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Timme Spakman, economist at ING, suggests that there’s still a chance that the UK could see an abrupt end to the transition period in December 2020, which wouldn’t just be bad for trade in goods as there’s a risk that barriers to trade in services could more than double.

Key Quotes

“UK PM Boris Johnson is hoping that a comfortable lead in the polls will help him to secure an outright majority in December’s general election. If he succeeds, we think that will give him the numbers to get his deal ratified by Parliament early in the New Year, potentially enabling the UK to leave the EU at the end of January.”

“But while that would avoid a damaging ‘no deal’ exit early in 2020, there are big question marks over the length of the transition period. This standstill period lasts until the end of 2020, unless the UK commits to paying into the next multi-year EU budget.”

“Ultimately, we think an extension is probably inevitable, but if we’re wrong, the effect on trade in goods and services between the EU and the UK would be similar to that of a ‘no deal’ Brexit.

“The top three industries that are most dependent on cross border trade in services with the EEA account for 22% of UK GDP. Total UK GDP dependent on cross border trade in services with the EEA is 4.2%.”

“Barriers for trade in services are the same for all EEA countries, which are the EU, Norway, Switzerland, and Iceland.”

“What are the consequences of a ‘no deal’ exit for these industries? First of all, restrictions in the movement of people make cross border services trade more difficult. However, much more is at play. Unlike with merchandise trade, there are no such things as tariffs levied for the imports of services. But non-tariff barriers for services trade can be detrimental as well. Different standards, permit and labelling requirements, non-recognition of foreign qualifications, and migration restrictions can be major barriers for trade in services.”