Free trade threatened by no deal Brexit

UK chemicals companies and their trading partners will lose out on EU free trade deals under a no deal Brexit because other countries are unwilling to simply cut, paste and transpose them to the UK.

On 13 February, Secretary of State for International Trade Liam Fox admitted that the country has only managed to roll over deals covering seven countries covered by EU trade deals, or around £16bn out of £117bn in international trade.

With the 29 March Brexit day fast approaching, it seems highly unlikely that many further deals can be struck in time, meaning the UK chemical sector will likely lose out on important free trade deals with Canada and Japan.

Indeed, earlier in February, Japanese negotiators made it clear they expect more concessions from the UK than they got from the EU, which is a much larger economy. The two countries have been trying to negotiate a bilateral trade deal for 18 months already and have failed to make sufficient progress for this to be signed off. Japan’s EU free trade agreement came into force on 1 February 2019.

Rene van Sloten, executive director for industrial policy at European chemicals trade association Cefic, told ICIS last month: “It’s a tempting thought that you can go to the third country and ask if you can do the same deal as the EU. But trade deals are painstakingly negotiated over many years, and as the EU27 or 28 you offer a big market to the third country, which gives you leverage. If the UK is alone, the amount of market access granted to a third country is less – it’s not as straightforward as just copy and paste.”

The EU is also negotiating a host of other free trade deals with some important chemicals trading partners. The UK will not benefit from these in the event of a no deal Brexit. For example, discussions with Singapore began in 2010 and a deal was agreed in October 2018. It awaits ratification by the European Parliament and EU member states. One with Vietnam is also nearing completion.

TWO-YEAR TRANSITION MAY BE INSUFFICIENT

Most free trade agreements take many years to negotiate. If UK Prime Minister Theresa May’s deal is eventually signed off, the country will have a two-year transition period to negotiate free trade deals with the EU and other countries.

With most deals taking many more than two years to complete, that is optimistic to say the least. According to May’s plan, the “backstop” will come into force if more time is required, unless an extension to the transition is granted. The unpopular backstop will put the UK into a customs union with the EU. But the UK would not be free to negotiate its own trade agreements.

WTO TARIFFS UP TO 6.5%

Under a no deal Brexit World Trade Organization tariffs will apply of up to 6.5% on chemicals. UK chemicals trading into the EU will be subject to these tariffs each time they cross the English Channel, unless companies can claim exceptions under strict customs rules.

These tariffs will also apply to chemicals trading with other international partners until bilateral trade deals are signed. One suggestion is that the UK could unilaterally lower tariffs to 0% with the EU. But under WTO most favoured nation rules it would also have to lower them to 0% against all other WTO countries. Trading partners would be unlikely to return the favour because they, too, would be subject to these WTO rules.

In addition to the tariffs chemical companies will have to contend with new customs declarations and other bureaucratic hurdles to international trade, as well as long delays at ports.

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