Brexit plans could result in increased red tape and costs for firms, warn peers
Companies could face significant extra red tape and costs as a result of Theresa May's plans for Brexit, a House of Lords committee has warned.
The Prime Minister's approach could result in the introduction of tariffs and non-tariff barriers and the cross-party group of peers stressed that minimising disruption after Brexit would be crucial for the UK's future prosperity.
The Lords EU External Affairs Sub-Committee also urged ministers to give "serious consideration" to transitional arrangements, arguing that concluding a free trade agreement (FTA) with Brussels within the two-year timetable for withdrawal would be "extremely ambitious".
The report warned that without an FTA, tariffs would apply, which could be "particularly damaging" for the automotive industry and other sectors with highly integrated EU supply chains.
That could result in tariffs being levied "multiple times in the production process" as components cross the frontier between the UK and EU.
Eliminating tariff barriers in the proposed FTA was therefore of "considerable importance", the report noted.
But the peers warned that non-tariff barriers such as the rules of origin requirements - determining where a product and its components were produced - would be more difficult to resolve.
"We conclude that compliance with rules of origin requirements would introduce a significant additional administrative burden, with a particularly negative impact on sectors with a highly integrated EU supply chain," the report said.
It noted that in some sectors, such as chemicals, compliance with preferential rules of origin might be so burdensome they outweigh the benefits of tariff reductions.
The peers noted that pulling out of the EU customs union would result in "costly administrative requirements", whatever new trade framework applied.
"This would result in a significant additional administrative burden for companies, and delays to consignments of goods, incurring additional costs."
The Prime Minister was seeking an "unprecedented" agreement on customs and it was "unclear whether it will be possible outside a formal customs union".
Baroness Verma, the committee's Tory chairwoman, said: "Goods dominate UK trade, and the EU is by far its largest trading partner.
"Trade in goods between the two is worth almost £357 billion each year. It is therefore imperative that a trade deal with the EU seeks to avoid the imposition of tariffs on trade in both directions.
"Non-tariff barriers can pose as significant or greater a barrier to trade as tariffs, and would be more difficult to resolve in a free trade agreement. Witnesses from industry said this is a pressing concern.
"The Government will need to make a trade-off between mitigating barriers to trade, and the exercise of regulatory sovereignty.
"Agreeing a free trade agreement within two years is inherently ambitious, so the Government must try to agree a transitional arrangement with the EU.
"The Government will also need to increase Whitehall's preparedness for administering UK-EU tariffs and non-tariff barriers to UK-EU trade."
A Government spokeswoman said: "We want an agreement that gives British companies the maximum freedom to trade with and operate within European markets - and lets European businesses do the same in Britain.
"We have also been clear that we believe a phased process of implementation, in which both Britain and the EU institutions and member states prepare for the new arrangements that will exist between us, will be in our mutual self-interest. This will give businesses enough time to plan and prepare for those new arrangements."