Frictionless trade?

What Brexit means for cross-border
trade in goods

Alex Stojanovic and Jill Rutter

About this paper
This paper looks at the integration of UK and European Union (EU) supply chains andthe options for securing ‘frictionless trade’ after Brexit. It assesses the various‘off-the-shelf’ options for the UK’s future relationship with the EU and what eachmeans for the UK’s pan-European supply chains.
The paper sets the context for our upcoming Implementing Brexit: Customs paper,
where we will explore the work required to prepare the UK’s borders for Brexit.

About the authors
Alex Stojanovic
Alex Stojanovic works in the Brexit team at the Institute for Government, principallyon customs and trade policy.

Jill Rutter
Jill Rutter oversees the Institute’s work on better policy making and arm’s-length
government, and Brexit. She is an experienced former senior civil servant, having
worked in HM Treasury, Number 10 and the Department for Environment, Food & Rural
Affairs (Defra).

Contents
List of abbreviations41.

Summary

52.

Introduction

7

3.

What is at stake?

8

4.

The status quo

16

5.

Maximum friction: the consequences of no deal

19

6.

Reducing friction

25

7.

Conclusion: long-term solution or transitional fix?

38

References40

List of abbreviations
BEIS

Department for Business, Energy & Industrial Strategy

CETA

Comprehensive Economic and Trade Agreement

Defra

Department for Environment, Food & Rural Affairs

EEA

European Economic Area

ENS

Entry Summary Declaration

EU

European Union

GDP

Gross Domestic Product

ICT

Information and communication technology

IT

Information technology

NCTS

New Computerised Transit System

OECD

Organisation for Economic Co-operation and Development

R&D

Research & development

SAD

Single Administrative Document

TiVA

Trade in Value Added

TTIP

Transatlantic Trade and Investment Partnership

UK

United Kingdom

US

United States

WTO

World Trade Organization

4

FRICTIONLESS TRADE?

1. Summary

The UK imports and exports more to and from the EU now than at any other time inhistory. But this growth and increased integration of markets is not just about buying
and selling finished products – two-thirds of growth in UK exports comes fromexporting parts. And nearly a quarter of the value of UK exports comes from imports.
In the automotive sector, this figure is much higher – 44% of its exports value comesfrom imports. It is increasingly the case that imports drive exports and the two areinterlinked as parts of global and regional supply chains.
The UK’s trade in parts is more integrated with the EU than the rest of the world – forsectors such as food and beverages the EU accounts for close to 70% of theinternational supply chain. Membership of the EU has facilitated this integration.
Exports can be shipped back and forth between the continent and Britain many times
with few disruptions. This has led to efficiencies and specialisation but also to greaterinterdependence.
Leaving the EU threatens to disrupt those supply chains that depend on both tarifffree access and the absence of border checks. The Government recognises this risk
and is seeking both a ‘deep and special trade partnership with the EU’ and a customs
cooperation agreement to achieve its ambition of ‘frictionless trade’. Otherwise,
leaving the EU will introduce new compliance requirements on firms that export,
additional costs for those that import and delays on both sides of the border. Checks
are potentially far more onerous for sectors such as agriculture – a big issue for the
Irish border.
Brexit inevitably introduces friction to supply chains. There is no model of future
relationship that can offer traders ‘the exact same benefits’ as EU membership.
While there is no perfect solution, this paper explores each potential option and findsthat they mitigate the introduction of new trade barriers in different ways:• A deep and comprehensive free trade deal could, in theory, remove many
obstacles if it went well beyond any agreement the EU has already concluded withanother third country. Generally, the deeper the agreement, the greater the loss ofcontrol over laws and regulations.* Without a softening of ‘red lines’ from either the
UK or EU side, it is hard to see how a deal could prevent the introduction of any
regulatory barriers. Even if it could, UK exporters would still have to prove that
goods originated in the EU to qualify for preferential tariffs. A deal thiscomprehensive is unlikely to be concluded within the Article 50 window.

*

See for example House of Lords European Union Committee, Brexit: The options for trade, House of Lords, London, 2016, p. 71,
col. 260, https://publications.parliament.uk/pa/ld2017/ldselect/ldeucom/72/72.pdf

Summary5• A customs union agreement, like the arrangement between the EU and Turkey,
could help to avoid origin checks. But Turkey is obliged to levy the EU’s common
external tariff, which impedes its ability to run an independent trade policy. And as
its Customs Union only applies to industrial goods, it still faces border checks onagricultural goods and its trucks cannot circulate freely within the EU. This meanslong tailbacks at the Turkish–Bulgarian border. The UK might seek to include
agricultural goods in a customs union agreement (to avoid checks at the Irish
border) – but the price would likely be to keep following EU rules.
• Staying in the Single Market, like Norway, would allow the UK to have an
independent trade policy, but at the price of origin checks and accepting EU rules,
with no formal say over them. This option goes the furthest in maintaining
frictionless trade in terms of services, but exporters would still need to prove origin
for goods and agricultural and fisheries products (which are not covered by theSingle Market and face border checks). All Single Market members accept the ‘four
freedoms’** and contribute to the EU budget.
• Membership of both the Single Market and a customs union arrangement
comes the closest to minimising disruption. This may be needed as a transitionalarrangement but as a permanent arrangement it is really just EU membershipwithout the institutions or commitments and, crucially, without thepolitical influence.
• Leaving with no deal is a recipe for maximum disruption. That no major trading
partner trades with the EU on World Trade Organization (WTO) terms alone
indicates the unattractiveness of this option. It would mean document checks,
testing and inspection at the border. Tariffs would damage the competitiveness ofmany sectors.
In order to decide its stance in the negotiations on the UK’s future relationship with
the EU, the Government needs fully to understand the costs to business from
disrupting supply chains – and the sources of those costs (rules of origin, regulatory
checks, potential border delays) – and weigh them against the benefits of, for example,
more regulatory flexibility or the ability to negotiate new trade deals. It needs to berealistic about the speed of adjustment – both implementation by government andadaptation by business. Above all, it needs to publish its analysis of where the costs
and benefits lie to allow the informed debate over negotiating priorities that has beenlacking in the period since the EU Referendum in June 2016.

*

6

The 'four freedoms' of the EU allow for free movement of goods, capital, services and labour.

FRICTIONLESS TRADE?

2. Introduction

The UK has become increasingly integrated into the European economy in its 44 yearsof membership of the EU, and the 24 years since the Single Market was established,
the latter being comprised of members of the EU plus members of the European
Economic Area (EEA).
Before the General Election in June 2017, the Government was clear in its intention toleave both the Single Market and the Customs Union. It is now seeking both a new free
trade agreement and a customs agreement, with the aim of allowing ‘frictionlesstrade’ to continue. At the time of writing, despite being more than four months since
the triggering of Article 50 of the Treaty on European Union, the Government has yet
to produce concrete proposals on how to achieve this. Meanwhile, the General
Election result has reinvigorated discussion of alternative options – either for apermanent new relationship with the EU or for a transition away from full membershipand participation.
The UK is not an island factory. Most UK sectors – such as cars, electrics andpharmaceuticals – are one part of a regional or global supply chain. The aim of thispaper is to look at the implications of exiting the EU for UK supply chains and to
explore some possible options in this context. We focus on goods – and in particularon manufactured goods – as important pieces of the UK economy as a whole.
Yet it should be noted that exit from the Single Market also has potentially serious
implications for the UK services sector as well. Although the Single Market in services
is much less complete than that in goods, the sector (both financial and non-financial)
is vital to the strength of the UK economy – with exports of services to the EU runningat £94 billion compared with goods exports of £144 billion in 2016.1 The provision ofservices and goods is interconnected – as is clear from the analysis that follows – but
the needs of the services sector are very different from those of the goods sector and
we do not attempt to do justice to the complexities involved in this paper.
In the next section of the paper, we set out what is at stake: the nature of the UK’s
integration into European supply chains. In subsequent sections, we look at what
leaving the EU with no deal would mean for cross-border trade and explore theoptions for minimising disruption.
We do not deal with the issue of the UK’s border with the Republic of Irelandspecifically in this paper. But it is here that the impacts we describe have the potential
to be felt most acutely.

Introduction

7

3. What is at stake?

The UK and global value chains
Trade is important in the UK economy. Gross imports and exports were equivalent tojust under 60% of the UK’s Gross Domestic Product (GDP) in 2015.* This is more
integrated into world trade than the United States (US) (30%), roughly in line with acountry such as France, but substantially less open than Germany (85%) (see Figure 1).
Figure 1: Trade as a percentage of GDP, 1960–2015
90%

Germany

80%
70%
France

60%

UK

50%
China

40%
30%

US

20%
10%
0%

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

2015

Source: Institute for Government analysis of World Bank National Accounts Data

Between 2000 and 2011, one-third of the growth in UK exports came from an increasein ‘finished goods’ (see Figure 2). There is a tendency for ministers to talk as if thesefinished goods – for example, a package of Nissan cars, Brompton bicycles andinnovative jams2 – are the entirety of the UK’s exports. But between 2000 and 2011,
two-thirds of the growth in UK exports came from exporting parts, not the finishedarticle – for example, exhaust pipes, bike chains and jam jars. These ‘intermediate
goods’ are then worked in other countries, and might return to the UK as new parts or
as finished goods. The UK is not an island factory, but one part of an international
production line, known as a ‘global value chain’.

*

8This includes goods and services.

FRICTIONLESS TRADE?

Figure 2: Growth of UK imports and exports of final and intermediate products,
2000–11$800bn$600bnFinal products$US$200bn$0bn-$200bn

Intermediate products$400bn-$400bn-$600bn-$800bn
2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Gross exports of ﬁnal products

Gross exports of intermediate products

Gross imports of ﬁnal products

Gross imports of intermediate products

2011

Source: Institute for Government analysis of Organisation for Economic Co-operation and Development (OECD)
Trade in Value Added (TiVA) data

It is increasingly the case that, to export, the UK imports. In 2011, almost a quarter ofthe value of UK exports came from imports (up from 18% in 1995; see Figure 3). In
those sectors where the UK is more closely integrated into a global value chain, thefigure is significantly higher; 44% of the value of UK car exports comes from imported
products.³ This integration in global supply chains reflects the fact that, in a globalised
economy, individual countries specialise not just in particular industries, but also inparticular parts of particular industries.
Figure 3: Foreign value added as a share of gross UK exports, 1995–2011
25%

23%
21%

20%

18%

20%

19%

2008

2009

18%
17%

15%

10%

5%

0%
1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2010

2011

Source: Institute for Government analysis of Organisation for Economic Co-operation and Development (OECD)
Trade in Value Added (TiVA) data

What is at stake?

9

Box 1: The car sector*
The UK car sector added £15 billion of value to the UK economy in 2014. But as
Figure 4 shows, this value was focused in specific stages of the manufacturing
process.
The UK has a ‘revealed comparative advantage’** in finished cars, which make up
10% of UK exports compared with 4% of world exports. But while it has anadvantage in bumpers, brakes and clutches, it is disadvantaged in radiators,
suspension, gear boxes and airbags for example. The UK car industry is good atmaking some parts of a car, but not others, and is good at assembling a mix of UK
and foreign parts into the finished vehicle.
Figure 4: UK comparative advantage in cars and car parts, 2015

2.5

2.0

1.5

1.0

revealed comparativeadvantage

0.5

0Source: Institute for Government analysis of Comtrade data

This specialisation is reflected in the inputs and outputs of the UK car industry(see Figure 5). An input refers to what has gone into making a car; an output refers
to what has been produced. Of the sector’s £64 billion total output (yellow), £12billion is spent importing parts from the EU and £6 billion is spent importing fromthe rest of the world (green).

****

In the World Input–Output Database on which this analysis is largely based, the car sector is referred to as the ‘manufacture of
motor vehicles, trailers and semi-trailers’.

**

The ‘revealed comparative advantage’ is an index used in international economics for calculating the relative advantage ordisadvantage of a certain country in a certain class of goods or services, as evidenced by trade flows. It is demonstrated by acomparison between the proportion of exports in a sector of the country in question with the proportion of global trade inthat sector.

10

FRICTIONLESS TRADE?

Figure 5: UK car industry inputs and outputs, 2014
KEY:

EU/World parts

UK parts/parts for UK

UK value-add

Total output

Finished cars

Other

£70bn
£15bn

£1bn

£64bn

£13bn

£60bn
£4bn
£6bn

£50bn

£3bn
£20bn

£12bn
£40bn

£30bn

£30bn
£8bn

£20bn

£17bn

£10bn

£0bn
UK parts

EU parts

InputsWorldparts

UK valueadd

Other

Total
outputParts forUK

Parts forEU

Outputs
Parts for
World

Cars for
UK

Cars forEU

Cars forWorld

Source: Institute for Government analysis of the World Input–Output Database

Foreign imports will also enter the UK car sector indirectly, through theconsumption of parts from other UK sectors. In total, for every £1 that the UK car
industry sells abroad, 44p is spent importing foreign parts.4 Almost half of theparts that the UK imports are then processed and re-exported as another part,for another country to make into a car.*
So although we might talk about making cars in Sunderland, for example, it isjust one part of an international factory floor. Parts enter and leave multiple
times on their journey towards coming together as a finished vehicle.

*

Supply chain integration with the EU
As global trade has become increasingly important, so has trade with the EU. The UK isparticularly integrated into European supply chains. While the EU accounts for aroundhalf of the UK’s total exports, it accounts for 60% of its exports of intermediate
goods.5 Furthermore, the UK’s trade in parts (inputs to be used for further production)is more closely integrated with Europe than the rest of the world.
This integration – and the economic activity arising from it – is what is at stake when
we describe the risk of introducing costs into UK–EU supply chains.
The UK’s integration into global supply chains flows in two directions:• downstream integration – parts or inputs imported by the UK from other countries
to be used for further production• upstream integration – parts or inputs exported by the UK to other countries to be
used for further production.
*

For an illustration, see Ruddick, G., and Oltermann, P., ‘A Mini part’s incredible journey shows how Brexit will hit the UK car industry’,
The Guardian, 3 March 2017, https://www.theguardian.com/business/2017/mar/03/brexit-uk-car-industry-mini-britain-eu

What is at stake?

11

So for a car bumper manufacturer in the UK, its downstream integration might bemade up of imports of basic metals from the EU and its upstream integration might be
car assembly at the factory in the EU country it exports to.
The UK’s level of integration with the EU varies significantly by industry. For the UK car
sector, 24% of all its inputs are from the EU; the rest of the world contributes 13% of
inputs and the remaining 63% come from other UK manufacturers (see Figure 6). For
car parts manufactured in the UK, such as the car bumper, about 20% are exported to
the EU for further production; the remaining parts either stay in the UK (67%) or areshipped to the rest of the world (14%).
For 14 UK sectors, at least 15% of their supply chain is dependent on imports from theEU. Of these, the top six import over 20%. Many of these sectors also export over
20% of their intermediate products to the EU. This means that, for sectors such as
cars, chemicals, plastics and electricals, a high proportion of inputs is from the EU anda high proportion of their intermediate output is sold to the EU. This upstream anddownstream dependency means that these sectors in particular are vulnerable to thedisruption of their EU supply chain.
Figure 6: Inputs to the UK supply chain and intermediate outputs from the UK(downstream and upstream integration), 2014
Inputs to UK supply chain (downstream integration)
Imported from ROW

UK intermediate outputs (upstream integration)

Imported from EU

Exported to EU

Exported to ROW

Cars
ChemicalsElectricals
Rubber + plastics
Pharmaceuticals
Computers + electronics
Other machinery
Basic metals
Wood products
Paper
Furniture
Fabricated metal
Oil
TextilesPrinting
Other transport equipment
Health and social work
Car retail
Minerals
Telecommunications
Repair of machinery
Science + technology
Farming
Forestry
Waste
Water transport
Air transport
Administration
MiningFishing
Government, defence + welfare
Postal services
Food + beverages
ICT
Water supply
Land transport
R&D
Education
Utility supply
Legal + accounting
Construction
Other services
Audiovisual
Wholesale trade
Hospitality
Financial services
Advertising
Retail trade (excl. cars)
Warehousing
Auxiliary ﬁnancial services
Publishing
Insurance
Engineering
Real estate
Households
-100%

-90%

-80%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Source: Institute for Government analysis of the World Input–Output Database
Note: ICT = information and communication technology; R&D = research & development; ROW = rest of the world.

12

FRICTIONLESS TRADE?

We have already seen that global trade is an important part of the UK economy.
Focusing on the international supply chain of UK industries (so excluding UK inputs),
we can identify the top 10 sectors whose supply chains are most integrated with the
EU in comparison with the rest of the world (see Table 1). Focusing just on crossborder supply chains, some sectors’ imports from or exports to the EU account for
more than 70% of their international supply chain.
Table 1: The top 10 sectors whose trade is most integrated with the EU, 2014
10 sectors that most depend on the EU
for intermediate inputs

10 sectors that export most intermediate
goods to the EU

Paper

71%

Food and beverages

75%

Rubber and plastics

69%

Farming75%

Wood products

67%

Telecommunications

73%

Printing

67%

Science and technology

72%

Chemicals

66%

Fishing71%

Car retail

66%

Administration

64%

Pharmaceuticals

66%

Forestry

61%

Food and beverages

65%

Wood products

60%

Cars

65%

Rubber and plastics

60%

Forestry

63%

Paper

58%

Source: Institute for Government analysis of the World Input–Output Database

Costs to supply chains
Given the level of integration of UK and EU supply chains, any introduction of ‘friction’would increase costs in three ways.
Costs accumulate in a value chain
Supply chains that span the English Channel mean that any increase in the cost of
moving things across the border will have an exponentially greater impact on the costof the finished product – as parts bounce back and forth, the cost of the finishedproduct goes up each time.*

This is particularly true of those goods that are manufactured without any
warehousing, in which goods are delivered just in time for their use on the factory
floor. Even if the UK’s departure from the EU only results in ‘spot checks’ at the borderand is tariff-free, manufacturers may have to start using warehouses to build buffers
into their plans, on the off-chance that they are pulled over for inspection.
For this reason, even minimal increases in the cost of moving individual parts back andforth across the EU–UK border could accumulate into significant overall increases in
the cost of finished products. A study by Oxera in June 2016 found that around 8% of
the cost of importing goods by sea arose from customs clearance.6 However, estimatesof cost increases vary significantly between industries and the option the Government*

For an illustration of the impact of tariffs on supply chains, see Campbell, P., ‘UK car industry fears effects of Brexit tariffs on
supply chain’, Financial Times, 16 October 2016, https://www.ft.com/content/c397f174-9205-11e6-a72e-b428cb934b78

What is at stake?

13

pursues. The Agriculture & Horticulture Development Board has estimated that theadditional transactional costs would be ‘in the region of 8% to 10%, and perhaps a bit
more than that’.7 Meanwhile, the Food & Drink Federation has estimated these costs at‘a further eight per cent’, and added that the increase in transactional costs for‘composite products’ is ‘likely to be higher’.8
Business models need to adapt
Businesses will have to adapt the way they do business if delays disrupt supply chains.
Nissan and Jaguar, two of the UK’s largest car makers, hold only two hours’ of stock ofsome items at their sites, in order to minimise inventories and save on costs.9 Even thethreat of delays would mean the companies would have to invest in holding moreinventory or localising suppliers. UK suppliers of parts face the risk of missing out on‘just-in-time’ contracts if they cannot guarantee delivery on time.
Specialised exports may struggle for new markets
There have been suggestions that any decrease in trade with the EU as a result of
Brexit could be offset by an increase in UK trade with other partners.10 There are many
problems with this approach, not least that the sheer size of the EU market for UK
exports means that a small percentage decrease in EU trade has to be offset by verylarge percentage increases in trade elsewhere.*

But that pivoting strategy will be even more difficult for UK exports of intermediate
products. A finished car can be sold to an Australian or to a German. But a car part can
only be sold to countries that have car factories – which Australia doesn’t. As we haveseen, cross-border supply chains often mean that countries specialise in particularparts of industries and the industry of another country may not be adapted or may
have no need for specialised UK products.
In addition, customer demand for the specific produce of the UK may not exist in
non-EU markets, either because it is produced domestically or because competitors
may be already well established. In a paper on post-Brexit prospects for UK grains,
Paul Temple notes that ‘[t]he staunch competition we’d face in new markets with bulk
grain shipments is daunting’.11 Perishable products from the UK food and beverages
sector pose a particular problem as produce can have a short shelf-life. This meansthat delays for export could lead to ruined produce.
For imports, although UK industry may supply the bulk of inputs to other UK
industries, many cannot easily substitute their imports from the EU with UK products.
These imports could be crucial inputs for production. To give one example, the UK nolonger produces three of the major principal raw materials used by the chemicals
industry.12 Delays and disruptions to the import of these products would lead toserious delays in production in the UK.

*

14

See the UK Trade Policy Observatory evidence to the EU Internal Market Sub-Committee on the complexities of the possibilityof switching export destinations: ‘The UK Trade Policy Observatory (UKTPO) – written evidence (TAS0085)’, http://data.
parliament.uk/writtenevidence/committeeevidence.svc/evidencedocument/eu-internal-market-subcommittee/brexit-futuretrade-between-the-uk-and-the-eu-in-services/written/44698.html

FRICTIONLESS TRADE?

Finally, some will suggest that these costs could be offset by the benefits to the UK
economy derived from any potential onshoring.* But where that onshoring leads to anincrease in the cost of production, the cost will be passed on to consumers. And it isjust as likely that onshoring results in the UK parts of the supply chain moving to thecontinent rather than the other way around.
Clearly, preventing the costs of disruption from accumulating in UK–EU supply chains
will be vital post-Brexit. That is why the Government is putting a premium onachieving frictionless trade with the EU. However, it is worth examining what thecurrent situation is before looking at possible scenarios. In the next section we look at
how membership of the EU removes sources of friction, before considering, in Section
5, the potential impact if the UK leaves the EU with no deal.

*

Onshoring is the practice of transferring a business operation that was moved overseas, back to the country in which it was
originally located.

What is at stake?

15

4. The status quo

Friction in trade
There are many reasons why trade flows between states might increase. As a study on
trade deals by the Organisation for Economic Co-operation and Development (OECD)
notes, proximity and a similar culture can be two of the biggest defining factors.13 Yetin addition to these factors, removing barriers to trade, commonly referred to as‘friction’, also plays a large part in increasing trade. Two barriers that most impact
supply chains include tariffs and non-tariff barriers.14• Tariffs or customs duties are a state levy imposed on goods crossing from one
customs territory to another. They require customs authorities to identify imports
so that the correct applicable duties can be charged, which is already a source ofpotential delay and cost. The charges themselves make both imports and exports(because of duties on inputs) more expensive.15• Non-tariff barriers are any measures, other than a customs tariff, that act as abarrier to international trade. There are a large number of non-tariff barriers, but
two major barriers are regulatory barriers and customs checks.
ºº Regulatory barriers arise as long as different countries have different legal
regulations on health, safety and environmental protection. As a result of
pursuing legitimate regulatory objectives in these areas, countries may impose
different product standards as conditions for the entry, sale and use ofcommodities. Countries with different regulatory regimes apply costly checks at
the border when importing goods. These checks can range from inspections at
the border to the testing of samples to ensure compliance.
ºº Customs checks are any other paperwork required at the border, which can causedelays and costs, such as ‘rules-of-origin’ paperwork and customs declarations.
Friction in supply chains can be removed in three main mays: eliminating tariffs,
minimising regulatory barriers, and customs cooperation. The EU's Customs Union andSingle Market aim to provide for the free movement of goods between member states,
while customs cooperation is underpinned by customs regulation in the Union
Customs Code.

The UK’s integration into the European economy
The UK’s integration into the European economy is facilitated by the Customs Union,
the internal market and customs cooperation.
The Customs Union removes tariffs between member states
The Customs Union prohibits member states from charging tariffs on, or restricting thequantity (through quotas) of, goods traded within the EU. It does this by establishing a‘common external tariff’ – a common set of duties charged to goods coming from third
countries (countries outside of the EU) while abolishing those same duties inside theunion. This means that all intra-EU trade is tariff-free.
16

FRICTIONLESS TRADE?

The Single Market removes many regulatory barriers between member states
The Single Market is a ‘regulatory union’.16 It removes regulatory barriers in three mainways, through harmonisation, mutual recognition and market surveillance.

• Harmonisation replaces national legislation with common rules across the EU.
These rules provide a predictable legal framework for businesses.17 If
manufacturers follow the rules, their products can be sold freely in the market. In
most sectors, this is limited to health and safety rules and technical specifications.
In others, such as chemicals, the rules are stringent. But there are also more general
single market rules designed to prevent countries from engaging in social orenvironmental dumping and thus ensuring a level playing field for firms competing
within the Single Market.
• Mutual recognition applies to sectors where the rules are not harmonised. To
prevent barriers to trade, it guarantees that any product lawfully sold in one EU
country can be sold in another, even if the product does not fully comply with thetechnical rules of the other. As such, member states recognise the equivalence ofnational authorities’ domestic regulations.
• Market surveillance is achieved through a combination of three elements: asupranational court for resolving disputes on the basis of common rules; member
states’ own domestic regulatory bodies and departments ensuring that EU rules arefollowed; and surveillance of member state compliance by the European
Commission and European regulatory agencies. Their role can include visits to sitesof manufacturers, providing support and training materials for domestic regulatorsand providing evidence of member state non-compliance to the court.
Customs cooperation is underpinned by the Union Customs CodeOne of the founding treaties of the EU – The Treaty on the Functioning of the European
Union – states that measures will be taken to strengthen customs cooperation between
member states and the European Commission.18 The Union Customs Code is theframework regulation through which this is achieved. It defines all the formalities thatmust take place in the movement of goods between the EU member states and third
countries, including import–export procedures, data requirements and common risk
criteria. It also mandates greater use of information technology (IT) systems between
member states’ customs authorities to allow for real-time information sharing.*
Taken together, these three elements remove much of the friction to trade within the EU
in comparison with trade with third countries
There is no need to collect tariffs or try to secure preferential tariff rates. Because of
the trust in this EU-wide system that the same regulations and standards are being
upheld, regulatory checks at the border are also kept to a minimum. Finally, member
states are part of a network of customs authorities and public bodies that areconnected by EU-wide IT systems.

*

For a more in-depth explanation of the Union Customs Code, see North, R., ‘Brexit: customs cooperation’, EUReferendum.com
blog, 22 October 2015, www.eureferendum.com/blogview.aspx?blogno=86254

The status quo

17

These institutions largely remove friction for trade between member states. The
Government’s 2013 Trade and Investment Balance of Competency Review finds that,
although the Single Market is not completely successful in removing non-tariffbarriers, ‘intra-EU NTBs [non-tariff barriers] are shown to be substantially lower than
NTBs reported by non-EU firms when operating in those same EU markets’.19 The
report also finds that the greatest differences for reported non-tariff barriers in termsof goods are apparent in aerospace, chemicals (including drugs and cosmetics) andmotor vehicles – unsurprisingly some of the sectors with the most integrated supply
chains with the EU.20 To see why, we turn now to considering how leaving the EU withno deal would create friction and disrupt supply chains.

18

FRICTIONLESS TRADE?

5. Maximum friction: theconsequences of no deal
The EU institutions ensure that there are very few barriers to trade in goods within the
EU. Leaving the EU with no agreement would mean introducing friction into UK–EU
trade. The UK Government has said (although less so since the General Election inJune) that it would be prepared to walk away with no deal with the EU in March 2019
and to trade on WTO terms alone.21 No deal is also a possibility if negotiations run outof time with no extension.
Whatever the cause of no deal, it would maximise friction and potential disruption to
UK–EU supply chains.

Tariffs would have to be applied to all UK imports from andexports to the EU
No deal would mean trading with the EU on WTO terms, with no preferential access.
This means that the UK would have to apply the same tariffs on imports from the EU as
it did on imports from any other country with whom it did not have a free trade
agreement – and the EU would have to apply its tariffs to the UK. This is what isreferred to as trading with ‘most favoured nation’ status.
In general, EU tariffs are low, at around 2 to 3% of the value of the good. However, insome critical sectors of the UK, such as cars, they are significant (see Table 2) and insome areas, such as agricultural products, they can exceed 100%.
Table 2: Examples of EU tariffs
Category

Average of EU duties

Bicycles

14.5%

Cars

9.7%

Dairy produce

5.3%

Inorganic chemicals

4.5%

Aircraft

3.3%

Electrical machinery

2.8%

Article of iron or steel

1.7%

Source: World Trade Organization, ‘Get tariff data’ [website], https://www.wto.org/english/tratop_e/tariffs_e/tariff_data_e.htm

Some industries would be hit particularly hard by tariffs
Some industries will not be significantly affected by the imposition of tariffs because
the EU’s tariff on their industry is low. However, the House of Lords inquiry into tradein goods heard from key UK export sectors that they would be damaged by the

Maximum friction: the consequences of no deal

19

imposition of tariffs. The Chemical Industries Association told the inquiry that tariffs‘would have a significant impact on the competitiveness of the UK to continue todeliver into EU markets’.22
In the automotive sector, finished cars would suffer a 10% tariff in addition to carcomponents’ tariffs ranging from 2.5 to 4.5%. But the automotive sector also depends
on intermediate inputs that cross borders many times – and so costs accumulate in the
supply chain. Evidence to the House of Lords from the Society of Motor Manufacturers
and Traders stated that this would put the sector at an ‘immediate competitive
disadvantage’.23
The Agriculture & Horticulture Development Board meanwhile told the inquiry that EU
tariffs in the agricultural sector ‘differ significantly by product, being as high as 87%
for frozen beef down to 3.8% on whole, fresh sweet potatoes’. Tariffs would therefore
have a significant impact in some sectors of agriculture.24

The EU would have to treat the UK as a third country under theUnion Customs Code
While particular industries would be more affected than others by tariffs, all UK
exporters to the EU would be affected to a degree by the change in customs
requirements. The Union Customs Code requires member states to apply
import–export procedures for third-country goods that are far more onerous
than those for member states.
UK exporters would face a step change in the documentation required
Currently, anyone who exports from the UK to the EU needs simply to register with HM
Revenue & Customs and then attach a commodity code to their export. With nocustoms deal, all exporters would need to complete both a Single Administrative
Document (SAD) and an Entry Summary Declaration (ENS), with additional specialist
documentation required for highly regulated goods, transport permits and insurance
certificates.25 The SAD alone consists of 54 boxes with eight parts, which must becompleted and submitted for every declaration.26 These would all be additionalburdens on exporters.
The UK would lose access to import customs IT systems designed for cooperation
between member states
No deal would mean no access to current EU-wide e-customs systems that reduce theneed for lengthy paper-based procedures for declaring goods. Of those e-customs
systems, one of the most important is the New Computerised Transit System (NCTS).
The UK would not be party to the agreement, which allows all EU member states andthe signatories of the Common Transit Convention – member states of the European
Free Trade Association (Iceland, Lichtenstein, Norway and Switzerland), Macedonia,
Serbia and Turkey – to submit transit declarations and proof of guarantee (bond money)
electronically, with the capability of tracking the consignment across member states.

The agreement allows a faster flow of goods, paperless customs clearance and shorter
queues of trucks at border crossings and reduces the cost of customs procedures.27
One study on the NCTS in the EU showed that it had obtained a productivity gain of
about 30 minutes per shipment.28

20

FRICTIONLESS TRADE?

With no deal, UK exports would face the full battery of EU
regulatory checks at the border
Tariffs and customs formalities are not the only barriers the UK would face if it left theEU with no deal. UK firms would also face regulatory barriers to doing business with
the EU – even if the UK had, as it intends, transferred EU laws into UK law. The EU
would still be required by its own laws to treat the UK as a third country and impose
checks equivalent to any other third country with no deal.
At the moment, UK goods are assumed to meet EU regulatory standards, and checks
by UK authorities are recognised by other EU authorities. With no deal this would nolonger be the case. Exporters from the UK would have to be able to prove that goods
meet EU standards – and this could involve border inspections.
Some goods would face additional regulatory controls
The new regime would be particularly onerous for goods that are ‘controlled’, such asanimal products, nuclear material and chemicals. At the moment, government
authorities such as the Department for Environment, Food & Rural Affairs (Defra) or
the Department for Business, Energy & Industrial Strategy (BEIS) certify manufacturers
and exporters with licences to trade in those goods domestically. These licences andcertificates are valid across the EU and an assumption of conformity means that they
do not face checks at the border.29 However, once the UK leaves the EU they would nolonger be valid because the rules for third-country goods laid down in the Union
Customs Code mean that, without agreement, only EU licences and certificatescertifying conformity with EU regulations are valid.30

Former Permanent Representative to the EU, Sir Ivan Rogers, told the House ofCommons Select Committee on Exiting the European Union:[I]n a no deal scenario the UK’s legal basis would change overnight. The EU
would say you have not signed any other agreement with us, and unless there
is a legal agreement between the two of us, we no longer recognise youraccreditation, conformity assessment bodies, abattoirs or slaughterhouses.
We do not recognise any of it.31
A ‘conformity assessment’ procedure – which involves testing, inspection andcertification – would then be required at the border before a good can be placed on the
EU market.32 In many sectors, product conformity can be self-certified: manufacturers
affix the ‘CE’ marking to their product, attesting to the necessary checks, and certifying
the good as compliant with EU legislation.33 But they may nonetheless be stopped atcustoms and asked to provide technical documents to prove this.
In contrast, highly regulated sectors, such as the automotive and chemical sectors,
need accredited certification. A conformity assessment body (known as a ‘notified
body’) undertakes the relevant inspections and issues certification of technicalcompliance. UK-based companies may no longer be able to rely on UK accreditations
from Defra, BEIS or other agencies and would therefore face checks at the border.
This could mean week-long delays while they are physically inspected and samples
are obtained to be sent to an approved testing house. There are also costs involved.

Maximum friction: the consequences of no deal

21

For example, the cost of physical examination and testing from Port Health (which is
responsible for the enforcement of environmental, public and animal health controls
at ports) can range from £106 to £600 per container, depending on the testing
requirements.34 Some goods are required to be transported to specific locations fortesting and this carries an extra £30 for every two containers.35 On top of this, rent ischarged for storage, depending on the mode of transport and the port itself.

Box 2: Regulated industries
A number of sectors that would be subject to stringent checks for conformity
and compliance at the border have a substantial proportion of their exports
market in the EU (see Figure 7). Many of these have specific regimes of control
that must be complied with before goods can be sold in the EU.*
Figure 7: Regulated UK industries that export to the EU
£25bn

£20bn

£15bn

£10bn

£5bn

£0bn

Chemicals

Food and beveridges

Pharmaceuticals
Total UK exports

Basic metals

Electricals

TextilesUK exports to EU

Source: Institute for Government analysis of the World Input–Output Database

With no deal, there is a real danger that exports will dry up if the UK were to be
subjected to the full force of EU regulatory regimes at the border. At risk are overhalf of the total exports from the chemicals, food and beverages and textiles
sectors and at least a quarter of the total exports from other sectors.
If exports did not cease due to the practicalities of implementing the checks,
then the costs of compliance could still damage sectors. According to estimatesfrom studies carried out by the research company Ecorys and the Centre for
Economic Policy Research, non-tariff barriers for access to the Single Market are
the highest for food and beverage products, with imports from North America,
for example, facing a 56.8% tariff equivalent.36
*

*

22

On EU regulation for specific sectors such as the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH)
and the Control of Major Accident Hazards (COMAH), see House of Lords European Union Committee, Brexit: Trade in goods, 16th
report of session 2016–17, House of Lords, London, 2017, https://www.publications.parliament.uk/pa/ld201617/ldselect/
ldeucom/129/129.pdf

FRICTIONLESS TRADE?

Taking the food and beverages sector as an example, the steps that third
countries have to take to export to the EU are significantly more complex than
the steps that member states have to take. The UK’s Food Standards Agency has
produced a diagram illustrating the process for a third country exporting animal
products to the EU (see Figure 8). At the moment, the UK’s Animal & Plant HealthAgency can carry out all the required checks in the UK and exports can thencross frontiers wherever makes sense. Post-Brexit, a key pinchpoint will be theneed to export via a ‘border inspection post’.37 There is a real capacity issue
here, as this has not been needed for intra-EU trade.
Figure 8: The process of exporting food from a third country to the EU
The competent authority
in the despatching country
contacts the European
Commission to request
approval

The Commission visits thecountry and establishments
to check hygiene standards
are equivalent to those in
the EUApproval is proposed,
accepted or rejected.
An updated list of approved
countries is published andmember states are notiﬁed
electronically

Products of animal origin
must be imported into the
EU through borderinspection posts (BIPs)

The competent authority inthe country of despatch
issues and stamps thehealth certiﬁcate as for theCommission Decision

A Commission Decision isdrawn up giving the format
for health certiﬁcation
and a list of approved
establishments

The importer must notify theborder inspection post of
the arrival of consignments

The Oﬃcial Veterinary
Surgeon or Oﬃcial Fish
Inspector (for ﬁsheryproducts) carry out A)
document check B) identity
check C) physical check

If checks are satisfactory, aCommon Veterinary Entry
Document (CVED) is issued
for that consignment ofgoods. It can then be
imported into the EU

If the consignment fails thechecks then it must be either
re-exported or destroyed

Source: Institute for Government adaptation of a Food Standards Agency diagram*Michel Barnier, European Chief Negotiator for Brexit, has suggested that 100%of animal exports (live or products of animal origin) would face border checks38– a massive issue at the Irish border. The same would apply in the otherdirection, with the UK’s Animal & Plant Health Agency having to decide whether
to check EU imports if the UK copies the Union Customs Code.
**The original is available at: https://www.food.gov.uk/sites/default/files/multimedia/pdfs/import_poao.pdf© Food Standards Agency.

Maximum friction: the consequences of no deal23

Summary: no deal
Table 3 summarises the no deal option. No deal would mean substantial disruption to
supply chains across sectors, with tariffs, regulatory checks and customs checks
applying on day one of Brexit. That no major trading partner trades with the EU on
WTO terms alone indicates the unattractiveness of this option.39
Table 3: A summary of the key issues involved in a no deal
Issue

Implications

Tariffs•

WTO terms could mean tariffs ranging from 2% to over 100% in a
few cases.

Customs•

The UK would experience third-country treatment with noprovision for streamlined processes.

Regulatory checks•

Checks would take place on both sides of the border.

•

These would be particularly onerous for heavily regulated goods
such as chemicals and animal products.

Negotiability•

Not applicable.

Business 'hassle factor'•

There would be a very high hassle factor.

•

There would need to be substantial investment in extra capacity
and infrastructure at the border and adjustment to supply chains.

Source: Institute for Government analysis

24

FRICTIONLESS TRADE?

6. Reducing friction

The disruptive consequences of no deal for both goods and services trade with the EU
is one reason why the Government is keen to negotiate a deep and comprehensive
free trade agreement with the EU in parallel with withdrawal from the EU. However,since the General Election in June, a number of other options have come back into
discussion: EEA membership either in the long run or as a transitional arrangement; acustoms union with the EU again, as either a permanent or transitional arrangement;
or indeed a Swiss-style arrangement of multiple agreements.
The options floated are summarised in Table 4, which sets them alongside the Prime
Minister’s political objectives.
Table 4: How do the off-the-shelf Brexit options stack up against the Prime
Minister’s objectives?

Defensive interests – 'red lines'

Prime
Minister's
LancasterHouse speech

Stay in theSingle Market
but leave theCustoms
Union

Leave theSingle Market
but negotiate
a customs
Union

NorwayTurkeyLeave the Single Market andCustoms Union, but negotiate abilateral trade agreement
Switzerland

UkraineCanadaLeave theSingle Market
and Customs
Union withno dealWTO option

Control migration from the EU
End the jurisdiction of the European
Court of JusticePartialEnd applicability of EU regulations
Pursue an independent trade policy

MostlyMostlyMostlyPartialPartialPartialVery limited

Very limited

MostlyStop obligatory budgetarycontributions to the EU
Exit the common agricultural policy andcommon ﬁsheries policy

Oﬀensive interests

Tariﬀ-free trade with the EU
Single Market
Access to the EU Single Market
for services
Seamless and frictionless border
Voluntary participation in
EU programmes
Speed of negotiation(within Article 50 process)Very limited
PartialPartialPartialVery limited
PartialPartialN/A

Source: May, T., ‘Speech by Theresa May, Lancaster House, 17 January 2017’, The Telegraph, 17 January 2017, www.
telegraph.co.uk/news/2017/01/17/theresa-mays-brexit-speech-full/; Institute for Government analysis, June 2017

Although other options may be back on the table, the Prime Minister has said that her
aim is to negotiate an ‘ambitious and comprehensive Free Trade Agreement and a newcustoms agreement’40 as a means of securing ‘as frictionless and seamless [crossborder trade] as possible’.41 The mission for UK negotiators is to find a practical way ofdelivering that while achieving the UK’s political objectives.

Reducing friction

25

A new free trade agreement
Examples of EU free trade deals
Switzerland replicates many of the features of the Single Market through over
120 bilateral deals (including 20 major ones) between Switzerland and the EU.
Other countries have bespoke free trade arrangements in the shape of free trade
agreements. The most recently concluded was the Comprehensive Economic andTrade Agreement (CETA) with Canada. Ukraine has a deep and comprehensive
free trade agreement, paving the way to closer cooperation with the EU.
Securing ‘frictionless and seamless trade’ would require an extensive agreement thatcovered regulatory barriers, tariffs and customs checks. Ministers have suggested thatthey might seek to ensure special treatment for the sectors with the most integrated
supply chains.42 There are two problems with this approach.
First, the EU’s negotiating guidelines rule out such ‘cherry-picking’ and WTO rules
require coverage of ‘substantially all’ goods. Second, a shallow agreement that only
dealt with some barriers such as tariffs or did not provide in-depth agreement acrosssectors would still mean large-scale disruption to supply chains, because supply
chains cross sectors.

Box 3: The car sector is heavily interlinked with other sectors
across the EU
The car sector is just one sector that would be affected if barriers caused anincrease in cost or disrupted its inputs. Earlier in this paper we saw that £12billion worth of intermediate parts from the EU were consumed as inputs for the
UK car sector. This is a third of the sector’s total inputs, demonstrating theimportance of EU imports to the UK car industry. Of the EU intermediate parts
used in the UK car sector, the biggest single contributor was the EU car sector, at
47% of the total. However, this still leaves more than half of the EU
contributions to the UK car industry to other sectors that would not be coveredby a sectoral carve-out.
For the UK car sector, a range of other European sectors are interlinked with thefinished product (see Figure 9). Of particular importance are the contributions ofmachinery, basic metals, chemicals and rubber and plastics. These account forover three billion contributions – a quarter of the total EU contributions. If it
became more expensive or more difficult to buy a range of intermediaries fromthe EU, there would be a knock-on effect on buying cars.* A special deal for cars
would not avoid supply-chain disruption for car manufacturers.
*

*

26

At least in the short term, unless a supplier could be found for the same price on day one of Brexit, which, as we have alreadyargued, would be difficult.

FRICTIONLESS TRADE?

Figure 9: EU sectors contributing to the UK car sector’s intermediate
consumption, 2014
Machinery
Basic metals
Chemicals
Rubber + plastics
Wholesale trade (excl. cars)
Fabricated metals
Electricals
Computers + electronics
Retail trade (excl. cars)
Furniture
TextilesCar retail
Minerals
Repair of machinery£0.0bn£0.2bn£0.4bn£0.6bn£0.8bn£1.0bn£1.2bnSource: Institute for Government analysis of the World Input–Output Database

Intermediaries such as chemicals, plastics and machinery are some of the mostwidely used in many other UK industries and some of the most integrated with
EU supply chains. They are also themselves vulnerable to regulatory barriers
and tariffs, as we have seen. A disruption in supply chains for industries such asthese could have ripple effects across other sectors that use them as inputs. In
mitigating disruption, an agreement must look to deal with impact acrosssectors that are interlinked.

Existing EU free trade agreements, like CETA, would not come close to achieving thebreadth and depth required to avoid barriers to trade
The Secretary of State for Exiting the European Union, David Davis, has previously
suggested that the EU’s recently concluded agreement with Canada (CETA) could
provide a good starting point for the UK’s future relationship with the EU.43 While thisagreement may deal with some barriers to trade, it would fall far short of achieving theease of trade made possible as a member of the Customs Union and the internal market.
A conventional free trade agreement would eliminate most tariffs (at least on
industrial goods)
Eliminating tariffs on manufactures is relatively straightforward (the EU’s free trade
agreement with South Korea eliminates tariffs on 98.7% of manufactures). In the case of
the UK, since there are currently no tariffs on trade with the EU, there would be no needfor phasing.* The EU has traditionally been more protectionist on agriculture, so there isa risk that tariff-free access for agriculture and fish would be harder to negotiate.

*

Agriculture may be an exception to this but that depends on whether the UK and the EU would wish to accept the high tariffs
on average.

Reducing friction

27

But, even for tariff-free goods, that does not remove the need for customs checks
One of the big downsides of a free trade agreement compared with current
arrangements would be the need for UK exporters to prove origin if they want tobenefit from preferential tariffs. This is hugely complicated.

All free trade agreements include rules of origin. Rules-of-origin requirements statethat a good is only eligible for tariff-free access if enough of the good originates froma list of pre-approved countries. For example, in the EU–South Korea free trade
agreement, a car arriving in the EU from South Korea must be 55% ‘made in Korea’ toqualify for tariff-free access.
These rules can differ by product so manufacturers have to keep track of the sources
where value has been added. In general, the origin of the final product will be
determined by the location of the ‘last substantial transformation’. This means that for
products with components that have been partly processed in multiple countries, origin
is defined where the last processing defined as ‘significant’ or ‘substantial’ occurred.
In order to meet the criteria, free trade agreements can contain additional provisions
to allow ‘cumulation’ – so that value added from one country can count towards
another country’s value added to meet the criteria.
Rules of origin can pose significant barriers to trade – particularly for those sectors
with complex supply chains. Steve Elliott, Chief Executive of the Chemical Industries
Association, has stated that ‘the cost of providing the technical proof that a chemicalor any other manufactured product originates from the EU or the UK, bearing in mind
that in our case there could be several stages of synthesis involved … would clearly
outweigh the benefit of duty-free sales’.44
The costs of rules of origin come from both administrative requirements and the costof complying with regulations linked to rules of origin. A range of estimates collectedin the Trade and Investment Balance of Competence Review shows that ‘British firms
would be exposed to a combination of administrative and compliance costs linked torules of origin, ranging (based on existing estimates) from 4 percent to perhaps 15
percent of the cost of goods sold’.45 As the review notes, currently British firms are
saved these potential costs through UK membership of the Customs Union. Outside
the Customs Union, there would be origin checks.
A deal like CETA does not go very far in removing regulatory barriers
Many of the sectors contributing to the UK car sector are also industries that the UK
exports to the EU. We have already seen that these sectors would face at least
document checks, and possibly inspection and testing, under no deal. If CETA weretaken as a model for the UK’s future relationship with the EU then it would only
achieve a limited form of mutual recognition.

CETA only provides for the mutual recognition of conformity inspection. This meansthat conformity assessment bodies in Canada can certify that a product for export to
the EU complies with EU standards and vice versa. This avoids duplications ofconformity inspection at the border that would apply under no deal. However, there is
still a document check for the correct certificates at the border where currently there

28

FRICTIONLESS TRADE?

are no such checks for the UK. Moreover, CETA does not cover the breadth of UK
sectors such as chemicals and food and beverages. Wherever it did not apply, testing
for regulated sectors would.
The UK would need a deal that goes much further than CETA in removing
regulatory barriers
The most ambitious attempt to remove non-tariff barriers and establish future
regulatory cooperation has been the (now-dormant) EU–US negotiations referred to as
the Transatlantic Trade and Investment Partnership (TTIP).

TTIP aimed to go further than CETA in that it tried to establish equivalence rather thanjust conformity inspection.* Equivalence is the kind of mutual recognition used for thefunctioning of the Single Market in areas where there is not harmonisation.** It meansthat parties agree that even where their regulations technically differ, those regulations
achieve the ‘equivalent’ outcome. As a result, if a product or service can be sold lawfullyin one party’s jurisdiction, it can be sold lawfully in the other party’s jurisdiction.
However, as De Ville and Siles-Brügge argue in their book on TTIP, in many cases
equivalence has been difficult to establish because the US and the EU have substantial
differences in the ways they regulate, which neither were prepared to change.46 It also
had the potential to have a ‘regulatory chill’ effect whereby unilateral decisions on
more ambitious future regulation would be constrained and affected by theregulations of the other partner.47
For the UK, the former obviously does not apply since it currently maintains the EU’s
approach as a member state – but its decision to leave the EU implies an intention todiverge. So while convergence at the point of exit is less an issue, the management
and oversight of future divergence would be. As Michel Barnier states in giving
evidence to the European Economic and Social Committee, the EU could not ‘have an
influence or a right of veto on the drawing-up of the rules that apply in the Union … thelevel playing field must exist and accompany our future partnership’.48
Barnier’s mention of a ‘level playing field’ implies a degree of future regulatoryalignment that goes well beyond that of CETA. But questions remain about how thatwould be achieved and how it would be enforced – and whether it is possible to meetthe EU’s concerns without transgressing the UK’s ‘red lines’. How those questions areanswered will determine the depth of any future free trade agreement. The Institutefor Government will deal with these questions in more depth in a forthcoming paper
on dispute resolution.

*

For an in-depth discussion of the different kinds of mutual recognition and how they relate to TTIP, see De Ville, F., andSiles-Brügge, G., TTIP: The truth about the Transatlantic Trade and Investment Partnership, Polity Press, Cambridge, 2016, pp. 54–7.

**

However, it is underpinned by market surveillance and a supranational court.

Reducing friction29

An agreement could mean a simplification of customs requirements
Any free trade agreement can include specific provisions on customs cooperation that
could streamline the process. There are three common ways in which customs
cooperation provisions in a future free trade agreement between the EU and the UK
could streamline the process and ease customs pressures:• data sharing and information exchange, which allow customs authorities toprocess declarations in advance of shipment, leading to reduced delays andduplications – this needs to be underpinned by agreements on data sharing toensure confidentiality• e-customs systems – the UK may want to negotiate access to EU-wide e-customs
systems (including the NCTS but also covering excised goods such as alcohol andtobacco, animal health notifications and provisions for the return of defective
goods)• mutual recognition of authorised economic operators, which allows certified
trustworthy traders to benefit from streamlined processes – including minimised
documentary requirements, fewer physical inspections and faster clearance times– and enables customs authorities to concentrate on higher-risk traders.
In the past, the authorised economic operator accreditation process has taken many
months to complete and has involved close scrutiny of financial records and supply
chains. To reach this status, the UK would need to maintain similar requirements as theEU, to enable mutual recognition, but that may mean it is too burdensome for somesmall- and medium-sized enterprises.

Summary: a free trade agreement
Table 5 summarises the free trade agreement option. It is clear that a trade deal like
CETA would still disrupt supply chains through requirements for rules of origin andregulatory checks. A more ambitious trade deal that recognised the starting point of
convergence and covered the breadth of UK sectors would be much more difficult tonegotiate but could deliver a significant reduction in disruption. But there are big
question marks over its negotiability both within the Article 50 window and ingeneral. In the longer run, if the UK sticks to its existing ‘red lines’ and the EU makes it
clear that it is not prepared to grant the benefits of the Single Market without the
obligations, a deal like this becomes less viable.
Table 5: A summary of the key issues involved in a free trade agreement
Issue

Implications

Tariffs•••

Tariffs would be up for negotiation.
Tariff-free access for industrial goods would be likely.
Potentially this would be more difficult for agricultural goods.

Customs•

Streamlining would be possible – but exporters would still need toprove that they met rules of origin to qualify for preferential access.

Regulatory checks•

Checks could be reduced through harmonisation or mutual
recognition, if they can be negotiated.
It is unlikely that mutual recognition could be agreed across thebreadth of sectors necessary to mitigate impact.

•

30

FRICTIONLESS TRADE?

Negotiability••

Business hassle factor••

We would need to go beyond any agreement seen so far to deliver UK
objectives.
It would depend on the EU’s willingness to negotiate and the UK’s
willingness to accept limitations on the ability to diverge from the EU
acquis (body of law) and acceptance of agreed enforcement mechanisms.
The hassle factor would be dependent on the depth and breadth ofagreement.
Rules of origin are a hassle but others can be reduced significantly.

Source: Institute for Government analysis

Agreeing a new customs union
Examples of customs union agreements
Turkey, Andorra and some other small countries have created bespoke customs
union agreements with the EU. Turkey’s only applies to manufactured goods, notagricultural produce; Andorra’s adds in agricultural produce. None of thecustoms union arrangements covers services.
If a new free trade agreement would take too long to negotiate, there are other existingmodels the UK could try to adopt. Leaving the EU means leaving the EU Customs Union,
which is embedded in the EU treaties. However, the EU has other customs union
arrangements – and so forming a new customs union with the EU is a possibility.
A customs union removes tariffs on goods that are covered and removes the need forrules of origin
Creating a new customs union with the EU would remove tariffs on trade with the EU
on all goods covered. If a customs union is to help reduce the Irish border issue,
agriculture would need to be included.

One of the conditions of a customs union agreement with the EU is applying thecommon external tariff to goods covered. Unlike under a free trade agreement wherebusinesses would face the need to prove origin, the benefit of a customs union is thatit removes the need for this for goods circulating inside the customs border, removing
a significant source of disruption.
Reduction in regulatory checks depends, as in a free trade agreement, on accepting
harmonisation or mutual recognition
As part of its Customs Union, Turkey has accepted significant harmonisation in order toreduce non-tariff barriers. It has adopted EU regulations on products and commercial
policy (including competition and state aid policy).49 In those sectors where there has
not been harmonisation, Turkey faces significant barriers to trade.50

The difficulties with achieving regulatory equivalence would be similar to that in afree trade agreement, still requiring a mechanism for resolving disputes and a robustmeans of market surveillance if the agreement were to achieve equivalence.

Reducing friction31

Box 4: The Turkey–Bulgaria border
The main border crossing between Turkey and Bulgaria is located at Kapıkule. It
is reportedly the busiest border crossing in Europe and routinely suffers traffic
congestion, with trucks backed up as far as 17 kilometres from the border.51, 52
There are still (substantial) delays at the border, which shows that a customs
union does not eliminate all sources of border friction.
The EU–Turkey Customs Union does not cover transport, which is regarded as a‘service’. In the absence of an EU road transport agreement with Turkey, member
states continue to apply their bilateral agreements.53 Under these agreements,
Turkish hauliers have to apply for transport permits for each member state they
travel through. These are allotted through quotas, which limit the number oftrucks that can pass through. In 2014, the quota system led to a dispute, which
resulted in Turkish and Bulgarian authorities refusing to let trucks throughthe border.

And being in a customs union impedes the ability to conduct an independent
trade policy
The big downside of a customs union arrangement is that it reduces the scope for an
independent trade policy. The Turkish agreement allows countries the EU negotiates
free trade agreements with access on preferential terms to the Turkish market – but
without reciprocal access for Turkish goods. Turkey can no longer use tariffs on goods
covered by the customs union as a bargaining chip since it is forced to apply thecommon external tariff.

If the UK entered into a customs union with the EU, it would face similar difficulties. It
is difficult to see how a lack of origin checks could be compatible with the UK runningits own tariff schedule and EU negotiators would be concerned about countries
exploiting the UK as a back route into Europe.
The UK would still be free to use non-covered items – services or potentially
agriculture – as levers to get free trade deals with other countries. But service
liberalisation is notoriously difficult to achieve through free trade agreements. If
agriculture were covered – to reduce friction – this would remove a major bargaining
chip in any trade negotiations with countries such as Australia and New Zealand.

Summary: a customs union agreement
Table 6 summarises the customs union agreement option. A customs union agreement
is the only option that removes rules-of-origin requirements. This is a significant factor
in terms of simplification. However, on its own it does not remove regulatory barriers
per se and still leaves other checks at the border in place. These could be dealt withthrough a separate free trade agreement. A customs union agreement reduces thescope to run an independent trade policy.

32

FRICTIONLESS TRADE?

Table 6: A summary of the key issues involved in a customs union agreement
Issue

Implications

Tariffs•••

Tariffs are eliminated on goods covered within thecustoms union.
Tariffs would still be applied to goods not covered.
The UK would have to apply the EU’s common external tariff tothird countries.

Customs•

There would be no need to prove origin – but there would still
be some residual border processes and potential delays if nodeal is done on transport.

Regulatory checks•

Checks could be reduced through mutual recognition or
harmonisation, as with a free trade agreement – but they are
not a necessary consequence of a customs union.

Negotiability•

A new customs union arrangement would have to be negotiated– and to reduce regulatory checks would need to beaccompanied by a free trade agreement.

Business 'hassle factor'••

A customs union per se removes the need for rules of origin.
Avoidance of other complexities would be dependent on whatelse was agreed.

Source: Institute for Government analysis

Staying in the Single Market – the EEA option
EEA membership
EEA member states (Iceland, Lichtenstein and Norway) participate in the internalmarket for goods and services – creating the Single Market. This does not extend
to agricultural products or fish so they are not part of the common agricultural
policy or common fisheries policy. But they have to accept EU regulations, the‘four freedoms’ including freedom of movement, and make a budget
contribution. Lichtenstein has been allowed an emergency-brake exception to
freedom of movement.
EEA membership comes closest to maintaining the status quo – and as such has
been assessed as causing the least disruption to trade.* But it does not remove friction
entirely.

*

The Institute for Fiscal Studies has argued that the ‘EEA would mean stronger economic performance than an FTA [free trade
agreement] scenario’, worth potentially 4% of GDP relative to trading with the EU under WTO rules. See Institute for Fiscal
Studies, The EU Single Market: The value of membership versus access for the UK, Institute for Fiscal Studies, London, 2016, p. 33.

Reducing friction

33

Evidence from the Centre for European Policy Studies to the House of Lords European
Union Committee on options for trade stated that the advantage of the EEA option
was that:
It is a system that exists, offers legal clarity and actually works. It is closest
among other options to sticking to the status quo in economic terms and it
would avoid uncertainty and thereby minimise damage to the UK as adestination for foreign investment aimed at the EU market.54
The EEA agreement has a unique institutional structure
EEA institutions enforce and interpret the agreement. They are composed of aseparate court that follows the European Court of Justice and a surveillance authoritythat mirrors the European Commission. EEA member states are part of what is referred
to as a ‘two-pillar institutional structure’. This involves the separate EEA institutions,and joint EEA committees that act as mediators that govern the functioning of theagreement and the EEA institutions.

With its own court and surveillance authority, the EEA has more robust mechanisms
for the enforcement of the agreement than most free trade deals. This is one reason
why economic integration is so deep; a level playing field is ensured by an actual
institution dedicated to ensuring that the rules are observed. In practice, ininterpreting the rules, the court adheres to a ‘principle of homogeneity’. That is, ingeneral and as noted above, it follows the rulings of the European Court of Justice sothat there is as little divergence as possible from EU law.
The EEA agreement incorporates EU laws and regulations through the EEA jointcommittees, which agree on whether EU law has EEA relevance or not. In practice,most single market regulations are adopted by the EEA.
The EEA agreement removes regulatory barriers and tariffs for trade in goods in theareas it covers
The surveillance and enforcement regime means that most goods are not checked
for compliance with EU technical rules at the border, nor do they go throughconformity assessment.

Given that the most impactful non-tariff barriers for exporters are often technicalrequirements and conformity assessments (even more so than rules of origin),55 thisrepresents a huge mitigation of some of the most severe causes of friction. For those
sectors included in the agreement that are heavily regulated, such as chemicals andpharmaceuticals, this is especially true.
However, agriculture and fisheries are excluded from the EEA agreement and still face
regulatory checks at the border, as well as some tariffs and quotas.* This could
potentially pose difficulties for the UK, as 64% of the UK’s fish and 73% of its
vegetable exports go to the EU.56 It also has serious implications for the UK’s borderwith the Republic of Ireland, where agricultural supply chains are very important.

*

34

However, Norway has recently negotiated the removal of tariffs on some agricultural products. See European Commission, ‘EU
and Norway conclude negotiations to enhance trade of agricultural products’, European Commission news, 7 April 2017,https://ec.europa.eu/info/news/eu-and-norway-conclude-negotiations-enhance-trade-agricultural-products-2017-apr-07_en

FRICTIONLESS TRADE?

Businesses in EEA countries still have to face complying with rules of origin
If a good arriving in Norway from the US pays a Norwegian tariff, and Norway thenattempts to move this good into Sweden, it must pay the EU’s common external tariff
as it crosses the border.

In practice, this means that border checks are required across the Norway–Sweden
border, since the EU has to know whether a good that is crossing is Norwegian (inwhich case it can enter tariff-free) or is from a third party (in which case a tariff may
apply and the product must be checked to ensure that it complies with EU
regulations). Norway and the EU have taken steps to streamline these checks. But they
have not been eliminated.

Box 5: The Norway–Sweden border
A 2004 agreement on customs cooperation has meant that Norway and Sweden
have fully merged their systems for customs cooperation, authorised traders,risk management, pre-arrival processing and post-clearance audit.57
These are managed by a single unified IT system, which handles every stage ofthe customs process for goods moving in either direction. The system isdesigned to be a ‘non-stop shop’ where all customs activities are synchronised
and performed in advance of the border so that goods can pass without
interruption. The system tracks shipments using the location of special SIM(subscriber identity module) cards in freight forwarders’ mobile phones. This
reduces costs by utilising existing infrastructure and equipment.58
Norway and Sweden have also established ‘joint control zones’ up to 15
kilometres on both sides of the border. Customs officials from either country areable to carry out any checks and controls within these shared zones.59

Summary: EEA membership
Table 7 summarises the EEA membership option. The EEA provides a ready-madeoption that provides significant market access to trade in goods in the areas it covers.
It does not cover agriculture and fisheries and still offers control over trade policy.
However, for supply chains, rules-of-origin checks and regulatory checks where
equivalence is not established would still cause some disruption. In addition, EEA
membership comes with obligations as well as rights – and those cross the UK
Government’s existing ‘red lines’.

Reducing friction

35

Table 7: A summary of the key issues involved in EEA membership
Issue

Implications

Tariffs•••

There is tariff-free access for goods – but third-country goods
imported by an EEA member and then exported to the EU still needto pay the common external tariff.
EEA members can set their own third-country tariffs.
Tariffs are still payable on some agricultural goods.

Customs•

Checks are still needed to prove origin and check tariffs on
third-country goods.

Regulatory checks•

Acceptance of the EU acquis means no regulatory checks at theborder for goods and fewer restrictions for services.

Negotiability•

As currently constructed, EEA membership violates a significant
number of the UK Government’s ‘red lines’.
Arguably, it would need the agreement of existing EEA members –and there may be a legal dispute about whether leaving the EU
automatically takes the UK out of the EEA.

•

Business hassle factor•

EEA membership removes regulatory duplication but still requires
some frontier formalities that would need increased capacity atthe border.

Source: Institute for Government analysis

Staying in the Single Market and a customs union
A defeated amendment to the Queen’s Speech proposed that the UK could remain in
the Single Market and the Customs Union.60 In this scenario, the UK would agree to a
new customs union agreement in addition to joining the EEA.
This would remove regulatory barriers and rules of origin for trade in goods covered.
That would lead to the least additional friction on UK–EU supply chains as it mostclosely resembles the status quo. Regulatory barriers would not be introduced as the
UK would be part of an agreement that maintained a level regulatory playing field andrules of origin would not apply because the UK would not be a back door into the EU.*
However, it would come with the obligations of EEA membership outlined above andthe restrictions from being a member of a customs arrangement. Together this would
be tantamount to remaining in the EU without participating in its political institutions.
In addition, the proposal may not even be technically possible. Dr Holmes from the UK
Trade Policy Observatory points out that joining the European Free Trade Association(EFTA) requires the UK to become a party to EFTA free trade agreements.61 That means
adjusting its tariffs in line with those agreements rather than the EU’s common
external tariff. So there would be a contradiction between being in EFTA (necessary forbeing in the EEA if a country is not in the EU) and being in a customs union with the EU.

*

36

The EEA and the Turkish Customs Union still do not include agriculture. For the Irish border and for the establishment of thenecessary capacity to carry out animal inspections at the border, the UK might (if it was going for status-quo replication) seek
to bring agriculture within any arrangement.

FRICTIONLESS TRADE?

Summary: staying in the Single Market and a customs union
Table 8 summarises the option of staying in the Single Market and a customs union.
This option would deal with the major sources of friction for trade in goods. However, it
would come with many obligations and looks both technically and politically difficult.
Table 8: A summary of the key issues involved in staying in the Single Market and acustoms union
Issue

Implications

Tariffs•

There would be tariff-free access for goods covered.

Customs•

It removes the need for customs checks on goods covered.

Regulatory checks•

Acceptance of the EU acquis would mean no regulatory checks at theborder.

Negotiability••

A long-term arrangement violates current Government ‘red lines’.
A short-term transitional arrangement would have to be acceptableto both the EU and EEA member states.

Business hassle factor•

The arrangement would keep the status quo in the areas it covered.

Source: Institute for Government analysis

Reducing friction37

7. Conclusion: long-term
solution or transitional fix?
None of the options considered in this paper would mean complete avoidance ofdisruption to supply chains and all would require trade-offs that are dependent on
negotiations between the EU and the UK Government. The only option that preserves
the status quo is the status quo.
The option to remain in the Single Market is the option that would lead to the least
impact on supply chains, even with the rules-of-origin requirements. It would remove
the barriers that countries such as Turkey face, including the need for transportpermits. Yet it still requires negotiation or disruption for sectors not covered by theagreement. In addition, the acceptance of the ‘four freedoms’ would most likely
violate the UK Government’s stated positions as a result of the Referendum on EU
membership in June 2016.
Unique to the customs union option is the removal of the rules of origin. But like thefree trade agreement option, there would still be significant barriers that would be thesubject of negotiation. The customs union option only removes friction in so far as itachieves a satisfactory agreement on regulation, complies with the requirements of
the Union Customs Code and includes services (especially transport) as part of theagreement. This comes at the cost of an impaired trade policy and the inability to
set tariffs and has the same challenges of accessing the Single Market as a free
trade agreement.
The free trade agreement option would need to be of sufficient breadth and depth toensure that supply chains are not impacted. A shallow free trade agreement that only
deals with tariffs faces rules of origin, regulatory barriers and customs checks. A
deeper free trade agreement that either accepts harmonisation or achieves deep
forms of mutual recognition would be harder to negotiate and would be unlikely tocover the breadth of the Single Market due to political imperatives.

Long-term or transitional arrangement?
It has been suggested that the options set out here could soften the transition out of
the EU for businesses currently dependent on trading with the EU.
It is clear that the UK needs to ensure, at a minimum, that it has sufficient agreements
in place as it leaves the EU to minimise regulatory checks and to streamline andminimise customs formalities, allowing data sharing and rapid transit. Other third
countries that trade with the EU have these in place, even if they do not have acomprehensive free trade agreement – and none has anything like the level of supply
chain integration or dependence on the EU market that the UK has. Leaving with nodeal and simply trading on WTO terms with no side agreements would introduce
disruption well in excess of the costs of tariffs on manufactures.

38

FRICTIONLESS TRADE?

In the short run, at least, agriculture looks to be a specific problem, catered for byneither the current models of EEA membership nor the Turkish Customs Union
agreement. This suggests that the UK would need some sort of transitional deal thatcame as close as possible to replicating the status quo while systems were put inplace, capacity built and long-term details agreed. We will be looking at the extent of
preparations necessary in our forthcoming paper, Implementing Brexit: Customs.
But in order to decide its negotiating stance, the Government needs to fully
understand the costs to business from disrupting supply chains – and the sources of
those costs (rules of origin, regulatory checks, potential border delays) – and weighthem against the benefits of, for example, more regulatory flexibility or the ability tonegotiate new trade deals. It needs to be realistic about the speed of adjustment – interms of both implementation by government and adaptation by business. And it
needs to publish its analysis of where the costs and benefits lie to allow an informed
debate about negotiating priorities, which has been lacking since the Referendum.

Conclusion: long-term solution or transitional fix?

39

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Office for National Statistics, ‘UK economic accounts: balance of payments – current
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3

Organisation for Economic Co-operation and Development, Trade in Value Added (TiVA)
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4Organisation for Economic Co-operation and Development, Trade in Value Added (TiVA)
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5

Financial Times, ‘UK faces struggle to redesign trade relationships, in charts’,
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6House of Lords European Union Committee, Brexit: Trade in goods, 16th report ofsession 2016–17, House of Lords, London, 2017, p. 61, col. 200, https://www.
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7Ibid., p. 65, col. 211. For an industry breakdown, see Agriculture & Horticulture
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8Food & Drink Federation, ‘Impacts on living standards and prices’ [website], https://www.fdf.org.uk/eu-referendum-consumer-prices.aspx

9Campbell, P., ‘UK car industry fears effects of Brexit tariffs on supply chain’, Financial
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10

Newman, H., Booth, S., Shankar, A., Greer, A., and Scarpetta, V., Global Britain: Priorities for
trade beyond the European Union, Open Europe, London, 2017, https://docs.google.com/
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11

Agriculture & Horticulture Development Board, Post-Brexit Prospects for UK Grains,
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Analysis_june2017.PDF

12House of Lords European Union Committee, Brexit: Trade in goods, 16th report ofsession 2016–17, House of Lords, London, 2017, p. 34, col. 90, https://www.
publications.parliament.uk/pa/ld201617/ldselect/ldeucom/129/129.pdf

13Moïsé, E., The Relationship between Regional Trade Agreements and the Multilateral
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14

See Tucci, A., and Loridan, M., Navigating Non-Tariff Measures: Insights from a businesssurvey in the European Union, International Trade Centre, Geneva, 2016, http://trade.
ec.europa.eu/doclib/docs/2016/december/tradoc_155181.pdf

15

House of Lords European Union Committee, Brexit: Trade in goods, 16th report ofsession 2016–17, House of Lords, London, 2017, https://www.publications.parliament.
uk/pa/ld201617/ldselect/ldeucom/129/129.pdf

16Winters, L.A., ‘Disentangling Brexit trade politics and policies’, UK Trade Policy
Observatory blog, 12 June 2017, https://blogs.sussex.ac.uk/uktpo/2017/06/12/
disentangling-brexit-trade-politics-and-policies/

17

See European Commission, ‘Free movement in harmonised and non-harmonised
sectors’ [website], https://ec.europa.eu/growth/single-market/goods/free-movementsectors_en

40

FRICTIONLESS TRADE?

18

European Union, Consolidated Version of the Treaty on the Functioning of the European
Union, article 33, http://eur-lex.europa.eu/legal-content/EN/
TXT/?uri=celex%3A12012E%2FTXT

19Centre for Economic Policy Research, Trade and Investment Balance of Competence
Review, GOV.UK, London, 2013, p. 60, https://www.gov.uk/government/uploads/
system/uploads/attachment_data/file/271784/bis-14-512-trade-and-investmentbalance-of-competence-review-project-report.pdf

20

Ibid.

21

See May, T., ‘Speech by Theresa May, Lancaster House, 17 January 2017’, The Telegraph,
17 January 2017, www.telegraph.co.uk/news/2017/01/17/theresa-mays-brexitspeech-full/

22

House of Lords European Union Committee, Brexit: Trade in goods, 16th report ofsession 2016–17, House of Lords, London, 2017, p. 33, col. 87, https://www.
publications.parliament.uk/pa/ld201617/ldselect/ldeucom/129/129.pdf

23

Ibid., p. 38, col. 108.

24

Ibid., p. 35, col. 96.

25

Booth, S., Shankar, A., and Scarpetta, V., Nothing to Declare: A plan for UK–EU tradeoutside the Customs Union, Open Europe, London, 2017, p. 19, http://openeurope.org.
uk/intelligence/economic-policy-and-trade/nothing-to-declare-a-plan-for-uk-eutrade-outside-the-customs-union/

26

HM Revenue & Customs, The Single Administrative Document for Import and Export, HM
Revenue & Customs, London, 2012, https://www.gov.uk/guidance/declarations-andthe-single-administrative-document

27

Erceg, A., ‘The new computerized transport system and e-customs influence on savingsin transit times and costs’, p. 149, ftp://ftp.repec.org/opt/ReDIF/RePEc/osi/bulimm/
PDF/BusinessLogisticsinModernManagement13/blimm1314.pdf

28

Ibid.

29

Booth, S., Shankar, A., and Scarpetta, V., Nothing to Declare: A plan for UK–EU tradeoutside the Customs Union, Open Europe, London, 2017, p. 36, http://openeurope.org.
uk/intelligence/economic-policy-and-trade/nothing-to-declare-a-plan-for-uk-eutrade-outside-the-customs-union/

30

North, R., ‘Brexit: off the edge of a cliff’, EUReferendum.com blog, 18 October 2016,www.eureferendum.com/blogview.aspx?blogno=86250

31

Oral evidence taken before the Exiting the European Union Committee, 22 February
2017, HC (2016–17) 1072, Q1081.

32

Department for Business, Energy & Industrial Strategy, Product Safety for
Manufacturers, GOV.UK, London, 2012, last updated 30 October 2015, https://www.gov.
uk/guidance/product-safety-for-manufacturers

33

Booth, S., Shankar, A., and Scarpetta, V., Nothing to Declare: A plan for UK–EU tradeoutside the Customs Union, Open Europe, London, 2017, p. 19, http://openeurope.org.
uk/intelligence/economic-policy-and-trade/nothing-to-declare-a-plan-for-uk-eutrade-outside-the-customs-union/

34

The Mersey Docks and Harbour Company Ltd, Schedule of Common User Charges, The
Mersey Docks and Harbour Company Ltd, Liverpool, 2016, p. 3, https://www.peelports.
com/media/1263/ltc6-rsct-common-user-charges-effective-from-april-2016.pdf

35

Ibid.

36

Centre for Economic Policy Research, Trade and Investment Balance of Competence
Review, GOV.UK, London, 2013, p. 59, https://www.gov.uk/government/uploads/
system/uploads/attachment_data/file/271784/bis-14-512-trade-and-investmentbalance-of-competence-review-project-report.pdf

37Department for Environment, Food & Rural Affairs (Defra), Border Inspection Post
Manual: Edition 17.1, Defra, London, 2013, https://www.gov.uk/government/uploads/
system/uploads/attachment_data/file/209894/pb13707-bip-manual-130701.pdf

38

Speech by Michel Barnier to the European Economic and Social Committee, Brussels, 6July 2017, http://europa.eu/rapid/press-release_SPEECH-17-1922_en.htm

39

See Institute for Government, ‘Bilateral agreements’ [website], https://www.
instituteforgovernment.org.uk/brexit-explained/bilateral-agreements

References

41

40

HM Government, The United Kingdom’s Exit From and Partnership With the European
Union, Cm 9417, GOV.UK, London, 2017, p. 35, https://www.gov.uk/government/
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from_and_partnership_with_the_EU_Web.pdf

41

Ibid., p. 41.

42

Financial Times, ‘May assures Nissan of shield against Brexit tariffs', Financial Times,
14 October 2016, www.ft.com/content/68c12fbe-920e-11e6-8df8-d3778b55a923

43

BBC News, ‘Reality check: would Canada’s deal with the EU be a good model for the
UK?’, BBC News website, 17 June 2016, www.bbc.co.uk/news/uk-politics-eureferendum-36561409

44

House of Lords European Union Committee, Brexit: Trade in goods, 16th report ofsession 2016–17, House of Lords, London, 2017, p. 46, https://www.publications.
parliament.uk/pa/ld201617/ldselect/ldeucom/129/129.pdf

45Centre for Economic Policy Research, Trade and Investment Balance of Competence
Review, GOV.UK, London, 2013, p. 58, https://www.gov.uk/government/uploads/
system/uploads/attachment_data/file/271784/bis-14-512-trade-and-investmentbalance-of-competence-review-project-report.pdf

46

Ibid.

47

Ibid., p. 130.

48

See Barnier’s oral evidence to the Select Committee on the European Union, ‘Collectedoral evidence: scrutiny of Brexit negotiations’, 12 July 2017, Q1, http://data.parliament.
uk/writtenevidence/committeeevidence.svc/evidencedocument/european-unioncommittee/scrutiny-of-brexit-negotiations/oral/69285.html

49

Directorate-General for External Policies, European Parliament, Workshop: Bringing
EU–Turkey trade and investment relations up to date?, Publications Office of the European
Union, Luxembourg, 2016, p. 15, www.europarl.europa.eu/RegData/etudes/
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50

Togan, S., The EU–Turkey Customs Union: A model for future Euro–Med integration, Centre
for European Studies, Brussels, 2012, p. 9, https://www.ceps.eu/publications/euturkey-customs-union-model-future-euro-med-integration

51

Srivastava, M., and Barker, A., ‘Turkey border gridlock hints at pain to come for Brexit
Britain’, Financial Times, 16 February 2017, https://www.ft.com/content/b4458652f42d-11e6-8758-6876151821a6

52

Christie-Miller, A., ‘Bottlenecks on the borders are a warning to UK trade’, The Times, 28
February 2017, https://www.thetimes.co.uk/article/bottlenecks-on-the-borders-are-awarning-to-uk-trade-p09vz6vbz

53

CLECAT, ‘Dispute Bulgaria/Turkey border – truck traffic permits’, 2014, http://dasp.dk/
sites/dasp.dk/files/pictures/clecat_bulgaria_turkey_-_truck_traffic_permits.pdf

54

House of Lords European Union Committee, Brexit: The options for trade, House of Lords,
London, 2016, p. 24, col. 70.

55

See Tucci, A., and Loridan, M., Navigating Non-Tariff Measures: Insights from a businesssurvey in the European Union, International Trade Centre, Geneva, 2016, p. 7, http://
trade.ec.europa.eu/doclib/docs/2016/december/tradoc_155181.pdf

56

House of Lords European Union Committee, Brexit: The options for trade, House of Lords,
London, 2016, p. 24, col. 71.

57

Tullverket, ‘Gateway Sweden – case study to the WTO symposium in Geneva, July,2012’, World Trade Organization Symposium, July 2012.

58

Ibid.

59

Ibid.

60

BBC News, ‘Brexit: Labour rebels vow to continue single market fight’, BBC News
website, 30 June 2017, www.bbc.co.uk/news/uk-politics-40460591

61

Holmes, P., ‘Staying in the Customs Union: neither soft nor simple’, comment, 11 July
2017, https://www.scer.scot/database/ident-2923. See European Free Trade
Association, Convention Establishing the European Free Trade Association, 1960, article
56/3, http://www.efta.int/media/documents/legal-texts/efta-convention/eftaconvention-texts/efta-convention-consolidated.pdf

42

FRICTIONLESS TRADE?

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