If EU intransigence results in tariffs, it could cost continental exporters dear in revenues and jobs

If EU intransigence results in tariffs, it could cost continental exporters dear in revenues and jobs

The clock is ticking on the Brexit talks, and there is a serious danger that the negotiating mandate that the UK and the rest of the EU (EU27) have agreed will lead to a failure on both sides to get what they need: the EU27 will fail to get the financial settlement it needs and the UK could fail to get the future trading relationship it needs. There is no iron law that says that both sides should pursue the present course if it leads to destruction. Wiser and more creative heads must now prevail.

This is the context for the European Council of Ministers meeting later this week. A decision at this meeting to move the Brexit negotiations onto phase 2 – the future trade relationship – is vital to a successful conclusion of these agreements.

An agreement on the future trading relationship between the UK and the EU27 is in the interests of everyone, and there will be potentially significant consequences for European producers and consumers if no agreement is reached. In the absence of a ‘zero for zero’ trade agreement, the UK has indicated that it could apply the Common External Tariff on imports coming from the EU27. For agricultural sectors in particular, this would mean tariffs as high as around 63% on beef and 52% on dairy. Other sectors may be subject to lower tariffs, but the losses could be largely dependent on the value of current trade.

My colleagues and I have looked specifically at the potential impacts of the introduction of tariffs on exports from the EU27 to the UK, across selected industries and for selected countries. As tariffs are introduced, prices could increase and consumers respond by changing demand, impacting on export volumes and producer revenue. The analysis of the net impact on EU27 producers also takes into account the extent to which EU27 producers can potentially offset losses from reduced exports to the UK through meeting increased demand both domestically and from other EU27 countries as the prices of their imports from the UK rise too because of the introduction of tariffs.

Our analysis indicates that the automotive industry in Germany will be significantly affected, with producers potentially losing between around €2.2bn and €7.6bn in annual revenues. This translates into between 8,600 and 29,400 jobs. The dairy industry also stands to lose out. Similarly, the beef and dairy industries in Ireland could see their exports declining by between 34% and 50% and between 23% and 42% respectively. Our estimated impacts, and where these may be felt regionally, are summarised in the table at the foot of the article.

These are likely to be conservative estimates of the impacts as they refer only to the losses generated by imposing tariffs. Without a comprehensive free trade agreement, EU27 producers will also face non-tariff barriers, incur transitional costs and additional costs of no agreement on wider services, e.g. higher costs of capital if there is a fragmentation of the financial services sector.

Our analysis highlights the potential for significant disruptions to trade once the UK leaves the EU. A ‘zero for zero’ trade agreement between the UK and the EU27 would minimise these potential impacts of an increase in tariffs, along with agreements on rules of origin and mutual recognition of regulations/standards to reduce non-tariff barriers.

Yet, despite these staggering costs, job losses and economic failure, it is ironic that French and German industry in particular, which would be amongst the biggest losers of a ‘no trade agreement’ scenario have not uttered a word to their governments. There are potentially significant job losses in Bavaria alone, yet it is the German Government that refuses to allow a move to discussing the future trade relationship, and is using its power to bully other member states into submission. German power diplomacy appears so persuasive that the Irish Taoiseach, whose country stands to lose around €1bn in beef and dairy alone in the event of no trade deal, has even been persuaded to say the parties should not move to the next stage of talks.

If EU member states do not rise up to defend their businesses and their workers, it will be their angry electorates that will ultimately demand action. The recent German and Austrian elections should give all EU member states’ leaders pause. The question for the majority of EU member states is at what point do they defend their own interests and demonstrate that the commercial objectives of the EU actually mean something, and should not always be trumped by very narrow political interests from a minority of members.