Brexit Flashcards
Withdrawal agreement between EU27 and UK Oct 2019
Allowed time to negotiate post-Brexit agreements to give businesses more time to adjust
However uncertainty still for businesses as deal was last minute
Transition period 1st Feb 2020- 31 December 2020
What was it essentially
UK follow EU rules, just dont participate in decision making. (Also option to extend for 2 years, which UK did not want)
So UK do not extend and leave 31 Dec 2020
Which agreement followed
EU-UK Trade Cooperation Agreement
EU-UK TCA: Ireland channels (2)
NI ‘green channel’ - no border checks on goods into N Ireland.
Whereas goods going to Irish republic and EU go through red channel
Main points in EU-UK TCA (5)
Trade (tariffs removed but not services covered)
Immigration (control own policy - now need visas for stays above 90 days)
Budget (no contributing - saves £8bn PA.. only 0.5% GDP…)
Border in Ireland
Fishing (reclaim waters to benefit UK fishermen)
Why was UK-Republic of Ireland/EU border and issue before and still after Brexit?
Before Brexit: Good Friday agreement 1998 removed borders between Republic and N Ireland
After Brexit: borders imposed undermining Good Friday agreement, tensions and violence
Main impact of Brexit that models predict
Slower growth
Main consequences of Brexit we consider (3)
Trade
FDI
Public finances and growth
How has Brexit impacted living standards through trade
B) what is the long run dynamic loss estimated to be
As UK leave the EU, contraction of trade reduces productivity (long run dynamic losses)
B) loss is 6.3-9.5% of GDP
Post Brexit estimates compared to Covid
Effect on GDP slower but permanent and double the impact of COVID in the long run (change in present value of future UK GDP for Brexit -3.7%, Covid -2.1%
(since COVID was an initial sharp fall - 23% of GDP)
What do trade flows increase with, according gravity models (2)
B) so should EU be good or not for trade for UK
Increase with neighbouring countries (less distance)
Size of economies (GDP)
B) good as lowers trade barriers with EU countries which are large economies, and neighbouring/close proximity
Does UK benefit from EU in terms of trade
B) UK trade in goods with EU vs gravity model prediction
Yes, as less trade barriers for UK
B) UK trade in goods is 55-76% higher than gravity model predictions
2nd main consequence of Brexit; FDI
Estimates of inward FDI into UK fall by 2026
B) value of inward FDI 2021 vs 2022
Estimated to fall by 22%
Lowest levels as a % of GDP since 1980s
B) 43.1bn to 22.9bn
How can we express this fall in FDI
Solow growth model
Or the reverse of SEM benefits (3 diagram model)
3rd main consequence of Brexit: public finances and growth
What was UK’s net contribution to EU budget, and how much is this as a % of GDP
£8bn a year , 0.5% of GDP (this is small, gains from EU outweigh the cost of it!)
The argument was to leave EU to instead fund NHS
UK sectors potentially at risk from Brexit (3)
Finance - loss passporting rights i.e cannot operate across EU freely
Cars: potentially 10% tariffs, and also an issue is car inputs; 70% components from EU
Food manufacturing: potentially 20% tariffs
Impact of Brexit on other EU states: All suffer negative effects
Who in particular
All suffer negative effects, esp Ireland Netherlands & Belgium
How can we apply theory
Reverse integration theory (since reimposes NTBs, border checks etc, e.g no more passporting rights for finance)
BE-COMP analysis
What were the 3 most reported important barriers
Additional paperwork
Change in transportation costs
Custom duties
What were the NTBs equal to
An 8% tariff
(ROO 3-5%)
Use 3 diagram BE-COMP to show post Brexit (reverse integration)
Right diagram - less FDI, fewer firms as less willling to engage in market since NTBs introduced deter. So shift left, since less competition, UK markup increases
Middle - price increase in home market (as does markup in right diagram)
Left diagram - AC of UK increases
Pre-Brexit trade options (3)
Norway option - join EEA (soft Brexit)
Strike a FTA - this was the EU-UK TCA (close towards hard Brexit)
Leave with no deal, just WTO rules (hard Brexit)
Norway option - joining the European Economic Area (EEA)
What countries
EEA (Norway, Iceland and Lichtenstein) have a deal with EU. Part of SEM but not customs union i.e can trade freely but have to go through customs checks and rules of origin to verify!)
UK did not take this deal
Policies in EU not part of EEA: (5)
B) It would remain part of:
CAP
Common fisheries policy
Customs union
European monetary union
No participation in decision making - just accept acquis communautaire (laid out in C summit 1993)
3C’s and 2 others
B) Would be part of SEM i.e free movement of goods and services labour and capital
Why is being part of SEM important and beneficial still for the EEA
SEM eliminates NTBs. Since globally tariffs have fallen, so NTBs more more of an issue, especially when services is 70% of EU economy, 80% of UK economy.
That was Norway option. Now look at EU-UK TCA
What’s different
UK would not be in the SEM so NTBs are a hindrance
Why did UK not wanna be part of SEM
Because SEM allowed free movement of people - UK didn’t want this. Wanted its own migration policy
Most pessimistic deal: No deal , just WTO rules
3 features
UK sets own tariff rules under MFN rules (any tariff cut negotiated with one WTO partner should be extended to all partners)
Also UK faces EU common external tariff
Own immigration policy
So what did EU-UK TCA actually agree with the EU
No tariffs on GOODS between UK and EU (given rules of origin satisfied)
But services not covered (UK is comparative advantage in services 80% UK GDP, and thus why EU wanted to restrict services with NTBs)
What would BE-COMP diagrams of optimistic vs pessimistic Brexit look like
Optimistic shifts BE curve left (less firms, increase markup and price due to less competition)
But pessimistic (hard Brexit) is even less firms so even higher markup
So what did EU-UK TCA entail summary (4)
UK not in SEM
No tariffs on goods, but services not included
UK can negotiate trade agreements outside of EU
UK can control immigration policy
