UK warned on cost of 'hard Brexit'

Kamal Ahmed

Economics editor

The leading authority on world trade has told the BBC that there are likely to be costs attached to a "hard Brexit".

Roberto Azevedo, director general of the World Trade Organisation, said that negotiations between the UK and the European Union would be difficult and "extremely unpredictable".

He said achieving a smooth exit and a new trade agreement by March 2019 was "ambitious".

Although he made it clear that a "no deal" departure from the EU would not be "the end of the world" as trade would continue, a free trade deal was preferable.

"Absolutely" he answered when I asked if a trade deal with the EU was better than relying on WTO rules on tariffs.

"I don't think this is going to be an easy negotiation, to be frank with you," he told me.

"I think it's going to be very tough because of the number of elements and variables involved in this conversation, trade negotiations are extremely complex, they are very sensitive politically."

Mr Azevedo is a significant voice in the Brexit debate as "no deal" would mean relying on the trade rules of the WTO, which he runs.

That would mean tariffs on many of the products the UK exports to the rest of the EU, and on EU imports into Britain.

Many would be low, at around two to three percent.

But some would be higher - on cars they would be 10% under present WTO rules and on many agricultural products they could be between 20% and 40%.

A House of Lords report suggested that a "no deal" would also mean Britain would not have an obligation to pay any "divorce bill", which could save billions of pounds.

"Whatever happens, this is not going to be a situation where all trade stops, and there is a collapse in terms of the economy as a whole - that for me would be the end of the world," Mr Azevedo said.

"But it's not going to be a walk in the park. It's not like nothing happened, there will be an impact. It will be a very bumpy road, and maybe long as well.

"Now, the question is how bumpy and how long - and that depends a lot on the terms of the agreement that will be reached between the UK and the EU, I have no way of knowing at this point in time.

"To the extent that the value chain, for example, the production chains, they're disrupted, or the conditions of supplying services, they are disrupted - the tendency is that prices will go up, of course.

"You have to absorb the cost of that disruption, and that in itself will mean it will be costlier to do business, potentially costlier to live, but it's how much - and it's impossible to predict that at this point in time.

The WTO is giving technical advice to both the UK and the rest of the EU as the Brexit negotiations enter a crucial phase.

Theresa May will meet the president of the European Commission, Jean-Claude Juncker, in Brussels on Monday and push for an agreement that enough progress has been made on negotiations to leave the EU that the discussion can now move on to future trading arrangements.

Although the sides appear to be closer on the terms of the Brexit financial settlement and on the rights of EU citizens in the UK and British people living in the rest of the EU, one sticking point could be Ireland.

The border between Northern Ireland and the Republic will be the only land border between Britain and the EU once the UK has left the union.

The Republic has signalled that it wants to limit "regulatory divergence" between it and Northern Ireland, meaning that the border can remain free of customs border posts.

But if the UK leaves the single market and the customs union as the government wants, then high levels of divergence are possible, if no comprehensive free trade deal is signed.

The border between Northern Ireland and the Republic represents the only land border between the UK and an EU nation

I asked Mr Azevedo if he knew of any examples where two countries were not part of a free trade agreement but nevertheless still had an open border.

"I can't think of a close parallel anywhere else," he said.

"It's challenging, I have to tell you, to the extent that there is no longer a customs union, no easy solution comes to mind.

"I think this will require creative thinking. It would require deep political commitment on the parties to find a solution."/BBC