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Report warns of £5.2bn tariff costs for UK firms without Europe trade deal

Published 24/10/2016

A report indicated the importance of a trade deal to both sides in the Brexit negotiations
A report indicated the importance of a trade deal to both sides in the Brexit negotiations

European Union (EU) firms will face tariff costs of almost £13 billion a year on exports to the UK while British companies will face a £5.2 billion bill for sales to the other 27 states if Brexit means leaving the customs union without an alternative free trade deal, according to new analysis.

A report by the Civitas think tank indicated the importance of a deal to both sides in the Brexit negotiations and suggested Theresa May could use the balance of trade to her advantage in talks with the remaining 27 EU leaders.

On a country-by-country basis, 22 of the 27 remaining EU members would face more tariffs on exports to the UK than UK firms would be hit by on sales to those individual nations.

Germany firms alone would face £3.4 billion in tariff costs if the relationship between the EU and UK fell back on World Trade Organisation (WTO) most-favoured nation rules. U K exporters, in return, would face £0.9 billion of tariffs on goods going to Germany.

French exporters could face £1.4 billion in tariffs on their products compared to UK exporters facing £0.7 billion, according to the study.

Supporters of Brexit have argued that German car manufacturers and French winemakers would put pressure on their governments for the EU to strike a deal with the UK to protect the valuable British export market.

The analysis suggests the European motor industry would face tariffs of £3.9 billion in car-related exports to the UK, including £1.8 billion for the German automotive sector, while British exports to the remaining 27 states would face £1.3 billion in costs.

The paper said that "realising the potential cost of re-introducing tariffs to trade between the UK and most of Europe is the first step in making the case for a trade deal that will allow both EU and UK citizens to benefit from continued tariff-free trade across the continent".

The report's author, Civitas research fellow Justin Protts, said: "These figures highlight the importance of securing a post-Brexit trade deal, not just for the UK but also for the EU.

"European exporters have a great deal to lose if without free trade across the continent - the knock-on effect of tariffs and increased prices will harm their ability to sell to the UK.

"The UK would be better-placed to adjust for these changes. It has the opportunity on leaving the EU to alter its tariff schedule in a manner that is more favourable to UK businesses, reducing tariffs on input products for UK manufacturers and other products that are not manufactured in the UK, while keeping tariffs on goods that can be manufactured in the UK that are perhaps not yet competitively produced.

"Further still, the depreciation of sterling, although it will lead to increases in import prices, will reduce the cost of buying goods from the UK.

"Both these factors will allow the UK economy to adjust for the introduction of tariffs if there is no trade agreement.

"'The EU, on the other hand, has seen the euro rise relatively against sterling. This will put pressure on EU manufacturers who export to the UK."

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