UK: Opening position on post-Brexit trade - HSBC

Post-Brexit, the UK is seeking an ambitious EU partnership for customs arrangements or to streamline existing processes and much depends on what the EU will agree to and a transitional phase may be in the interests of both sides, explains the analysis team at HSBC. An off-the-shelf transitional arrangement is still appealing given that time is short and the task is fiendishly complex, they further add.

Key Quotes

“The UK government has published a position paper setting out its vision for postBrexit customs arrangements.  The government wants a "deep and special partnership" with the EU while seeking to boost trade with "old friends and new allies".  That is easier said than done: offsetting a 5% fall in UK goods and services exports to the EU would require a 68% rise in UK exports to China.”

“Two options and a transition

The paper offers two options for a post-Brexit customs regime.  The first is "a highly streamlined customs arrangement", in which the UK would improve its trade regime both bilaterally with the EU and unilaterally via better use of data, IT, and self-assessment. The proposal is an example of gains via red-tape reduction that governments often like to talk about. The UK and EU would treat each other as third parties, without any grand joint initiative in favour of bilateral agreements. Whether the EU would agree remains to be seen, although both sides would benefit relative to a 'no deal' scenario.

The second option is a customs partnership. This would split the UK tariff regime into two: one set of tariffs for products being imported into the UK purely for UK domestic consumption and another for products or intermediate goods that will ultimately be exported from the UK to the EU.  The government noted that "this is an innovative and untested approach".  We identify four areas of difficulty, including the potential for additional administrative burden and the need for EU cooperation and agreement.   

The paper noted that both sides might benefit from an "interim period".  This could involve a "new and time-limited customs union" although no specific time frame was offered.  Although the issue was mentioned, no firm proposal was offered on how to deal with the UK's only land border with the EU -- the border between Northern Ireland and the Republic of Ireland.”    

“Off the shelf alternatives? 

Given that time is short and that the task is fiendishly complex, an off-the-shelf solution has appeal, in our view – even if only for the transitional period.  One possibility could be to remain in the European Economic Area (EEA), although this may be politically difficult. Another option might be for the UK to make use of Free Trade Zones (FTZ) and thereby incentivise development of international commerce.”