Trade Post-Brexit: What would a hard Brexit mean for international trade?

The UK’s vote to leave the EU brings with it the possibility of so-called 'hard Brexit'. Business needs to understand what Britain leaving the EU without a smooth transition to a new framework might mean for cross-border trade both within Europe and between Europe and the rest of the world.

At the point when the British government announces its formal intention to exit the EU by triggering Article 50, a two-year countdown will begin to the UK leaving the EU. Understanding the various changes, analysing the risks they pose and working through potential solutions will all be essential to help firms position themselves to navigate the challenges and opportunities that lie ahead.

The peculiarity of the Article 50 process - with its two-year ticking clock - makes this preparatory work all the more urgent. If no alternative relationship or even temporary transitional arrangement were to be agreed between Britain and the EU before the two years run out, the EU treaties would cease to apply to the UK, with nothing to replace them. This has profound implications for both sides.

Herbert Smith Freehills has worked in collaboration with The Boston Consulting Group and Global Counsel to produce a report that considers the potential impact on trade in goods and services if the UK left the EU single market and the EU Customs Union without any new trade agreement in place.The report is designed to help business leaders understand and prepare for a sharp shift in the UK’s relationship with the EU: hard Brexit. Regardless of the eventual outcome, planning for a hard Brexit scenario provides businesses with a baseline to see most clearly the potential impact of the possible changes and to make corresponding plans of action.

Our conversations with business leaders suggest the mood is not necessarily one of negativity, but the scale of the potential change coupled with the lack of clarity as to how it might be effected leaves a lot of uncertainty in the short-to-medium term. Businesses are struggling to understand what Brexit would mean for them. Understanding hard Brexit is a good place to start.

‘We do not necessarily think that a hard Brexit is the most likely outcome of negotiations,’ says Lode Van Den Hende, a partner and international trade law specialist at Herbert Smith Freehills. ‘But planning for this scenario is the most effective way for businesses to compare their current position from within the EU single market with a counterfactual position in which the UK trades with the EU and the rest of the world on the basis of WTO rules. From this baseline, organisations can see most clearly the potential impact of the possible changes and make a corresponding plan of action.’

This report not only aims to help businesses understand the implications of a hard Brexit, but the role they may play in shaping that or an alternative outcome.

The report, produced by Herbert Smith Freehills, The Boston Consulting Group and Global Counsel contains expert contributions from Stephen Adams, Partner, Global Counsel, Pierre Mercier, Senior partner and managing director, The Boston Consulting Group, and Lode Van Den Hende, Partner, Herbert Smith Freehills.

Please follow this link to Herbert Smith Freehills' Brexit hub to download a copy of the report.