UK business leader warns over Brexit's 'worst-case scenario'

Published: 02nd March 2017 10:25 PM  |   Last Updated: 02nd March 2017 10:25 PM   |  A+A-

British Prime Minister Theresa May attends the European Union leaders summit in Valletta, Malta, February 3, 2017. REUTERS

By Associated Press

LONDON: The president of one of Britain's biggest business lobby groups is to warn of the economic damage the country would suffer if it leaves the European Union without securing a wide-ranging trade deal with the bloc.

In prepared remarks for a speech due later Thursday, Confederation of British Industry President Paul Drechsler will say that a "'no deal' scenario would open a Pandora's Box of economic consequences."

If Britain leaves the EU without a deal, it would have to rely on so-called World Trade Organization rules — a set of tariffs that would immediately raise the cost of trade for both sides but impact Britain more as its relative dependence on EU trade is higher than the EU's on Britain.

"Here in the U.K. and across the continent firms are worried about this 'worst-case scenario'," Drechsler is due to say. "Some are getting ready for it to reduce economic damage. Some won't prepare because they're hoping for a deal. But in reality many firms can't prepare because the cost of change is simply too high to even consider it."

Under WTO rules, Britain would not be able to trade with its former EU partners on terms that would be any more advantageous than other countries that do not have trade agreements with the EU, such as the United States. As a result, the EU would impose tariffs on an estimated 15,000 goods, in no uniform way: some British exports, like pharmaceuticals, would face no extra charge but the large majority would.

Goods coming into Britain from the EU would also be subject to tariffs, suggesting both sides would be inclined to agree on a new trade deal. It's not just about tariffs, but also standards and regulations. The EU has limits on foods containing genetically-modified products, for example.

Britain, Drechsler will say, would face tariffs on 90 percent of its EU exports by value and a raft of new regulatory hurdles. As a member of the 28-country bloc, British firms don't have to pay any tariffs to trade in the EU and adhere to EU regulations.

Drechsler, whose organization comprises 190,000 businesses of all sizes and sectors, is also set to tell the audience of business leaders that the CBI is engaging closely with business groups throughout the EU to "work towards a comprehensive agreement that is in all parties' interests."

British Prime Minister Theresa May is expected to start the official talks on leaving the EU by the end of this month. Triggering the so-called Article 50 of the EU Treaty will begin two years of negotiations on the terms of the divorce. May hopes a new trade deal with the EU can be struck, but there are doubts as free trade deals typically take years to negotiate.

"Right now, it feels like we're just reaching the top of the Article 50 roller-coaster," Drechsler will say. "Any minute now, maybe next week, maybe the week after that, we'll suddenly drop into the twists and turns of negotiations."

Drechsler is also set to describe those advocating Britain walking away without a deal as "not only wrong but irresponsible."

"Imagine you're a small cosmetics firm in Stockport and shops in France sell your products. No deal? Without an EU office it's illegal for those French shops to sell your products. A loss for you and for them."

Many Brexit advocates argue there's nothing wrong with the WTO trade option, noting that Britain could get a boost from new trade deals with non-EU countries. They also say the WTO option would be better than a transitional deal that would extend the current uncertainty.

Also, Brexit supporters note that the fall in the value of the pound provides a cushion by making British exports more price-competitive, even with new tariffs.

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