There has been a notable shift in British PM Theresa May's language around the frictionless transport of goods between the UK and EU after Brexit – from vowing to maintain frictionless transport to making it “as frictionless as possible”. Meanwhile, Michel Barnier – the European Chief Negotiator for Brexit – suggested it won't be possible to exit the single market and build a customs union to achieve frictionless trade. Economics consultancy Oxera estimates that the friction from slow trade will set the UK economy back an eye-watering £1 billion per year – at least.

 

“A flourishing supply chain for many manufactured goods has grown up using facilities on either side of the Channel, but the UK elements of this chain are at risk if the cost and uncertainty created by customs checks – which can vary considerably in duration – are deemed to outweigh the benefits of doing business in the UK,” remarked Andrew Meany, Partner at Oxera.

 

Barriers to ‘frictionless trade’

 

He suggested that one important barrier to ensuring the delivery of frictionless trade will be the new government IT system. “It was agreed well before the referendum was announced that the current HMRC customs clearance system, CHIEF, would be replaced in March 2019. It’s now due to be delivered just before we leave the EU and, having been planned to deliver 60 million clearances per annum, it will now need to deliver 300 million per year, with no understanding yet of what the customs deal with the EU looks like,” Mr Meany warned.

 

“A further barrier to getting the necessary provisions in place for Brexit is the UK’s planning system – it will be at least 2018 before a lorry park designed as an alternative to using the M20 motorway for parking can open,” he continued.

 

Anticipating a slow trade scenario

 

“At Oxera, we anticipate that a scenario of slow trade with low regulation and high enforcement will cost the UK economy at least £1bn per year,” he stated, adding that the impact of minimal friction, by contrast, would be “broadly negligible”.

 

“Achieving even a low-friction outcome will not be easy and businesses in the UK and the EU need to know very soon the customs rules under which they will be trading,” Mr Meany stressed. “The decision cannot be part of a last-minute deal on the eve of Brexit, due to the time it will take to get trade moving under the new arrangements. The costs to logistics businesses and their customers, users of the road network and, eventually, jobs in the UK of a relatively limited increase in friction will be considerable.”

 

He added that ‘no deal’ on a customs union would have “extremely serious consequences” for the UK economy. “Providing a policy direction in this area should be a priority for the government when Parliament returns from recess.”