UNITED KINGDOM – Non-tariff measures (NTMs) could cause major fractures in post-exit trade relations between the United Kingdom (UK) and the European Union (EU), knocking up to US$32 billion, or 14 per cent, off of UK exports to the EU, according to a new UNCTAD study.
NTMs are policy measures other than ordinary customs tariffs that can potentially have an economic effect on international trade in goods, changing quantities traded, or prices, or both.
They are the key factors mediating market access in the world economy.
Potential losses under a “no-deal” Brexit from tariffs that may be imposed by the respective parties are estimated at between US$11.4 billion and US$16 billion or 5-7% of current exports.
The new study “Brexit beyond tariffs: The role of non-tariff measures and the impact on developing countries” says NTMs would double those losses.
The study also projects that even if a “standard” free trade agreement were to be signed by the parties, the UK’s exports could still drop by 9%.
The losses would deal a major blow to the UK’s economy, as the EU market accounts for 46% of the UK’s exports.
Mounting trade costs due to non-tariff measures and potentially rising tariffs would more than double the adverse economic effects of Brexit for the UK, the EU and developing countries, the study notes.
“EU membership has its advantages to deal with non-tariff measures that even the most comprehensive agreement cannot replicate,” said UNCTAD’s director of international trade, Pamela Coke-Hamilton, while presenting the study’s findings.
Ms Pamela further noted that the UK case study offers important lessons to other regions trying to deal more effectively with such non-tariff measures.
Brexit: A boon for third world countries
The study however opined that exports from developing countries into the UK, and to a smaller extent into the EU, could increase if the former doesn’t increase tariffs for third countries.
According to the study, a no-deal Brexit could offer some opportunities for developing countries as trade barriers between the UK and the EU would benefit suppliers from third countries.
Under a tariffs-only scenario, exports of developing countries to the UK would increase 1.3% to 1.5% while a tariffs-and-NTMs scenario would see them rise 3.5% to 4%, according to the study.
According to the study, the positive impact would be strongest in agriculture, food and beverages, wood and paper sectors and weakest in electrical and machinery, metal products, chemicals, and textiles and apparel industries.
However, the study opines that a positive third-country effect could be diminished by increasing regulatory divergence.
If the UK’s regulations divert over time from the EU’s, trade costs would rise for third countries due to production process adjustment costs and potential duplication of proofs of compliance.
This would disproportionately affect smaller and poorer countries as well as small and medium-sized enterprises.
The UK left the EU in January. The two parties aim to determine their future trade relations during a transition period that lasts until the end of this year.
