A deal on customs is important to reducing post-Brexit trade friction, but a new paper from the Institute for Government argues that is only half the story. 

Published yesterday, Frictionless Trade: What Brexit means for cross-border trade in goods, says leaving the EU will disrupt country’s important integrated supply chains in areas like automobile manufacturing. It will create friction in cross-border trade in goods.

The paper examines five potential options for future trade:

• A deep and comprehensive free trade deal, including customs cooperation
• A new customs union agreement
• Staying in the Single Market
• Combining staying in the Single Market with a new customs union arrangement
• Leaving with no deal and trading with the EU on WTO terms

The authors find that while “off-the-shelf” options – staying in the Single Market (the Norway model) or a new customs union (the EU-Turkey model) – could remove some disruption, none eliminate friction entirely.

Leaving with no deal would put the UK in a worse place than any other major trading partner and will maximise disruption, evidenced by the fact that no major country trades with the EU on WTO terms alone.

However, the authors say the Government is right to argue that friction at the border could be reduced by a deep and comprehensive free trade agreement including customs cooperation. But the options that might be easiest to negotiate are those that most likely cross current UK negotiating red lines.

Brexit inevitably introduces friction to supply chains. There is no model of a future or interim relationship after Brexit that can offer traders ‘the exact same benefits’ as the current relationship, other than simply maintaining all existing policies and relationships, including ECJ jurisdiction, without membership of the political institutions.

Jill Rutter, Brexit Programme Director at the Institute for Government, said:

“The Government’s position papers show it grasps the potential for disruption to trade when we leave the EU. But simply addressing customs issues is not enough. Until we see plans for the future relationship with the Single Market, particularly for agriculture and fisheries, we will not know the scale of likely border checks and additional compliance costs.

“Government needs to show it has a clear understanding of the implications for business of its negotiating strategy. We are calling on it to publish proper assessments of the impacts of the options to allow for informed public debate.”

Alex Stojanovic, Researcher at the Institute for Government and report co-author, said:

“Disorderly disruption to UK supply chains will pose risks to the sectors concerned. In short, there is no perfect solution to future trade. So, as it negotiates our new relationship with the EU, the Government needs to understand the full implications of new potential impediments to trade.”

Notes to editors

1. The full paper can be found here 
2. The Institute for Government is an independent think tank that works to make government more effective.

For more information, please contact nicole@instituteforgovernment.org.uk / 07850313791.