Could a Conservative Parliamentary election victory mean a 'Softer' Brexit & what would this mean for International Traders?

Having called a snap election, the Conservative Party is currently 21 points ahead in the first election poll since the announcement. On news of the election, the pound rose to a six-month high, largely due to speculation that five more years until the next election would lead to a 'softer' Brexit. How would a 'Soft' Brexit effect UK importers and Exporters?

Notwithstanding the poor polling accuracy in 2016, many political commentators are predicting the Conservative Party will increase their majority in the House of Commons, to potentially over 100, after the snap election called for June the 8th.

According to the FT, Mrs May has privately told colleagues she feared that a general election in 2020 would significantly complicate Brexit, with other EU leaders using the impending poll to put her “over a barrel” in final negotiations due to conclude in 2019.

By holding an election now, Mrs May will not have to face electors again until June 2022, allowing her to negotiate a transition deal after Brexit takes effect, during which time Britain might have to apply EU rules including free movement. Amber Rudd, Home Secretary, told the BBC’s Newsnight that Mrs May could use an increased majority as an opportunity “to arrive at potential compromises within the EU”. First, the 2019 deadline for delivering a “clean” Brexit will be less pressing because there won’t now be an election the following year. Second, the influence of hardline Brexiters in the Conservative Party will be diluted and the government will be able to compromise over transitional agreements. Deutsche Bank called the UK election a 'game-changer', "May's move should result in a larger and more stable majority in parliament, thereby reducing the likelihood of a so-called 'hard Brexit'," the bank's currency analysts said.

What would a 'softer' Brexit look like and how would this effect UK importers and exporters?

A number of non-EU countries have their own relationships with Brussels, with differing degrees of closeness, which could give an idea of what is to come for the UK.

EU membership Norway Switzerland Canada Turkey WTO
Single market member? Full Full Partial No No No
Tariffs? None None None Reduced tariffs through free trade deal None on industrial goods Yes
Accept free movement? Yes Yes Yes No No No
In the customs union Yes No No No Yes No
Makes EU budget contributions Yes Yes Yes (but smaller than Norway) No No No

Given that Downing Street has said any deal must involve controls on immigration, it seems extremely unlikely that the UK will accept free movement of labour. The Great Repeal Bill states in section 1.22, "we will introduce a customs bill to establish a framework to implement a UK customs regime. The requirement for a UK customs regime cannot be met merely by incorporating EU law". In section 4.2, "protect the freedom of businesses to operate across the UK single market and to enable the UK to strike free trade deals with third countries. Our guiding principle will be to ensure that no new barriers to living and doing business within our own Union are created as we leave the EU". From these to statements we can assume the UK will not be part of the EU customs union or part of the EU Single Market.

With that in mind, even with a 'Softer' Brexit, with regard to importing and exporting goods, we can expect the following:

  • Exports:
    • A requirement to clear goods at customs, before the goods cross the new UK border, using an export declaration.
    • A requirement for correct export documentation, such as an export invoice or packing list, to accompany the goods.
      • An export invoice is similar to a commercial invoice, but it must include the tariff code & and country of origin for each line item.
  • Imports:
    • A requirement to clear goods at customs in order to move you goods inland, from the new UK border, using an import declaration
    • A requirement to pay or defer all Duty & VAT payable on the goods before moving the goods inland.
      • Several customs regimes will be available to help you defer or negate these duties, we recommend using the 'Self-Audit' feature on this site to find out those applicable to you.

Both import and export declarations use SAD (Single Administrative Document) format, further details can be found here

The main variable of a 'Soft' Brexit then becomes Tariff rates/barriers and the ability to negotiate reduced rates or even some form of FTA. We recommend you research WTO duty rates, for the commodities you import or export, in order to build a picture of a 'worse case' scenario for your business, you can do this by using our Brexit Toolkit.

Is there now scope for an interim agreement and what would this mean for business?

While most commentators believe a trade deal cannot be struck in two years, if the Conservative Party are given another five years in office, this would give continuity to negotiations if a deal was sought and could not be reached in two years. Hannah White, The Institute for Government’s Brexit lead, has stated "officials should be working on the assumption that finding a new trade relationship with the remaining EU will take more than two years, and push from an early stage for an interim deal to keep the wheels of trade turning in the transitional period following the end of the Article 50 talks." An article in Politico points toward growing enthusiasm for a 10 year, zero tariff rate interim deal, which is allowed under WTO rules.

With regard to importing and exporting goods, it's unclear what non-tariff barriers would be in place, but this option would have the least impact of all Brexit possibilities, with no duty being placed on Tariff codes.

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