Manufacturers reject ‘no deal’ Brexit mantra as ‘a lose-lose scenario.’

EEF, the manufacturers’ organisation, has warned that losing exit to the European customs union would condemn the manufacturing sector to a painful and costly Brexit.

With the Prime Minister formally sending notice to the EU to start Britain’s leaving process this week, there has been calls to push ahead with a ‘hard Brexit’, from quarters of the Conservative party, and anti-EU think tanks such as Open Europe.

The EEF has iterated that ‘no deal is better than a bad deal’ is simply unacceptable to an industry that accounts for 45 per cent of all British exports. It has published a briefing paper to urge the Government to clarify its position on the customs union and customs arrangements.

Terry Scuoler, CEO of EEF, said: “The EU is our sector’s single biggest trading partner in a complex, tightly interwoven trading environment. Undermining the building blocks of this relationship – the single market and the customs union – without any other supportive structure in place would undoubtedly hurt our industry and condemn us to a painful and costly Brexit. The idea of being able to walk away empty-handed might be a negotiating tactic, but it would deliver a risky and expensive blow. The rhetoric from the UK Government needs to focus instead on achieving a deal that will work for the UK and the EU.   

 “It is going to be tough, but we must focus on developing a strategic approach that aims to preserve frictionless trade while building a launch-pad from which the UK can secure ever more ambitious deals from around the world. Obtaining fully-fledged WTO membership is key, alongside a clear and well-considered UK position on customs arrangements and a sensible transition period. Together these would provide businesses with some much-needed certainty on which to base their own plans.”

The EEF believes that unlike a typical free trade-type negotiation where walking away simply means the continuation of the status quo with neither party losing out, this is not the case between the EU and the UK. Should the UK walk away with no preferential access to the EU or international markets in place, on day one of Brexit it would immediately find itself at a loss, with the UK’s manufacturing sector bearing much of the brunt.

The sector would be particularly vulnerable because the UK is currently the 9th largest industrial nation in the world, but its strength is underpinned by its trading relationship with the EU – 52 per cent of all manufactured exports by value went to the EU in the 12 months to April 2016. The sector’s trading relationship with the EU is tightly interwoven and complex pan-European supply chains are commonplace, with some EEF members reporting that their production processes criss-cross European borders numerous times.

Implications of leaving the customs union with no deal could lead to loss of zero rate tariffs; setting higher WTO tariffs for exports; potentially higher WTO tariffs on imports, including component parts from the EU, and potential loss of inwards processing relief.

To mitigate the impact on UK manufacturing, EEF wants the Government to engage in close consultation with industry to set out the general approach, determine the right objectives and identify commercially significant issues spinning out from the negotiations.

As well as prioritising WTO membership, the body asserts that when leaving the single market key trading conditions must be maintained to ensure certainty and minimise costs. Any new customs arrangements must maintain frictionless trade by preventing both tariff and non-tariff barriers from springing up and ensuring the UK can strike trade agreements with the rest of the world.

As with other industries, a transitional period is deemed to be essential to allow the sector time to adjust to such significant changes to the trading environment.