Europe Politics

A 'hard Brexit' could halve EU exports to Britain, German study claims 

Key Points
  • The IW institute in Cologne has said Britain’s departure from a customs union could result in more than 15 billion euros of annual tariffs .
  • It added that a ‘hard Brexit’ could halve EU exports to Britain.
  • A separate report released Tuesday from the Bank of England (BOE) has criticized the EU for its lack of movement on financial services.
British Prime Minister Theresa May (L) and European Commission chief Jean-Claude Juncker give a press conference as they meet for Brexit negotiations on December 4, 2017 at the European Commission in Brussels.
JOHN THYS | AFP | Getty Images

A so-called "hard Brexit" could see exports from the rest of the European Union to Britain fall by as much as 50 percent, a German institute claimed Tuesday.

Lawmakers in London and the Brussels are hoping to finalize terms of the U.K.'s departure from the EU at a two-day summit beginning on October 17. A hard Brexit is commonly seen as the U.K. leaving the EU's customs union and the single market. The customs union is an agreement that allows partaking countries to set common external tariffs, allowing goods to travel freely between those countries. The single market is a deeper form of co-operation between member states that allows the free movement of goods, services, money and people in the bloc.

The IW institute in Cologne said in its paper that Britain's departure from a customs union could mean that more than 15 billion euros ($17 billion) of annual tariffs will be placed on companies based on both sides of the English Channel.

Germany would be particularly affected by the loss of frictionless trade, the IW said, with a worst-case estimated loss of 57 percent of current exports to Britain. The EU to U.K. total figure is placed at 50 percent.

"The manufacturing-intense regions in Germany face the highest Brexit exposure on the continent, with roughly 5 percent of GDP (gross domestic product) being directly or indirectly dependent on U.K. trade," the study said.

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Assuming World Trade Organization (WTO) rules are put in place following a hard Brexit scenario, the IW has estimated that Brussels would charge British companies an average 2.8 percent tariff on 168 billion euros of exports. If that transpired, British companies would need to stump up 5.1 billion euros in tariffs.

In turn, the U.K. would charge the EU an estimated 3.6 percent tariff on 294 billion euros of exports that originate from the continent.

While those numbers imply a higher burden to the EU, the report noted that when related to overall GDP the tariff burden is around two-and-a-half times harsher for U.K. based firms.

In terms of individual countries, Germany once again comes out worst among continuing EU members. IW's paper estimated that Germany's larger share of high-tariff goods such as automobiles, as well as its large export volume, could cost Berlin as much as 3.3 billion euros.

IW noted that Belgium, while only subjected to additional tariff costs of 1.3 billion euros, would actually suffer most of all in relative terms to GDP.

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Bank of England warning

A separate report released Tuesday from the Bank of England (BOE) criticized the European Union for its lack of movement on how financial services will operate in the event of a hard Brexit.

The BOE said there had been "considerable progress" by the United Kingdom to address risks for transferring data, insurance and derivatives. However, it accused the EU of only managing "limited progress" in resolving potential barriers for cross-border activity.

"In the limited time remaining, it is not possible for companies on their own to mitigate fully the risks of disruption to cross-border financial services. The need for authorities to complete mitigating actions is now pressing," it said.

Britain is set to leave the European Union at 11 p.m. London time on Friday, 29 March 2019.