British departure will hit trade with Europe hard—this is whyby Alex Dean / March 16, 2018 / Leave a comment
We all know by now that Brexit will be bad for British trade. Britain’s frictionless relationship with the continent is set to end, with severe economic consequences. This overarching principle is well-understood. But as ever with Brexit, the real story is in the detail.
When Britain leaves, it will collide with international trade law. Regulation on health and safety, quotas and so on will transform into a bureaucratic nightmare. One aspect currently sending shivers down the spines of some in business—one you may not have heard of—is rules of origin. As Article 50 ticks down the issue is increasingly pressing.
“Rules of origin are going to be one post-Brexit additional cost to business that no amount of innovative thinking or new and unusual technology can stave off,” Sam Lowe, a trade expert at the Centre for European Reform told me. The CBI agrees. “For the 135,000 businesses who currently only export to the EU,” it writes in a new report, rules of origin will “be a huge and unprecedented administrative challenge.”
Just like all bits of trade law, rules of origin exist to help govern the global trading system. The World Trade Organisation (which has partial oversight of them) says they establish “the criteria needed to determine the national source of a product.” Essentially: different countries trade on different terms, meaning we need a system for working out which items “originate” from where.
The basic principles here are fairly intuitive. In the modern interconnected economy, however, the details can get complicated. Goods may be exported from one country but have their “economic origin” in another. While a small, simple item like a child’s toy might have parts from two or three different countries, a larger item might have components from three dozen.
At the moment, Britain is part of the largest free trade bloc in the world: the EU customs union (and single market) streamlines the trading process completely. UK businesses don’t have to think about any of this when exporting to the continent. But post-Brexit, Britain is set to leave the CU. The plan is to then strike an FTA with Europe. Tariffs will be eliminated on goods. Items will be able to flow freely between Britain and the EU, encouraging trade and leaving us both better off.
“This is one post-Brexit cost to business that no amount of innovative thinking can stave off”
At least that’s the theory. But…