The Economist says that a 'soft Brexit' will cut trade by at least 20% over 10 years; a "hard Brexit” will cut by 40%. Is that sustainable?

The Economist leader 22/07/2017, see Britain faces up to Brexit.

Alfonso Llanes, Master Degree in International Development

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Many experts assent that there is no compelling agreement between the meanings of hard or soft Brexit, however, one could argue that the terms befits border crossings and its administration. Good examples of this is the case will be Ireland and Scotland who want to remain in the EU and whether a new border would be soft for people or hard for both people-services and merchandise crossings.

According to a report from the HOUSE OF LORDS European Union Committee 16th Report of Session 2016–17 Brexit: trade in Goods:

The UK’s global trade accounted for around” 60% of all UK exports to the EU, and almost 77% of total UK imports from the EU in 2015. The Prime Minister’s approach may result in the introduction of both tariff and non-tariff barriers to trade in goods between the UK and the EU. This report considers the impact of trade under World Trade Organization (WTO) terms. In the absence of a FTA with the EU after Brexit, tariffs would apply.”

The introduction of Tariffs as a result of Brexit would be particularly damaging for sectors with a highly integrated EU supply chain, such as the automotive sector as tariffs could be imposed multiple times in the production process. Another big issue is non-tariff barriers such as rules of origin that would be more difficult to resolve.

A FTA that went some way to mitigating this non-tariff barrier would require a trade-off between the UK’s sovereignty and its desire to pursue close trade relations with the EU. More likely than not, this would require a legal obligation to maintain harmonization or mutual recognition of standards with the EU. It might also require the UK to agree oversight or to an arbitration authority in Brussels which, is one of the reasons advocated by supporters of Brexit to leave the EU.

Brexit will result in the introduction of a customs border between the UK and the EU-27. Moreover, Customs procedures will result in delays and increased administration, which in turn would add costs for businesses, and extra work for government officers. The report sustains the view that the UK is unlikely to be able to maintain access to the EU’s preferential trade agreements with third countries and FTA’s will need to be negotiated with each country.

The timetable for withdrawal negotiations under Article 50 is very tight and completing a UK-EU FTA in that same period is exceedingly ambitious. So, it seems that after the two years set out by Article 50— if this period is not extended by the unanimous agreement of the EU-27—WTO rules would apply to trade between the UK and the EU.

Serious consideration to a transitional agreement must be taken for the following sectors of the economy more likely to be“ Brexit hard” affected:

• Pharmaceuticals and chemicals

• Capital goods and machinery;

• Food and beverages;

• Oil and petroleum;

• Automotive; and

• Aerospace and defense.

Other enterprises expected to be affected are:

· International businesses which are not structured along sector lines or national boundaries.

· The manufacturing and primary commodities sectors are important employers.

· The production of goods and services is often intertwined.

· A new approach to immigration must take account of the needs of businesses in the UK.

· The UK economy as a whole is dominated by services which, account for 80% of the economy.

· Whether the UK’s existing level of research and funding with the EU-27 will continue.

Mr. Hardwick Head of Exports, the Agriculture and Horticulture Development Board said that the “transaccional” costs alone would be significant “for such checks between the UK and the EU estimated them to be “in the region of 8% to 10%, and perhaps more. The Government should not want to return to the hard borders of the past. The EU’s customs union means that there are no customs duties at internal borders between EU Member States.

From the perspective of the supply chain of the aerospace and defense sector, Meggitt PLC estimated that the administration of “tariff barriers would pose a significant amount of red tape costs (+200%)” and this “would be counterproductive”.

Another Issue related to tariffs is the additional bureaucracy that will be needed to administer a new Customs regime. There is also risk in that a “lengthy customs import process could lead to refinery production issues should products not be delivered promptly for time-critical industries.

So at one extreme one could have a "hard" Brexit that could involve quitting the EU without a deal in place.

In contrast, a "soft" Brexit could involve keeping close ties with the EU, possibly through some form of membership in the European Union single market, in return for a degree of free movement across borders.