(c) Institute of Chartered Accountants of Scotland. Contact ICAS for permission to reproduce this article.

Brexit and trade: where do we start?

By Mike McKeon

Trade was a key issue in the referendum and it grabbed many headlines.

The more reflective commentators ICAS has spoken to have proposed a number of alternatives within the multiplicity of “hard” and “soft” Brexit options.

UK trade with the EU is big

In 2015, and in goods alone, the UK imported £223bn from the EU and exported £134bn; while in services the UK imported £21bn and exported £89bn. Overall, a net deficit in flows in favour of the EU, but with significant differences in type of goods and services and within and across sectors.

This is a very complex, but large set of interactions that need to be addressed. But where do the two sides start from?

Trade negotiations – off to a good start

In normal circumstances where two countries (or blocs) wish to set up new trade arrangements they start far apart in terms of their respective tariffs and regulations.

For any deal to work negotiators need to harmonise trading standards, whether it’s in food, drugs, carriage etc.. This is no easy task and the devil is always in the detail.

For the UK and the EU, the starting position is completely different and probably unique. After 43 years of effort to develop the EU free market, the UK and the EU have now many identical standards and regulations and so harmonisation is easier and arguably negligible.

Spoke too soon…

… the problem is that the parties are currently talking about creating trade barriers and borders, not bringing them down.

This is particularly acute for the island of Ireland where the UK will have its only land border with the EU come March 2019. The UK is a major trading partner for Ireland, so this matters to the Republic of Ireland and if it matters to them, it should matter to the EU.

Despite all the rhetoric there are grounds for optimism that arrangements can be made to work. As always, politics and a willingness to comprise will determine the outcome.

Fortunately, the production line of compromises out of Brussels has a long and mostly successful history.

Is the WTO a solution?

If none of this works it has been suggested that the UK, as a member of the WTO (World Trade Organisation), could adopt their rules with the EU “schedules” attached (schedules are detailed trading rules that the EU adopts with other countries).

This would allow the UK to trade with the EU as the EU does with others.

There would be some tariffs and there may be costly chaos at the border posts, but trade can continue. Chaos, is undesirable but trade under WTO rules is an outcome that many businesses are looking to as part of a “hard” Brexit scenario.

This article was originally published in the 5 June 2017 issue of CA Today.