Attempts by London and Brussels to reach a trade agreement in the near-term negotiations look increasingly desperate, as the consequences of a “tough” Brexit will cause many problems
If there are no transactions, companies and consumers on both sides will suffer. Thus, on 31 December the UK will definitively leave the single EU market and decades of free movement of goods, services, people and capital will end in an instant.
Economic shock
According to Bloomberg, the UK economy will experience a short-term economic shock of around 1.5% of GDP without a trade transaction. The UK Budget Accountability Office forecasts a 2% decline in GDP.
Tariffs
Instead of trading freely with a market of over 400 million consumers, British firms will return to trading with the EU under the rules established by the World Trade Organisation in 1995. This also means introducing taxes.
The average tariff rate in the EU is 3%. At the same time, British car manufacturers will pay 10% for all car exports to the EU. Farmers in the UK who export dairy products across the English Channel will generally have to pay a 35.4% duty on the value of the goods.
According to the Society of Car Manufacturers and Traders, the British car industry will lose 74 billion dollars due to reduced demand and reduced customs duties.
In addition, the duties will also affect the final price of the product. According to the British Retail Consortium, local supermarkets will lose $4 billion a year as 85% of food imported from the EU will be taxed with 5% or more.
Financial cooperation
British financiers will no longer be able to offer their services in the EU, and this will happen regardless of the transaction. Their continued access to European clients will depend on how the EU sees the equivalent of UK rules as its own in 40 areas.
Failure to reach a trade agreement at all will stop this process. Even if a permit is granted, the EU will still be able to revoke it without prior notice.
Customs
Companies exporting goods to the EU will have to submit customs declarations with or without a trade transaction. To transport goods from Dover to Calais – the busiest border crossing point at the UK-EU border – trucks will need a government permit confirming that they have the necessary documents.
Bureaucracy will inevitably cause border delays and chaos in industries where products need to be delivered on time. For example, fresh produce can become spoiled while trucks are standing in line at the checkpoint.
Moreover, animal products will need to be moved through specific border inspection points with the presentation of veterinary certificates.
Goods exported from the UK will be inspected at the end of the year. However, the UK will postpone full import controls on its part until July 2021.
Standards
Companies will have to comply with two separate product standards regimes in order to be approved by the UK and EU authorities. For example, in order to be sold in the UK, some products must carry the new UKCA quality standard mark from 1 January.
Services
The service sector, which accounts for 80% of the UK economy, will face new constraints. British architects and consultants will be among professionals who will automatically lose the right to offer their services throughout Europe. Firms may need to open an office in the EU to continue trading. It is also possible that they will have to prove their qualifications in the European Union.
Passports
Even if there is a trade transaction, a British citizen who stays in the EU for more than 90 days may need a visa. Motorists will also have to obtain an international driving licence.
Travelling with pets in the EU will also become more difficult. Pet owners will face a four-month process that includes taking a blood test, vaccination and a health certificate.