The UK’s motor vehicle industry could lose up to US$5bn in export trade in the event of a no-deal Brexit, the United Nations Conference of Trade and Development (UNCTAD) claimed last night, ahead of a House of Commons vote that shot down prime minister Boris Johnson’s attempt to force through no-deal.
As a European Union (EU) member, the UK is part of about 40 trade agreements through which EU members enjoy preferential market access in about 70 countries. In the event of a no-deal Brexit, and in the absence of replacement agreements (rollover deals), the UK would abruptly lose preferential access to these markets and, by default, would have to export under World Trade Organisation Most Favoured Nation (MFN) tariffs, UNCTAD said.
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“While the UK has already managed to roll over a number of such agreements, negotiations for many others are still ongoing.
“If these agreements are not concluded before the exit from the EU, Brexit could cost the UK billions in export earnings in key markets.
“As of 2018, UK merchandise exports were valued at approximately $450bn.
“The EU is the UK’s most significant trading partner and accounts for approximately half of the UK’s merchandise exports.
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By GlobalData“Our calculations indicate that a loss of preferences in the EU market consequent to a no-deal Brexit will result in UK export losses of at least USD$16bn (representing a loss of approximately 7% of overall UK exports to the EU). This is a conservative estimate that only takes into account the increase in tariffs from zero to current EU MFN levels.
“In reality, the losses would be much greater because of non-tariff measures, border controls and disruption of existing UK-EU production networks.
Some sectors would be affected substantially more than others. UK exports to the EU could face significantly higher tariffs in agricultural (animal and vegetable products) and also manufacturing sectors (processed food products, apparel, leather products, and motor vehicles).
“In numbers, most of the losses would be concentrated in motor vehicles ($5bn), animal products ($2bn) and apparel and textiles (encompassing about $2bn.
“These figures represent the minimum export losses for the UK in the EU market,” UNCTAD’s report said.
The report noted about 17% of UK exports are to countries that currently grant preferences to the EU.
“While the UK has already secured the continuation of preferential market access conditions in several countries through roll-over trade deals, there remain almost 10% of exports for which the UK risks facing higher tariffs due to roll-over trade deals that are not yet signed.
“The tariffs imposed on UK exports in these markets could jump from a current average of about 0.5% to about 3.5%.”
Countries which currently grant preferences to the EU but with which the UK has not yet reached an agreement to grant continued preferential market access, include Turkey, South Africa, Canada, Mexico, Japan, Egypt and Morocco. These are markets where the UK is expected to have larger export losses.
The UK is expected to lose about $500m of exports to Turkey, about 5% of its exports there.
In South Africa, the UK is expected to lose about $240m, equivalent to about 9% of exports.
The UNCTAD said losses could be avoided if the parties agree on rolling over reciprocal market access conditions which the UK has already agreed with several other countries to continue preferential schemes, and has already avoided some substantial losses.
The recently concluded agreement with the Republic of Korea avoided export losses of $800m.
In relation to exports to countries with which the UK has not yet secured the continuation of preferential access, the country could face substantially higher MFN tariffs. In value, most of the losses would be concentrated in motor vehicles (about $750m).
UNCTAD said: “Overall it is clear that while the UK has managed to secure preferential access to some important countries, there are still several important markets where agreements would not be likely be concluded in case of a sudden no-deal Brexit.
“In these markets, the tariffs faced would be substantially higher.”
Motor vehicles are among the categories of goods which would experience the highest losses.
“Trade in these sectors is very competitive and increases in tariffs would result in substantial export losses.”
UNCTAD added trade agreements the EU is currently negotiating with other countries should be also of concern for UK exporters.
“In particular, the EU is currently concluding trade agreements with important partners such as Vietnam and MERCOSUR countries (Argentina, Brazil, Paraguay and Uruguay).
“When these agreements are implemented, if not matched by equivalent agreements with the UK, they would likely erode competitiveness of UK firms in these markets vis-a-vis EU competitors.”
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