Macro Focus - December 2018
How much havoc could Brexit bring?

No matter Brexit outcome, trade with the UK will continue but the magnitude of it will depend on future agreement. Over time, however, supply chains and trade patterns could change, making it harder to predict flows of goods and services. If a Brexit deal is followed by a transition period, obligations and rights for companies will be similar to today up until end-2020, at least. However, companies should prepare for all eventualities including a no-deal scenario. For example, Brexit may impact customs, transport and stocking, licensing and CE marking, contracts and agreements, as well as data distribution.

The agreed political declaration and framework for the future relationship between the EU-UK states an aim to create a free trade agreement (FTA), with deep regulatory and customs cooperation, for goods and a liberal service trade that is more ambitious than EU-UK’s WTO commitments. The service trade relationship should be built upon the Union’s current FTAs. Hence, WTO should be the worst of the possible trade outcomes and therefore we base our calculations on this scenario. It should be emphasised that our calculations are static (based on data from 2016 and 2017). That is, they do not analyse how trade patterns may change as a result of relative price changes. Our findings show that a no-deal outcome followed by WTO tariffs is costly and damaging, where certain sectors (e.g., road vehicles) could face severely adverse conditions compared to today. Analysis shows that non-tariff barriers are about as costly as tariff duties.

Under WTO rules Sweden would face higher trade weighted average tariff rates than the Baltics, however due to higher degree of openness potential costs as a share of GDP are higher in Latvia and Lithuania. Degree of damage would depend on institutional preparedness/contingency planning and ad hoc agreements for key issues such as financial services or air space.

No existing trade agreement brings as much clarity and benefits to goods and services trade as the current UK-EU relationship. According to the National Board of Trade Sweden, the service sector would face limited changes if the UK becomes an EEA member in the future. The authority concludes that the effects on services could be mitigated since the sector is not affected by customs and rule of origins. Furthermore, regulation for services tends to be under national, rather than EU, law.

PDF-Document Read the full analysis/report here (pdf)

For more information about this report, please contact:

Cathrine Danin, +46 8 700 92 97, cathrine.danin@swedbank.se

Vytenis Šimkus, +370 687 17870, vytenis.simkus@swedbank.lt.

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