Frictionless trade. What Brexit means for cross-border trade in goods

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Publication Date August 2017
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This paper, published by the Institute for Government in August 2017, looked at the integration of UK and European Union (EU) supply chains and the options for securing ‘frictionless trade’ after Brexit. It assessed the various ‘off-the-shelf’ options for the UK’s future relationship with the EU and what each meant for the UK’s pan-European supply chains.

The paper set the context for the IfG's subsequent Implementing Brexit: Customs paper published in September 2017 (see related url hyperlink below), where the authors explored the work required to prepare the UK’s borders for Brexit.

A deal on customs would be important to reducing post-Brexit trade friction, but was only half the story. The IfG report said leaving the EU would disrupt the country’s important integrated supply chains in areas like automobile manufacturing. It would create friction in cross-border trade in goods.

The paper examined five potential options for future trade:

+ A deep and comprehensive free trade deal, including customs cooperation
+ A new customs union agreement
+ Staying in the Single Market
+ Combining staying in the Single Market with a new customs union arrangement
+ Leaving with no deal and trading with the EU on WTO terms.

The authors found that while 'off-the-shelf' options – staying in the Single Market (the Norway model) or a new customs union (the EU-Turkey model) – could remove some disruption, none eliminate friction entirely. Leaving with no deal would put the UK in a worse place than any other major trading partner and would maximise disruption, evidenced by the fact that no major country trades with the EU on WTO terms alone.

However, the authors said the UK Government was right to argue that friction at the border could be reduced by a deep and comprehensive free trade agreement including customs cooperation. But the options that might be easiest to negotiate were those that were most likely to cross current UK negotiating red lines.

The IfG report was published, by coincidence, at the same time the United Kingdom published its Policy Paper Future customs arrangements: a future partnership paper.

IfG Analysis: Implementing Brexit: Customs
Introducing customs declarations after Brexit would affect up to 180,000 UK traders and could cost traders over £4 billion a year, according to the IfG analysis paper Implementing Brexit: Customs. The paper said that preparing the UK border for Brexit was a huge task with a hard deadline. Being ready for day one required the Government to orchestrate change across more than 30 government departments and public bodies, as well as over 100 local authority organisations.

The paper also highlighted the critical role played by organisations outside government. It showed the complex web of private sector organisations that must also be ready to ensure UK trade could continue to cross the border on day one after Brexit.

The authors said that while most people recognise the customs 'cliff edge' in the UK, not enough attention was paid to a similar cliff edge on the other side of the English Channel. Unless Calais, Dunkirk, Rotterdam and other European ports are also ready for Brexit, British exporters will face significant disruption to their supply chains. Preparation on both sides is particularly vital in the case of the Irish land border. They also note that the Government must successfully deliver its new customs technology programme to avoid disruption at the border after Brexit – but say the system is already facing significant issues because of constricted timelines.

Implementing Brexit: Customs offers recommendations to help the UK avoid the customs cliff edge, such as moving customs requirements away from the physical border, retaining access to key EU computer systems and establishing working groups with the private sector on implementation.

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Related Links
ESO: In Focus: Brexit - The United Kingdom and the European Union
IfG: IfG Analysis, September 2017: Implementing Brexit: Customs

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