Businesses involved in Scandinavian transport on both sides of the North Sea are understandably concerned about the impact of Brexit. Whenever it happens, Brexit will represent the biggest change in economic relations between the UK and the Scandinavian countries for more than 40 years. Furthermore, statements from the UK’s prime minister Boris Johnson that the UK will leave “do or die” on 31st October 2019, and the EU’s intransigence on revising the three times rejected Withdrawal Agreement, make a so-called ‘no deal’ scenario more likely.
There are three areas in which Brexit may affect UK-Scandinavian trade. Let’s look at each in turn:
Under a ‘no deal’ Brexit, and in the absence of a Free Trade Agreement (FTA), trade between Britain and the EU will be conducted under World Trade Organisation (WTO) rules. The WTO exists to regulate trade rules between nations to avoid punitive tariffs and unfair discrimination. WTO member states – which include the UK, all 27 EU members and the EU itself – are free to set tariffs or to waive them as they see fit, so long as all trading partners are treated fairly.
It is in the EU’s and UK’s interests to continue tariff-free trade, so it is likely that a free-trade agreement will be agreed at some point. In the meantime, both parties could invoke Article 24 of the General Agreement on Tariffs and Trade (GATT), which will allow tariff-free trade for up to 10 years while an FTA is being negotiated.
If tariffs are applied, the EU’s external tariffs are generally quite low, averaging at 1.5%. They are closer to 10% for the agricultural and car manufacturing sectors, but these costs are still offset by the 12% devaluation of the pound against the euro since 2016. It is also likely that tariffs will be further offset by UK government subsidies to vulnerable sectors.
Either the UK or EU could choose to unilaterally waive tariffs for some or all sectors, giving a boost to import and export businesses.
More worrying than overt tariffs are the ‘non-tariff barriers’ that some commentators believe will spring up behind the border. These involve a string of new safety and manufacturing standards that will negatively impact manufacturers and logistics businesses alike – on both sides of the border. The latest HM Treasury figures predict a negative impact on the UK economy of up to £40 billion – a 4.2% reduction in UK GDP!
This ignores the fact that UK and EU producers are currently completely aligned, with shared product standards stretching back over 20 years. This is not likely to change in the near future, and mutual recognition of standards is unlikely to be a problem. The creation of new trade barriers – e.g. by additional compliance requirements – is also illegal under WTO fair trade rules, to which the EU and UK are both signatories. It is unthinkable that the EU or UK will seek to damage their export sectors by setting up artificial, protectionist barriers to trade.
An alternative Brexit scenario involves the improvement and streamlining of regulation after Brexit. This would be positive for businesses in Scandinavia and the UK and, according to a recent University of Cardiff study, could boost UK GDP by up to 6%.
3) Customs Requirements
A big fear for British and Scandinavian firms is the additional time and expense of new customs requirements. Goods delayed in port or facing new inspection regimes could hold up supply chains and cause big problems for small importers. Fast, streamlined rules and systems are already in place for supply chains extending outside the EU, including important trading partners like China, Japan, Canada, and the USA.
Most customs declarations, import manifests, and origination certificates are pre-declared away from the border using computerised systems, at minimal expense to trading businesses. Meanwhile, physical inspections are risk-based and are subsequently rare.
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At NTEX we are focused on the needs of our customers and wish for affordable, frictionless trade to continue. For this reason, we have been preparing for a no deal Brexit for nearly 3 years, investing in the IT systems, customs upgrades and internal training required to sustain a fast and effective service. While a no deal Brexit may cause short-term inconvenience and delays for freight operators (depending on the level of preparedness in the EU and UK), and necessitate some administrative changes in the mid-to-long-term, we do not anticipate long-term disruption. We are also helping customers put in place the systems they need to be prepared for a no-deal Brexit, so if you’re concerned please give us a call today.
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