Brexit: trade in goods Contents

Brexit: trade in goods

Chapter 1: Introduction

1.In our December 2016 report, Brexit: the options for trade,4 we analysed how the trade relationship between the UK and the EU will change after Brexit. Goods make up the bulk of UK trade globally—56% in 20155—despite the dominant position of the services industry in the domestic UK economy.6 The UK’s trade with the EU is also dominated by goods: in 2015 they accounted for around 60% of all UK exports to the EU, and almost 77% of total UK imports from the EU.7 The EU Member States combined were the single largest trading partner for the UK in goods in 2015: 47% (£134 billion) of the UK’s goods exports were to the EU, and these countries accounted for 54% (£223 billion) of the UK’s goods imports.8

2.Safeguarding the liberalised trading relationship that the UK currently benefits from in its trade with other EU Member States—so as to prevent a disruption to business—will be important to the UK’s future prosperity. A range of trade barriers can impede the free flow of goods. These include tariffs (customs duties) and non-tariff barriers (including product labelling requirements, rules of origin and customs formalities).9 Barriers to trade in goods between EU Member States have been reduced considerably by the customs union, regulatory harmonisation, and mutual recognition, which together make up the Single Market in goods.10 The EU’s trade agreements with third countries, such as the Republic of Korea,11 also contain a range of preferential terms for trade in goods. On its withdrawal from the EU, the UK will no longer enjoy these conditions of trade with the EU, and EU free trade agreements (FTAs) are unlikely to continue to apply to the UK.12

3.In her speech on 17 January 2017, setting out the Government’s negotiating objectives for exiting the EU, the Prime Minister, the Rt Hon Theresa May MP, announced her intention to “pursue a bold and ambitious Free Trade Agreement with the European Union … [to] allow for the freest possible trade in goods and services between Britain and the EU’s Member States”.13 This was reiterated in the Government’s White Paper, The United Kingdom’s exit from and partnership with the EU, published in February 2017.14

4.The Prime Minister also announced a ‘Plan for Britain’, which “gets us the right deal abroad but also ensures we get a better deal for ordinary working people at home”.15 On 23 January 2017 the Government published a Green Paper, Building our Industrial Strategy, which the Prime Minister described as “a critical part of our plan for post-Brexit Britain”, and which will “help to deliver a stronger economy and a fairer society—where wealth and opportunity are spread across every community in our United Kingdom, not just the most prosperous places in London and the South East”.16 The strategy made it clear that securing preferential trade arrangements for the UK and supporting the UK’s manufacturing and primary commodities sectors—which are important sources of employment outside of London, and at the heart of the UK’s global trade—will be essential to achieving this goal.

The EU Committee’s work

5.Following the referendum on 23 June 2016, the European Union Committee and its six sub-committees launched a co-ordinated series of inquiries, addressing the most important cross-cutting issues that will arise in the course of negotiations on Brexit.17 These inquiries, though short, are an opportunity to explore and inform wider debate on the major opportunities and risks that Brexit presents to the United Kingdom.

Brexit: future trade in goods

6.This report considers trade between the UK and the EU in goods. It is based on an inquiry conducted by the External Affairs Sub-Committee of the European Union Committee, and builds on our previous report, Brexit: the options for trade, published on 13 December 2016.18 The EU Internal Market Sub-Committee has, in parallel, been preparing a report on trade in services.

7.In Brexit: the options for trade, we explored the different possible frameworks for trading relations with the EU post-Brexit.19 On 17 January 2017, the Prime Minister confirmed that the UK would leave the Single Market and the customs union, and seek a FTA with the EU.20

8.In this report we therefore focus on issues relating to a FTA, and the fall-back position, were the UK and EU not to agree a FTA, namely trade under World Trade Organisation (WTO) rules. Through the course of the inquiry, we considered the potential barriers specific to UK-EU goods trade after Brexit, and took evidence from six sectors to explore these potential barriers in practice. The sectors were: pharmaceuticals and chemicals; capital goods and machinery; food and beverages; oil and petroleum; automotive; and aerospace and defence.

9.The EU External Affairs Sub-Committee, whose members are listed in Appendix 1, met in October and November 2016 and in February 2017 to take oral evidence from the witnesses listed in Appendix 2. The Committee is grateful for their participation in this inquiry. We also thank our Specialist Adviser, Dr Holger Hestermeyer of King’s College London.

10.We make this report for debate.


4 European Union Committee, Brexit: the options for trade (5th Report, Session 2016–17, HL Paper 72); The report considered different frameworks for UK-EU trade relations post-Brexit: membership of the European Economic Area; a customs union with the EU; a free trade agreement with the EU; and trade under WTO rules.

5 Office for National Statistics (ONS), ‘Statistical bulletin—UK Balance of Payments, The Pink Book: 2016’: https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/unitedkingdombalanceofpaymentsthepinkbook/2016#trade [accessed 10 February 2017]

6 The services sector accounts for 80% of the UK economy. Full Fact, ‘Everything you might want to know about the UK’s trade with the EU’: https://fullfact.org/europe/uk-eu-trade/ [accessed 9 February 2017]; See Tables 1–4 in Chapter 3 for a breakdown of the UK’s trade in goods and services with the EU and the rest of the world. As discussed in Box 1 in Chapter 2, services are often bundled with goods. As not all companies report service revenue separately, the statistics for goods may include some data relating to the provision of services.

7 ONS, ‘Statistical bulletin—UK trade: May 2016, Table 2—UK trade with the EU and percentages of World total, 2000 to 2015’: https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/uktrade/may2016 [accessed 21 February 2017]; Exports of goods were £133,524 million, compared to £88, 909 million in services. Imports of goods were worth £222,992million, compared to £67,977 million in services.

8 ONS, ‘Statistical bulletin—UK trade: May 2016, Table 2—UK trade with the EU and percentages of World total, 2000 to 2015’: https://www.ons.gov.uk/economy/nationalaccounts/balanceofpayments/bulletins/uktrade/may2016 [accessed 21 February 2017]

9 The World Trade Organisation (WTO) has established an inventory of non-tariff measures that provides an overview. WTO, Table of contents of the inventory of non-tariff measures (TN/MA/S/5/Rev.1) (28 November 2003): http://wtocentre.iift.ac.in/NGMA1/TN-MA-S-5-R1.doc [accessed 9 February 2017] Rules of origin determine where a product was produced, in order to ensure that the correct customs duty is levied.

10 The scope of the Single Market for goods is detailed in our report on the options for trade after Brexit. European Union Committee, Brexit: the options for trade (5th Report, Session 2016–17, HL Paper 72)

11 Hereafter, the names the Republic of Korea, South Korea and Korea are used interchangeably.

12 EU FTAs can either be signed by the EU alone (‘EU-only’) or by both the EU and its Member States separately (‘mixed agreement’). In either case, witnesses to our previous inquiry said EU FTAs were unlikely to continue to apply to the UK post-Brexit. The Single Market and EU FTAs with third countries are discussed in our report on the options for trade after Brexit. European Union Committee, Brexit: the options for trade (5th Report, Session 2016–17, HL Paper 72)

13 Theresa May MP, Speech on the government’s negotiating objectives for exiting the EU, 17 January 2017: https://www.gov.uk/government/speeches/the-governments-negotiating-objectives-for-exiting-the-eu-pm-speech [accessed 13 February 2017]

14 HM Government, The United Kingdom’s exit from and new partnership with the European Union, Cm 9417, February 2017, p 35: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/589191/The_United_Kingdoms_exit_from_and_partnership_with_the_EU_Web.pdf [accessed 13 February 2017]

15 Theresa May MP, Speech on the government’s negotiating objectives for exiting the EU, 17 January 2017: https://www.gov.uk/government/speeches/the-governments-negotiating-objectives-for-exiting-the-eu-pm-speech [accessed 13 February 2017]

16 HM Government, Building our Industrial sSrategy (January 2017), p 3: https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/585273/building-our-industrial-strategy-green-paper.pdf [accessed 9 February 2017]

17 European Union Committee, Scrutinising Brexit: the role of Parliament (1st Report, Session 2016–17, HL Paper 33)

18 European Union Committee, Brexit: the options for trade (5th Report, Session 2016–17, HL Paper 72)

19 Ibid.

20 Theresa May MP, Speech on the government’s negotiating objectives for exiting the EU, 17 January 2017: https://www.gov.uk/government/speeches/the-governments-negotiating-objectives-for-exiting-the-eu-pm-speech [accessed 13 February 2017]




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