Brexit – A Trade Negotiator Explains

PARC Zoom Interactive Event:

Brexit Update, Tuesday 27 October, 12.00-13.00, with Dmitry Grozoubinski, Founder of ExplainTrade


Brexit was blown off the news headlines by the Covid pandemic but it has returned to the front pages in recent weeks. Despite the prime minister’s pledge to Get Brexit Done, the detail of it still isn’t.

According to the British Chambers of Commerce, half of UK companies that trade internationally have still not considered the impact of Brexit on their businesses. Perhaps inevitably, with something so complex, many people don’t know what they don’t know.

The UK left the EU politically on 31 January this year but it doesn’t leave economically until 31 December. We are in the middle of a phoney war where Brexit has happened but most of the impact on business has yet to be felt. With or without a trade deal, significant changes are coming.

The UK will leave the Single Market and Customs Union, which means border checks and increased import and export formalities. The friction free supply chains with the EU, on which business assumptions have been based for nearly three decades, will no longer apply. What sort of future relationship might we expect with the EU and what are the short and long-term impacts likely to be? What are the benefits of a Free Trade Agreement and what happens if we don’t agree a deal? What might the costs, opportunities and trade-offs look like for companies in the UK and EU?

For example, complex questions about Rules of Origin have still to be settled. Even with a tariff free trade deal, goods made from components sourced from outside the UK might still attract tariffs. The implications of this for the UK car industry became clear last week after a letter from the UK’s chief negotiator confirmed that foreign components of British cars would not be treated as British by the EU and may therefore attract tariffs. The food industry has been concerned about this for some time, as UK-made food products often contain ingredients from outside the EU, for example chocolate and sugar in biscuits. The Food & Drink Federation warned of a ‘Hidden Hard Brexit’ for the industry.

Rules of Origin are a standard feature of trade agreements but one that UK businesses have not had to think about in the context of EU trade because membership effectively exempted us from them.

Trade expert Dmitry Grozoubinski explains it like this:

A trade agreement, even one that eliminates all tariffs, doesn’t mean countries can do away with customs checks on shipments from one another. This is because while they have no tariffs between themselves, they may have vastly different tariffs on other countries.

The diagram below illustrates why this could be a problem. In it, Country B has Free Trade Agreements eliminating all tariffs with countries A and C. Country C wants to sell something to Country A, but doesn’t want to pay the 10% tariff. So it sends the shipment via Country B, avoiding the tariff.

To prevent that, Country A needs to maintain a goods border with Country B, to check that any incoming goods are actually eligible to take advantage of their trade agreement (they really come from Country B).

So, As Dmitry says, the EU might still levy tariffs on goods assembled in Britain if it deems that too much of the content comes from other countries.

 

Dmitry Grozoubinski will be leading PARC’s Brexit discussion on 27 October. A former Australian government trade negotiator, he has made it his mission to communicate these complex subjects in a way that’s relevant to business. He is one of a small number of people who understand the detail of Brexit and can communicate it succinctly to non-experts. Being from outside the EU, Dmitry has the advantage of a neutral perspective. He will give us his insights based on his extensive knowledge of global trade and his first-hand experience of trade negotiations.

Dmitry Grozoubinski is the Founder of negotiation and trade policy consultancy ExplainTrade, and Visiting Professor at the University of Strathclyde’s School of Law. He served as an Australian diplomat and trade negotiator at the World Trade Organisation and beyond. Dmitry has trained hundreds of clients in both private and public sectors, including many of the negotiators currently representing the UK’s interests in trade negotiations. He has negotiated complex agreements in Geneva, at WTO and UN Ministerial Conferences in Kenya, and as part of the MH17 Task-force in Kyiv, Ukraine.

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