BREXIT: ESTIMATING TARIFF COSTS FOR EU COUNTRIES IN A NEW TRADE REGIME WITH THE UK

Abstract

This analysis calculates the average tariffs that producers from each of the 27 EU member states might face when exporting to the United Kingdom, should the Brexit negotiations fail to produce a new Free Trade Agreement and trade reverts to World Trade Organisation most-favoured-nation (MFN) terms. The estimation draws on data from the WTO-IDB database, combined with product-level bilateral trade statistics provided by UN Comtrade.

Findings indicate that the tariff burdens would vary significantly across EU countries, influenced by both the extent of their existing trade ties with the UK and the sectoral composition of their exports. As a result, these differing tariff exposures could lead to notable divergence among EU member states in terms of their economic stakes in the Brexit process. This divergence may, in turn, shape the formulation of the EU’s collective negotiating stance—despite all member countries having an equal voice in determining that position.

Keywords: Brexit, European Union, United Kingdom, Trade Policy, WTO, Most-Favoured-Nation, Tariffs, Free Trade Agreement, Bilateral Trade, Trade Negotiations, Trade Costs.

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Introduction

One of the key consequences of Brexit is that, for the first time since the formation of the European Union, the bloc must design and implement an autonomous trade policy with a nation that previously held EU membership. Following the UK’s formal notification to withdraw from the EU under Article 50 of the Treaty on European Union, both sides are now required to negotiate the entirety of their future relationship. The framework governing trade in goods will be determined by the relative bargaining positions of the two parties, whose economic interests and political agendas diverge significantly.

Although the European Commission has the formal responsibility of conducting trade negotiations on behalf of the EU, the policy’s implementation remains a matter of collective deliberation among the 27 Member State governments and the European Parliament. In practice, the Commission acts on a mandate conferred by the Member States, negotiating trade deals accordingly. Once an agreement is reached, it must be ratified by the European Parliament. In cases where trade deals encompass a wider array of policy areas beyond tariffs—such as services, investment protections, competition rules, and intellectual property rights—they qualify as “mixed agreements” and require additional ratification from each Member State through their national procedures.

Over the past years, both national legislative bodies and civil society actors have become increasingly vocal in debates over new EU trade agreements. A notable example occurred in April 2016 when Dutch voters rejected an EU-Ukraine treaty in a referendum, despite the trade provisions of the agreement already being provisionally applied. In response to the UK’s triggering of Article 50, the European Council established negotiation guidelines stating that “throughout these negotiations the Union will maintain its unity and act as one with the aim of reaching a result that is fair and equitable for all Member States and in the interest of its citizens.”

Nevertheless, the process of forming a cohesive EU position could prove intricate, as each Member State has unique strategic interests and red lines regarding what it seeks from the UK and what concessions it may be prepared to make. A recent collection of expert views, published on VoxEU.org (Wyplosz, 2016), gathered the perspectives of economists from various Member States concerning the most pressing challenges facing the EU in the aftermath of Brexit. Although timely and insightful, the volume stops short of offering a systematic, cross-country comparison of the potential economic costs Member States may bear in key areas such as trade, foreign direct investment (FDI), and labour mobility.

This study aims to contribute to narrowing that gap by focusing in depth on one dimension of the post-Brexit relationship: the future trade regime in goods between the EU and the UK. Specifically, it examines three potential frameworks for trade: (i) maintaining a Customs Union; (ii) establishing a Free Trade Agreement (FTA); or (iii) defaulting to World Trade Organisation (WTO) rules. The analysis concentrates on the third scenario, in which no FTA is reached and trade between the UK and EU reverts to WTO most-favoured-nation (MFN) treatment.

Under this fallback option, tariffs would be introduced, resulting in increased trade costs for each of the EU-27 Member States. The scale of these costs would vary based on two factors: the extent of each country’s pre-existing trade integration with the UK and the structure of their export sectors. To assess this, the paper conducts an empirical exercise calculating the average tariff burden each EU Member State and the UK would encounter. The EU’s current MFN tariffs serve as the benchmark, with a case study on Italy providing additional country-level insight.

The exercise assumes that the UK, in the immediate post-Brexit phase, would continue to apply the EU’s current MFN tariff schedule on goods imported from the EU-27. This assumption is grounded in practical considerations, as implementing a bespoke UK tariff schedule under WTO rules would likely be a time-consuming process. For analytical simplicity, it is further assumed that the full tariff burden is borne by consumers (i.e., the importers), thus the analysis calculates tariffs based on import flows. This mirrors the incidence assumption used in tax assessments such as those from the US Congress’s Joint Committee on Taxation (2015).

As this model does not consider how export volumes might respond to tariff-induced price increases, it employs a static, partial equilibrium approach. In reality, the burden of tariffs is typically shared: importers may face higher prices or switch to alternative products, while exporters may see reduced demand or may lower their mark-ups to stay competitive. Studies by Arkolakis et al. (2015) and Edmond et al. (2015) suggest that price reductions from tariff cuts may not materialise when such cuts apply only to one trading partner. Conversely, research by De Blas and Russ (2015) indicates that more generalised tariff reductions across multiple partners are more likely to result in price benefits for consumers due to enhanced competition.

However, robust empirical evidence on how tariff increases affect import prices is currently lacking, making it difficult to estimate export elasticity with confidence. Consequently, the aim of this analysis is not to project changes in trade flows but rather to measure the potential tariff costs Member States could face under WTO MFN conditions. Actual trade impacts would depend on the degree of tariff pass-through to prices, which can vary significantly by sector and trade partner, as well as by each country’s sensitivity to price changes.

In addition, non-tariff measures (NTMs), such as regulatory divergence or customs procedures, could further raise the cost of trading between the UK and the EU. Nevertheless, because the UK currently adheres to EU standards and regulations, evaluating tariffs alone constitutes a foundational step toward understanding the broader implications of a shift in the trade regime. It is also important to note that this study does not cover trade in services, notably financial services, which warrants a dedicated investigation given its complexity and importance to the UK economy.

The structure of the paper is as follows. Section 2 examines the trade exposure of each EU-27 country to the UK. Section 3 outlines and evaluates the three potential trade frameworks between the EU and the UK. Section 4 presents estimates of the average tariff burdens the UK, EU-27, and each individual Member State might face under the WTO MFN scenario. Section 5 delves into the sectoral distribution of tariffs, while Section 6 provides a focused analysis on Italy. The final section, Section 7, concludes with a discussion of the implications and next steps.

Trade Relations Between EU-27 Member States and the UK.

Following Brexit, any new agreement governing trade in goods between the United Kingdom and the European Union may introduce both tariff and non-tariff measures, which are likely to increase the cost of doing business for both parties. Therefore, an essential first step in assessing the trade-related consequences for each EU-27 economy is to examine the direct trade connections with the UK. The next critical element involves a detailed analysis of the sectoral composition of exports to and imports from the UK, since both tariffs and non-tariff barriers are highly differentiated at the level of individual products.

This study is focused on estimating average effective tariff rates, rather than the impact of tariffs on the volume of trade. Accordingly, it limits itself to analysing direct trade relationships between each EU-27 Member State and the UK. While it is true that indirect trade—such as trade in intermediate goods with a third country, which are later incorporated into products sold to or bought from the UK—plays a meaningful role in some EU countries, new tariff costs arise only when a good physically crosses the UK border. Thus, the scope of this analysis is confined to direct trade flows (see Halpern, 2016, for a discussion of Hungary’s case). That said, some implications for trade in intermediates and components can be inferred from the sectoral data: within the same industry, the applicable tariff levels can differ markedly depending on whether the traded item is a final product or a component (WTO, 2015).

Country	Exports to UK (Value, €M)	UK Share of Exports (%)	Imports from UK (Value, €M)	UK Share of Imports (%)	Trade Balance (€M)
Austria	4,343	3.2	2,446	1.7	1,897
Belgium	31,852	8.9	17,396	5.1	14,456
Bulgaria	587	2.6	482	1.8	105
Croatia	205	1.8	209	1.1	-4
Cyprus	120	7.2	451	8.9	-331
Czech Republic	7,556	5.3	3,327	2.6	4,230
Denmark	5,428	6.3	3,485	4.5	1,943
Estonia	326	2.8	350	2.7	-24
Finland	2,776	5.1	1,763	3.2	1,013
France	32,142	7.1	21,928	4.2	10,214
Germany	89,271	7.5	40,318	4.3	48,953
Greece	1,098	4.2	1,252	2.9	-153
Hungary	3,593	4.0	1,579	1.9	2,014
Ireland	15,307	13.7	21,739	31.5	-6,432
Italy	22,484	5.5	10,575	2.9	11,909
Latvia	542	5.0	306	2.3	236
Lithuania	1,024	4.5	750	3.0	275
Luxembourg	742	4.8	246	1.2	496
Malta	148	6.4	391	7.5	-243
Netherlands	47,808	9.3	23,581	5.1	24,227
Poland	12,086	6.7	5,050	2.9	7,036
Portugal	3,359	6.7	1,900	3.1	1,459
Romania	2,380	4.4	1,565

 

Given the UK’s comparative advantage in services and its reliance on imports for manufactured goods, it is unsurprising that most EU Member States enjoy significant trade surpluses in goods with the UK (Tab. 1). In absolute terms, these surpluses are highly concentrated in a few countries. Germany leads with a surplus of €49 billion in 2015, followed by the Netherlands at €24 billion, and Belgium at €14 billion. France and Italy also record trade surpluses, though of smaller magnitudes—€10 billion and €12 billion, respectively. When assessed in relation to national GDP, the trade balance in goods with the UK reveals that several Central and Eastern European countries maintain surpluses exceeding 1 percent of GDP. These include Slovakia, the Czech Republic, Hungary, and Poland (Fig. 1). On the other end of the spectrum, only a handful of EU nations run trade deficits with the UK, most notably Ireland, whose deficit reached €6 billion—or 2.5 percent of its GDP—and Malta.

Table 1 provides a breakdown of exports to and imports from the UK, expressed as a percentage of GDP for each of the EU-27 Member States. This perspective underscores the significance of gross trade volumes with the UK for individual national economies. Several broader patterns are evident from these data.

First, although only 7.1 percent of the EU-27’s total goods exports are directed to the UK (Tab. 1), the EU-27 as a collective absorbs roughly 44 percent of the UK’s exports. This asymmetry illustrates the UK’s heavier reliance on the European market compared to the reverse. Second, there is substantial heterogeneity among EU Member States in terms of how economically exposed they are to British demand. Belgium, the Netherlands, Ireland, Germany, and several Eastern European states are most dependent on exports to the UK. In 2015, the value of their exports ranged between 3 and 8 percent of GDP. It should be noted, however, that in the cases of Belgium and the Netherlands, these high export figures partly reflect their role as logistical gateways. Their major ports function as transit points, where goods may be re-exported to the UK but originate from third countries. Likewise, some imports from the UK arriving in these countries may be destined for other final markets.

In contrast, for the majority of EU-27 countries, exports to the UK make up between 1 and 2 percent of GDP. This relatively modest level of direct trade exposure indicates that the interests at stake in future negotiations will not be evenly distributed across Member States. Consequently, this unevenness may influence the formulation of the EU’s collective stance on the new trade arrangement with the UK, despite the fact that all Member States formally have an equal say in shaping the EU’s negotiating position.

Third, in most EU economies, imports of goods from the UK are generally less economically significant than exports. With a few exceptions, the value of British imports as a percentage of GDP is relatively low. Ireland stands out as the most notable exception, with imports from the UK exceeding 4 percent of GDP. Malta and Belgium also show higher dependency on UK imports, though to a lesser extent. For the Netherlands and Cyprus, UK imports constitute between 2 and 4 percent of GDP. In all remaining EU-27 countries, the share of UK imports falls below the 2 percent threshold.

This pattern reflects the UK’s trade structure, in which services—particularly financial and business services—make up a substantial portion of exports, while manufactured goods dominate imports. This imbalance contributes to persistent merchandise trade surpluses for the majority of EU countries.

Altogether, this overview of bilateral trade exposure reveals not only the scale of potential economic disruption posed by Brexit but also the differing degrees of vulnerability among EU Member States. For those countries whose exports to the UK represent a sizable portion of their economic output, changes in the commercial relationship—whether through the imposition of tariffs, the introduction of regulatory hurdles, or both—pose significant risks. In contrast, Member States with limited exposure may view the new UK-EU trade arrangement as a less pressing concern, thereby complicating the prospects for a unified EU negotiating strategy.

Moreover, the analysis confirms that a country’s trade dependence on the UK cannot be fully assessed without considering both the absolute and relative scale of exports and imports. Large countries such as Germany may have substantial trade surpluses in absolute terms, while smaller economies such as Ireland or the Netherlands may exhibit higher relative exposure when trade is evaluated as a share of GDP. These metrics provide distinct insights and highlight why different Member States may prioritise different outcomes in the negotiations.

Finally, while this section concentrates on direct trade relationships in goods, further sections will extend the analysis to explore the sectoral composition of trade and examine how tariff and non-tariff barriers may affect specific industries. The diversity of exposure and industrial specialisation across EU Member States suggests that any future UK-EU trade arrangement will entail differentiated effects, potentially altering intra-EU political dynamics around Brexit negotiations.

 

Possible scenarios for a new trade regime

With the United Kingdom’s withdrawal from the European Union, maintaining existing trade arrangements between the UK and the EU-27 is not a viable option in the absence of a formal agreement. Continuation of the status quo would contravene the Most-Favoured Nation (MFN) principle enshrined in the World Trade Organisation (WTO) framework. According to WTO rules, countries must extend equal treatment to all their trading partners unless they are part of a recognised free trade agreement. If a state offers preferential conditions—such as reduced tariff rates—to one trading partner, it must extend the same to all WTO members, unless an exception is made through a formalised trade deal. This legal constraint makes a simple extension of the UK’s prior arrangement with the EU untenable without a newly negotiated agreement.

A number of potential models could serve as the foundation for a future EU-UK commercial relationship. However, none of these arrangements fully meet the complex economic and political priorities of both parties. Figure 4 outlines the various trade regimes currently structuring the economic interactions between EU countries and their principal trading partners. These existing configurations could offer reference points or templates for shaping a new EU-UK trade settlement.

The European Union itself forms a 28-member Single Market, within which the free movement of goods, services, people, and capital is guaranteed. This market, depicted in Figure 4 by the red circle, is underpinned by common rules and standards across member states. A subset of 19 EU countries also form the euro area—denoted by a blue circle—which functions as a monetary union with a shared currency and coordinated monetary policy. Beyond the EU, the European Free Trade Association (EFTA), outlined by the yellow boundary, facilitates a free-trade area based on a network of preferential agreements granting members access to external markets. The European Economic Area (EEA), represented by the dotted grey line, allows certain non-EU countries access to the Single Market in return for contributions to the EU budget and adoption of many EU rules.

Another layer of integration is the Customs Union, which permits tariff-free movement of goods among its members. Unlike a conventional free trade area, the Customs Union applies a common external tariff to all imports from non-member states. This means that members relinquish independent control over their trade policy with the rest of the world. The Schengen Area, consisting of 26 European countries, allows passport-free travel between member states. Notably, the UK never joined the Schengen Area, and several EU countries—such as Romania, Bulgaria, and Croatia—as well as eurozone countries like Ireland and Cyprus, are also not participants.

As the UK proceeds to exit the EU, it is increasingly clear that it will also depart from the Customs Union, which includes EU states and Turkey. Remaining within the Customs Union might offer several advantages for the UK, such as continued tariff-free access to the EU Single Market and the ability to impose some form of immigration control. However, this would come at a substantial cost to British sovereignty over trade policy. Membership in the Customs Union would prevent the UK from negotiating its own trade deals independently and force it to accept trade agreements made by the EU with third countries, without any formal role in the negotiation process.

Further, the UK would be compelled to comply with EU regulations on product standards, limiting its legislative autonomy. Turkey’s example illustrates the trade-offs involved in joining the Customs Union. Since 1996, Turkey has effectively delegated control over its trade policy to the EU, participating in the Customs Union without a vote in EU decision-making. This model, however, is generally regarded as unsuitable for post-Brexit Britain, and the likelihood of the UK choosing such an arrangement is minimal.

One of the immediate consequences of leaving the Customs Union would be a rise in administrative burdens and compliance costs, in addition to the imposition of tariffs on UK goods entering the EU. These increased costs are largely related to the rules of origin provisions. If the UK and EU establish a free trade agreement (FTA), the UK would need to prove that exported goods (and the majority of their components) are of domestic origin to qualify for duty-free status. Otherwise, the UK could inadvertently serve as a backdoor for goods from non-FTA countries to enter the EU without facing appropriate tariffs.

Adhering to rules of origin requirements entails both administrative and cost-related burdens. These include documentation, certification, and potential reliance on higher-cost domestic inputs. In some sectors, the cost of complying with origin rules has been equated to a tariff equivalent ranging from 3 to 15 percent. The upper end of this estimate reflects technical sectors with complex production standards (Cadot and de Melo, 2007). Given that many MFN tariffs are relatively low, especially in advanced economies, the implied costs of compliance represent a significant trade barrier. The political and economic consensus within the UK currently favors departure from the Customs Union, making this one of the few settled aspects in the broader Brexit debate.

Nevertheless, even with the UK positioned outside the Customs Union, the new trade framework between the UK and the EU-27 could follow several different paths. Scholars and policymakers have largely focused on four main scenarios (Baldwin, 2016), three of which involve some form of free trade agreement, and a fourth that would see trade revert to basic WTO terms.

The “Norway Model” or EEA Membership

One of the more comprehensive options is for the UK to join the European Economic Area, similar to Norway’s arrangement. This model would preserve nearly full access to the Single Market and maintain the four fundamental freedoms: the unrestricted movement of goods, services, capital, and people. Under this arrangement, the UK’s financial sector would retain its “passporting” rights—allowing UK-regulated banks to operate across the EU without additional regulatory approval. This would be a major advantage for the City of London and its vast financial services sector.

Additionally, UK product standards would continue to be recognised by EU countries, maintaining the principle of mutual recognition. This would help preserve pan-European supply chains, particularly in industries like automotive manufacturing. However, as the UK would remain outside the Customs Union, its exports would still be subject to rules of origin requirements.

Beyond trade, EEA membership would also entail financial contributions to the EU budget and adherence to EU regulations, over which the UK would have no formal influence. Moreover, it would not allow the UK to restrict immigration from the EU. Thus, although this scenario would provide economic stability and continuity, it poses significant political drawbacks for those advocating greater sovereignty.

The “Swiss Model”

A second approach would involve a system akin to Switzerland’s relationship with the EU, in which market access is governed by a series of bilateral agreements covering specific sectors. In these areas, the UK would be required to align with relevant EU legislation. Similar to the Norwegian model, the UK would remain outside the Customs Union and thus face rules of origin compliance on exports.

Under the Swiss-type arrangement, access for UK financial institutions to EU markets would be limited, and the scope for restricting labor mobility would be broader than under EEA rules. However, this model also falls short politically, as the European Council has explicitly rejected any approach involving “cherry-picking” Single Market benefits. That is, the UK would not be permitted to select favorable elements of the Single Market while rejecting others.

A Comprehensive Free Trade Agreement (CFTA)

The third scenario is a broad-ranging Free Trade Agreement, referred to in Prime Minister May’s speech on 17 January 2017. A CFTA would encompass not just tariff elimination, but also provisions for services, investments, and possibly regulatory cooperation. Such agreements are highly complex and typically require years of negotiation and ratification.

While this arrangement would provide the UK with more autonomy than the EEA or Swiss models, it would also introduce greater friction in trade, particularly for services. Moreover, there is a risk that sectors not explicitly covered in the agreement could face significant trade barriers. Negotiating such a deal would also demand substantial legal and bureaucratic resources from both parties.

The WTO Model

The final and default scenario would see the UK and EU trading on standard WTO terms, should no other deal be reached. This “WTO-only” model would involve the imposition of MFN tariffs and non-tariff barriers on both sides. It would also eliminate the mutual recognition of regulatory standards and result in the loss of passporting rights for UK-based financial firms.

Under this framework, trade between the UK and EU would become less efficient and costlier. It would offer the UK the greatest degree of freedom to establish independent trade policies but at the cost of higher economic barriers. The WTO model is thus often viewed as a fallback plan, inconsistent with the UK’s historically open approach to international trade.

In conclusion, while several options are available for structuring post-Brexit EU-UK trade relations, each entails significant compromises. The challenge lies in balancing economic integration with political sovereignty, a task complicated by divergent priorities on both sides of the Channel. As such, the precise contours of the new trade regime remain subject to negotiation, though the UK’s departure from the Customs Union appears increasingly inevitable.

 

Assessing Tariff Barriers to Trade Under WTO Rules

The UK and EU fail to agree on a new Free Trade Agreement (FTA) following Brexit, trade relations between them—as well as with most other countries—would default to World Trade Organisation (WTO) terms. In this scenario, the UK’s joint authority with the EU regarding WTO obligations and privileges would cease, requiring the UK to establish its own formal status within the WTO framework as a distinct member nation. Both the UK and the EU, as individual WTO members, would be entitled to levy Most-Favoured-Nation (MFN) tariffs on each other, resulting in increased costs for exporters on either side.

UK exports to EU-27 nations would thus become subject to the standard external tariff rates applied by the EU to countries lacking preferential agreements—in other words, the EU’s MFN duties. Conversely, the UK would gain the autonomy to determine its own MFN tariffs on imports. No longer bound to the EU’s common external tariff due to loss of preferential access to the Single Market, the UK would theoretically be free to adopt an independent tariff schedule. However, for the purposes of this analysis, we assume that the UK would maintain the same MFN rates currently applied by the EU, at least during the initial transition. This assumption is based on the high likelihood that the UK would temporarily adopt the EU’s tariff schedule to ensure trade continuity.

In this framework, we calculate the average tariffs that exporters from each EU Member State would face when trading with the UK (and vice versa), using data from the WTO’s Integrated Database (WTO-IDB), which provides product-level MFN tariffs primarily in ad valorem form—percentages applied to the value of imported goods—across more than 5,000 tariff lines classified under the Harmonised System (HS). For goods, particularly in the agricultural and food categories, that are taxed based on weight or quantity rather than value, we apply ad valorem equivalents sourced from the International Trade Centre’s Market Access Map (ITC MAP), using the lower bound of weight-based tariffs. In situations involving tariff rate quotas (TRQs), we employ the inside-quota tariff rates (IQTRs) available from the same dataset.

Given this methodology, the resulting tariff estimates—especially for sectors such as “food and live animals”—are likely to represent a conservative approximation of the actual rates that could be applied. Average tariffs are weighted using import value data at the product level, sourced from the United Nations ComTrade database for the year 2015. This database includes detailed bilateral trade data at the HS 6-digit level. Table 2 presents the estimated average tariffs that would govern trade in goods between the EU-27 and the UK under WTO rules, broken down by broad industry categories using the SITC Rev.4 classification.20 Because we assume that both entities adopt identical MFN schedules, variations in average tariffs merely reflect differences in the composition of goods traded.

Under this scenario, UK imports from the EU-27 would be subjected to an average tariff of 5.2%. This estimate aligns closely with the average MFN tariff applied by the EU to WTO members in 2014, as documented in WTO-ITC UNCTAD (2015). Other studies, such as Protts (2016), estimate a slightly higher average of 5.8%.

MFN tariffs under the EU framework vary significantly by product, with rates ranging from zero to as high as 75%. This variation is evident not only at the product level but also across industry groups. At a disaggregated SITC 2-digit level, nearly 40% of EU exports to the UK would encounter tariffs exceeding 5% (see Tab. 1.A in the Appendix). Among these, nearly half pertain to “road vehicles,” which face an average tariff rate of 9.1%.

If we take 5% as a general benchmark under which tariffs are considered to have minimal effects on trade volumes,21 it is apparent that EU MFN tariffs provide substantial protection for four key sectors: “food and live animals,” “beverages and tobacco,” “motor vehicles,” and “clothing and footwear.” In absolute monetary terms, EU-27 exports to the UK would incur tariff costs of approximately €16 billion (refer to Table 3). German exports would bear the highest share of this burden at roughly €4.5 billion, while Dutch and French exports would face tariffs amounting to €1.8 billion and €1.7 billion respectively.

On the other side, UK exports to the EU—based on the composition of traded goods—would face an average tariff of 3.9%, translating into approximately €6.5 billion in tariff costs. Roughly a quarter of UK goods sent to the EU would be taxed at rates above 5%, with half of that subset being composed of “road vehicles.” This asymmetry in tariff burden implies that European exporters would, on average, face steeper costs than their UK counterparts.

This disparity is attributable to both sectoral specialisation and trade imbalances. Around three-quarters of the discrepancy can be explained by the EU’s existing trade surplus with the UK. Given the high tariffs on “road vehicles,” the transition to WTO rules would impose notable trade costs on this sector, especially for EU producers. Vehicles account for nearly 20% of EU exports to the UK, making this industry particularly vulnerable to tariff shocks. By contrast, other major export sectors—such as machinery and chemicals, which respectively make up 20% and 16% of British imports from the EU—would face relatively modest tariff levels.

When expressed as a percentage of the total value added of the manufacturing sector (last column in Table 3), the new tariff burden on UK imports would be disproportionately high—ranging between 3 and 4% —for smaller EU economies with close geographical or historical ties to the UK. Countries like Belgium, Cyprus, Ireland, and the Netherlands fall into this category. These findings reaffirm that the implications of Brexit negotiations are unevenly distributed among EU Member States and could shape the bloc’s collective bargaining stance.

Figure 5 ranks EU countries by the average tariff the UK would impose on their exports, in descending order. The significant variation among countries underscores differences in export structure. In about half of the EU-27, average tariffs on exports to the UK would exceed 5%. For Germany, Spain, Belgium, and Slovakia, this is largely due to their heavy reliance on the “road vehicles” sector. In contrast, Portugal and Romania face higher average tariffs because of their focus on the “clothing and footwear” industry. In countries like Ireland and Denmark, the elevated average tariffs are driven by particular agricultural sub-sectors within the broader “food and live animals” category—namely, meat products. Similarly, Greece faces high tariffs due to its exports of fruits and vegetables, while Cyprus is affected by duties on dairy products.

 

Spain presents an illustrative case where both the automotive and agricultural sectors contribute significantly to its overall tariff exposure. Besides specialising in “road vehicles,” Spain also exports a notable volume of “vegetables and fruit” to the UK, raising its average tariff burden. For France and Italy, the projected average tariff on exports to the UK is only slightly below the EU-27 mean, reflecting a more diversified and balanced export portfolio.

 

A Sector-by-Sector Perspective  

As illustrated in Table 2, the financial burden introduced by tariffs would not be distributed uniformly across economic sectors. The goods affected by import duties can be broadly sorted into three main groups: (1) “high-tariff agricultural goods,” encompassing ‘agricultural products’ and ‘food and beverages’—both governed by specific WTO provisions; (2) “high-tariff non-agricultural goods,” defined by tariff levels exceeding 5% of import value, including products such as ‘road vehicles’ and ‘apparel, clothing and footwear’; and (3) “medium- and low-tariff non-agricultural goods,” for which tariff rates fall below the 5% threshold.

A closer examination of the industries facing the highest tariff exposure reveals where negotiations may be most contentious. Among all sectors, the European automotive industry stands out for incurring the highest costs in absolute terms (see Table 4). Tariffs on EU exports of road vehicles to the UK would total an estimated €5.3 billion, with German manufacturers alone accounting for €2.5 billion—nearly 50% of all tariff costs borne by this sector across Europe.

It is worth highlighting that the average tariff rate on road vehicle exports varies significantly across EU countries (Fig. 6c). This discrepancy is largely explained by the difference in duty rates between fully assembled cars—which attract tariffs of around 10% —and vehicle parts, which face a lower average rate of approximately 4%. As a result, countries that primarily export vehicle components to the UK—such as Poland and the Czech Republic—would experience a lower overall tariff burden in this category. Nevertheless, leaving the Customs Union would also lead to a rise in non-tariff barriers, particularly within the automotive sector, which could disrupt complex European supply chains and impose further costs on producers integrated into the continent-wide value network.

Another heavily impacted sector is ‘food and live animals’, as products such as meat, dairy, and other farm goods are subject to some of the highest percentage tariffs (see Table A in the Appendix). These agricultural exports constitute around 10 percent of all goods the EU-27 ships to the UK. Within this group, Ireland, the Netherlands, and Germany would bear the largest share of the total tariff burden (Fig. 6a). In the ‘beverage and tobacco’ industry—which makes up roughly 2% of EU-27 exports to the UK—France and Italy would face approximately one-third of the overall duties imposed. This is mainly due to their dominant role in supplying wine, including sparkling varieties, which account for three-quarters of UK imports from the EU in this sector (Fig. 6b). Wine exports alone are subject to an average tariff of nearly 7%. Among high-tariff non-agricultural products, ‘apparel, clothing, and footwear’ represent 3% of the EU’s total exports to the UK. Italian exporters in particular would shoulder the highest share—20.3% —of all duties levied on these goods across the EU-27 (Fig. 6d).

 

Light on Italy

Italy’s trade relationship with the United Kingdom is notably less significant than that of other major Euro Area economies (see Tab. 1). In 2015, exports to the UK made up 5.5% of Italy’s total goods exports, while imports from the UK constituted just 2.9% of its total goods imports. This trade dynamic resulted in a merchandise surplus of €11.9 billion in Italy’s favor. Based on our calculations, Italian exports to the UK would be subject to an average tariff of 5% (Tab. 5), marginally below the EU-27 average. The ‘road vehicles’ sector, a major contributor to high tariff exposure, represents 11.6% of Italian exports to the UK—a considerably lower share than that of Germany (32.6%), Spain (31.9%), and Belgium (25.9%). While Italy is less dependent on this high-duty industry, the gap is offset by stronger participation in traditional sectors such as ‘apparel and clothing’ and ‘footwear,’ which are also subject to elevated tariffs.

Conversely, exports in the ‘machinery’ sector—which account for over 20% of Italy’s exports to the UK—are expected to face relatively modest tariff levels. This composition limits Italy’s exposure to high trade barriers compared to other EU manufacturing powerhouses. Considering all sectors, the total cost of the newly imposed tariffs would equate to just 0.5% of Italy’s manufacturing value added. This impact is significantly lower than that faced by other leading European producers—particularly Germany, France, and most notably, Spain—highlighting the relatively moderate vulnerability of Italian industry in the event of WTO-based UK-EU trade relations.

 

Conclusions

This analysis examines the potential new trade framework for goods exchanged between the EU-27 and the United Kingdom, with a specific focus on the scenario in which no new Free Trade Agreement (FTA) is established. Under such circumstances, bilateral trade would fall under World Trade Organisation (WTO) Most Favoured Nation (MFN) terms. In this context, the UK would impose tariffs on imports from each EU-27 country. The total amount of these duties would be determined both by the depth of trade relationships between each Member State and the UK, and by the particular sectoral composition of the goods being traded.

Our findings suggest that the imposition of the EU’s current MFN tariff schedule would result in a greater tariff burden on EU exporters than on UK exporters. This outcome is largely attributed to the existing trade surplus in goods that the EU-27 holds over the UK. To a lesser extent, the difference also stems from the varying export specialisation of the two sides. Based on the structure of bilateral trade flows, it is estimated that the UK would levy an average tariff of 5.2% on imports from the EU-27. Conversely, EU-27 tariffs on UK exports would average 3.9% of the value of goods.

The study also underlines the considerable variation in tariff levels across different product categories. The shift to a WTO MFN-based trade regime is expected to lead to significant costs for exporters, with the automobile sector being particularly affected. Given that nearly 20% of EU-27 exports to the UK consist of vehicles, this industry would face substantial trade barriers under the new regime. The ultimate scale of the impact, however, would be influenced by how tariffs affect pricing and how responsive import volumes are to price changes—factors not explicitly addressed in this evaluation.

Moreover, the sectoral composition of exports from individual EU-27 countries creates substantial differences in the average tariffs faced. Around half of the EU-27 Member States would encounter average tariff levels exceeding 5% on their exports to the UK. For certain countries—namely Germany, Spain, Belgium, and Slovakia—this is due to their strong focus on the ‘road vehicles’ sector. In contrast, high tariffs imposed on exports from Portugal and Romania can be mainly attributed to the prominence of the ‘clothing industry’ in their trade profiles. Elevated duties on specific products within the ‘food and live animals’ category explain the relatively high average tariffs on exports from Ireland, Denmark, Greece, and Cyprus. Italian exports to the UK would be met with an average tariff comparable to that of the EU-27 overall. Notably, machinery—making up more than 20% of Italy’s exports to the UK—would be subject to relatively low tariff rates. These findings clearly show that the implications of negotiating a new goods trade agreement with the UK will differ significantly among Member States, which could shape the EU’s collective bargaining stance, despite each country holding an equal voice in the negotiations.

 

 

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Appendix

SITC Rev.4 Code	Product	Average MFN Tariff (%)	Sector Share (%)
0	Live animals other than animals of division 03	0.0	0.2
1	Meat and meat preparations	22.0	2.0
2	Dairy products and birdsÆ eggs	26.0	1.2
3	Fish	13.0	0.4
4	Cereals and cereal preparations	5.4	1.1
5	Vegetables and fruit	11.0	2.6
6	Sugars, sugar preparations and honey	7.0	0.3
7	Coffee, tea, cocoa, spices, and manufactures thereof	24.0	0.9
8	Feeding stuff for animals (not including unmilled cereals)	2.7	0.5
9	Miscellaneous edible products and preparations	10.0	1.1
…	…	…	…
89	Miscellaneous manufactured articles, n.e.s.	2.5	4.4
96	Coin (other than gold coin), not being legal tender	0.0	0.0
97	Gold, non-monetary (excluding gold ores and concentrates)	0.0	1.0
	Total	5.1	100.0