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No Brexit deal is not an option

LONDON: March 29, 2017. With the UK government triggering Brexit this week, the head of the UK manufacturers' organization Terry Scuoler says leaving the EU Single Market and Customs Union will be painful and costly. His warning coincides with the latest IHS Markit survey that shows only 29 percent of British householders think Brexit will be good for Britain. And to do so without a replacement trade deal would be a huge problem for UK businesses, explains Scuoler:

Why? Because this is no ordinary Free Trade Agreement (FTA) scenario, as the government has said many times. We agree on that.

The reason the UK- EU situation is so different is because unlike any other FTA where both parties are aiming to open themselves up to each other's markets and reach economic convergence, the EU and the UK are already converged - as no two other trading blocs are anywhere in the world.

Walking away from a deal in a typical FTA scenario would leave both parties no worse off than when they came to the negotiating table. For a completely converged UK and EU to tear down the entire system virtually overnight and walk away from the negotiating table with no alternative to fall back on - could only result in significant immediate cost and pain - for manufacturers and consumers.

Manufacturers must have a trade deal in place and the UK should aim for:

  • Being a fully-fledged WTO member: to operate without discrimination inside internationally agreed trade rules, including for any future FTAs the UK secure.
  • Continuing its key role in developing product standards: harmonized product standards between the EU and UK are vital in allowing the smooth flow of many manufactured goods across borders.
  • • Zero tariffs: even a low tariff rate would impose a substantial cost on exporters, for manufacturing average tariffs are approximately 5.3 percent.
  • Favorable rules of origin: these rules must allow British processed goods with component parts from other countries for example to be recognized as British made, and then attract zero tariffs.
  • Mutual recognition and enforcement of customs procedures: without this, significant non-tariff barriers such as proving equivalence, customs checks, times delays, documentation and administration processes could hurt manufacturers.
  • The ability to strike trade deals with the rest of the world: the UK can't be left out of the current EU preferential trade deals and not have the ability to strike its own.
  • A transition period: is essential to allow the industry to adjust to the significant changes that are currently embedded in the trading environment.

What's more, this deal needs to be industry-led. As with other major trade negotiations in the world, industry is instrumental in contributing to and formulating negotiating positions, working hand-in-glove with government in crafting positions and even attending negotiations, through a formal government-industry mechanism. For British manufacturers, this is a must.

Scuoler is the CEO of EEF, Britain's manufacturers' organization. He points out that what's at risk with a bad Brexit is 52 percent of UK manufactured exports by value to the EU in the 12 months to April 2016; and a sector that accounts for 45 percent of all UK exports.

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