Brexit red tape may cost EU27 and UK exporters £58 billion per year: Report
In an assessment of the business costs of Brexit published in March 2018, Oliver Wyman and Clifford Chance have calculated the impact of tariffs and non-tariff barriers on companies if the EU27 and U.K. revert to a World Trade Organisation (WTO) trading relationship with each other.
The cost of Brexit in red tape alone could total around £31 billon for EU exporters and around £27 billon for U.K. exporters, with non-tariff barriers accounting for more of the effect than tariffs.
The report focuses only on the direct impacts of the UK’s exit from the EU, which are of immediate importance to companies planning for Brexit. It does not model additional impacts such as migration, pricing changes or third country free trade agreements, which are likely to increase the overall impact.
The hardest hit sector in the EU27 will be automotive, where the direct impact will be around 2 percent of current gross value added (GVA). Country level differences will vary considerably, with Ireland’s agricultural sector’s exposure to U.K. consumers, for example, a particular pinch point.
In Germany, four of the sixteen states – Bavaria, North Rhine-Westphalia, Baden-Wuerttemberg, and Lower Saxony – will shoulder around 70 percent of the country’s direct impacts as a result of exports to the UK that arise from their leading global positions in automotive and manufacturing.
The U.K.’s financial services sector will take by far the biggest hit, incurring around a third of the extra costs; however, there are very significant impacts in other sectors where firms are highly integrated into European supply chains such as in the automotive, aerospace, chemicals and metals and mining sectors.
The impact assessment also reveals that the ability to mitigate the impacts of post-Brexit trade barriers will vary by sector and company size. Before designing their response, firms need to think through the impact on different levels: operations, supply chains, customers and competitors.
Small firms will find this particularly challenging especially where they have no non-EU trade experience and may be rendered uncompetitive as they seek to make the changes needed.
Automotive and aerospace industries will be able to localize supply chains and take advantage of domestic suppliers in some areas but with the loss of “passporting” financial services will require relevant front and back-office staff to relocate to the EU, yet individual impacts and the appropriate response are highly variable even within each industry. The differences will depend on things like the mix of goods and services the business sells, where it is based, where its customers are, and how complex its supply chain is.
To access the full report: The Red-Tape Cost of Brexit.