Where does the UK election result leave Britain’s future trading relationship with Europe?

Boris Johnson’s thumping election victory was greeted by a reasonably positive market reaction. The pound jumped against the dollar and euro, whilst the stock markets also enjoyed a bounce.

For freight operators too, the election brings about a degree of certainty which has been lacking for a while. Through 2019, the threat of a “no deal” exit from the EU lingered uncomfortably. With this, companies had to contemplate the possibility of long queues at border points and burdensome new regulations. The possible threats to UK-EU supply chains were highly unenviable, as called out by the Whitehall machine itself in the leaked Operation Yellowhammer documents.

For the time being, the threat of “no deal” has been removed. The comfortable Conservative majority means the Withdrawal Bill and Political Declaration, agreed in October, should pass the Commons without much fuss. This will be mirrored by legislation passed by the EU. The UK will leave the EU on January 31, 2020 and enter into a transition period which will last until the end of the year.

The transition period will see little change in terms of the trading relationship between the pair. The UK, albeit outside of the EU’s institutions, will remain in the single market. For freight operators, this means 11 months of largely “business as usual”.

At the same time, the UK and EU will move on to the next phase of negotiations, discussing how their relationship will look in the future. This includes the ambition of striking a free trade agreement. Johnson campaigned on a pledge to negotiate this agreement by the end of 2020 and now looks set to enshrine this deadline in law. Agreeing a deal in such a tight time frame may not be realistic. Many argue, quite rightly, that free trade deals usually take many years to negotiate and implement. Opponents counter that by arguing that the UK-EU partnership is already so intertwined that the agreement should be relatively straightforward.

The difference between a free trade agreement being struck and not is potentially hugely significant. If the UK were to fall back on to WTO trading terms with the EU (“no deal”), it would see an increase in tariff and non-tariff barriers to trade. An Institute for Government study, compiling forecasts of various Brexit scenarios, shows research bodies have estimated that “no deal” would lead to an increase of non-tariff barriers equivalent to a 2.9-6.9 percentage point increase in average tariffs compared to leaving the EU with a free trade agreement.

The scope of any free trade agreement struck could also be highly variable. Brussels has reportedly stated that the UK can have a free trade agreement by the end of 2020, but it would have to sign up to “level playing field” standards and regulations set by Brussels. This may not be palatable for the UK government, given that it may limit its ability to strike more comprehensive free trade deals with other trading partners, including notably, the US.

Leading industry associations have stated just how significant these negotiations will be. The British International Freight Association’s (BIFA) Director General, Robert Keen, commented, “The mantra of the new government has been ‘Get Brexit Done’ but that will only have any real meaning for BIFA members if the actual details of our future relationship with the EU are clear. That means providing them with assurances that they won’t face another no deal cliff-edge next year, nor a messy and disorderly exit from the EU.”

From the Freight Transport Association, Pauline Bastidon, Head of Global and European Policy, said, “What logistics and supply chain managers need above all is clarity over the Brexit’s end game… we need answers to the big questions about our future trading arrangements with Europe. Most of the crucial topics related to trade and transport have yet to be negotiated with the EU, in what will be a very short amount of time. Entering these negotiations with a clear picture of what logistics needs will be critical to its success. Minimising frictions, red tape and costs should be at the heart of the negotiations if UK PLC is to continue trading effectively.”

So, whilst for now, the election result may provide some clarity over the situation, the respite is only temporary. Underlying uncertainty over the UK’s future with the EU will continue throughout 2020. After this, logistics companies will begin to see the real consequences of the referendum held three and a half years ago.  

Source: Transport Intelligence, December 17, 2019

Author: Andy Ralls