The CBI has warned that leaving the EU without a deal and reverting to World Trade Organisation (WTO) rules would open a pandora’s box of economic consequences, hurting firms on both sides of the Channel.
In a speech this evening to the Lord Mayor’s business and investment dinner at Mansion House, CBI president, Paul Drechsler, will argue that while business supports the government in securing an ambitious agreement with the EU, leaving without a deal would bring significant tariff and regulatory barriers to trade.
Drechsler will also tell the audience of business leaders that the CBI is engaging closely with business groups throughout the remaining EU27 to work towards a comprehensive agreement that is in all parties’ interests.
On triggering Article 50, Drechsler will say: “Right now, it feels like we’re just reaching the top of the Article 50 rollercoaster. Any minute now, maybe next week, maybe the week after that we’ll suddenly drop into the twists and turns of negotiations.”
On the implications of falling into WTO rules, he will say: “Wherever I go across Europe, I hear concerns about the UK leaving without a deal and falling into World Trade Organisation rules.
“We should be under no illusions about what this would really mean. A ‘no deal’ scenario would open a pandora’s box of economic consequences.
“The UK would face tariffs on 90 per cent of its EU exports by value and a raft of new regulatory hurdles. Let’s remember these barriers would hurt firms on both sides of the Channel.
“Here in the UK and across the continent firms are worried about this ‘worst-case scenario’. Some are getting ready for it to reduce economic damage. Some won’t prepare because they’re hoping for a deal. But in reality many firms can’t prepare because the cost of change is simply too high to even consider it.
“The Prime Minister is confident that a deal can be achieved - and we agree.
“But to those whose first and only choice is for Britain to walk away without a deal, I say you’re not only wrong but irresponsible.”
Economists for Free Trade, a campaign group previously known as Economists for Brexit, slammed Drechsler for his "misguided belief" that "falling into WTO rules" is "necessarily bad for the UK".
"Our research demonstrates that if the UK removes all import tariffs, even if the EU doesn't reciprocate, we will add four per cent to GDP and 7.3 per cent to UK Treasury receipts, compared to the status quo," it said in a statement.
"Our economy will only be damaged if the UK government pursues a self-harming 'tit-for-tat' policy of putting up tariffs on all global imports, which would reduce GDP and Treasury revenue to below their current levels."
On practical hurdles to trade under WTO rules, he will say: “Imagine you're a small cosmetics firm in Stockport and shops in France sell your products. No deal? Without an EU office it’s illegal for those French shops to sell your products. A loss for you and for them.
“Imagine you're a German tourist in Edinburgh and you use a credit card to pay for a hotel. No deal? The German bank may not be able to make that payment, disrupting business in both countries.
“Or imagine you're a chemicals company in Leeds and you have systems that track your ingredients from Poland. No deal? You'll face delays and higher costs getting supplies. Hurting your Polish customers too.”
On securing an ambitious deal that works in everyone’s interests, he will say: “Just as European countries benefit from a thriving UK, British business needs a strong European Union. A strong single market with which our companies can trade easily is in everyone’s interest.
“Making sure firms in London – but also Berlin and Bordeaux - can get people with the right skills is in everyone’s interest.
“And getting a ‘smooth Brexit’ which minimises disruption across the Continent is in everyone’s interest.
“An ambitious, comprehensive deal covering every sector is what’s best for Britain, it’s what’s best for Europe and we’ll do everything we can to get it.”
On the role of business in the negotiations, he will say: “Whether you’re a salmon farmer in Scotland, an aerospace giant in the Midlands or a tech start-up in Cambridge Brexit will affect your business.
“But the negotiations will determine how much. So at the CBI, we’re travelling extensively.
“Already in 2017, CBI Director-General Carolyn Fairbairn and myself have met the Maltese Prime Minister, the Belgian Deputy Prime Minister, the French General Secretary for European Affairs and senior officials in the German Ministries for Finance and Economics.
“We’ve met the Ambassadors from most EU countries, as well as our sister organisations from France, The Netherlands, Ireland, Germany, Malta and soon Italy. We’ll keep working with business groups throughout the remaining EU27.