effect could be diminished by increasing regulatory differences, saying that if the UK’s regulations divert over time from the EU’s, trade costs would rise for third countries, disproportionately affecting smaller and poorer countries.

In quantitatively exploring the post-Brexit role of NTMs and their consequences for developing countries, the study revealed a positive impact on agriculture, food and beverages, wood and paper sectors and a weaker one in electrical and machinery, metal products, chemicals, and textiles.

‘Hard’ and ‘soft’ exits 

Britain left the European Union last month and has vowed to strike a deal on new trading relations with the bloc by the end of the year. While a “hard” exit scenario would result in the study’s projections, the economic effects of a “soft” exit, in which the status quo is largely maintained, would depend on the details of that relationship.

Based on the study’s results, to minimize potential negative effects, the relationship should address customs unions, or trade blocs, and NTMs in a more comprehensive way than typical free trade agreements (FTAs).

Standard FTAs and customs unions generally promote trade through tariff reductions. And although tariffs are undeniably important, substantial evidence shows that the EU’s effect on trade exceeds that of zero tariffs.