Brexit: Services & Regional Impact

Question 1

Basic trade facts

Answer 1

UK trade deficit for goods, surplus for services

Question 2

Examples of services linked to goods

Answer 2

Car sellers may also offer insurance

Question 3

How much did EU & EFTA account for in UK service exports

Answer 3

43%

Huge, shows free trade agreements have not significantly opened up service markets, thus may be difficult to replace any lost EU trade if leave brexit

Question 4

UK services by sector

Answer 4

Runs surpluses for most except ‘other personal travel’ (exports services more than it imports)

Question 5

4 traditional modes of services

Answer 5

Cross-border services (e.g online transactions)
Customers purchase services abroad e.g tourism
Service company sets up abroad
A worker crosses border temporarily to provide a service

Question 6

Pressure for 5th mode

Answer 6

Services in boxes i.e services that make up a part of manufactured goods.

Question 7

Aims of SEM

Answer 7

Increase efficiency
Benefit consumers

Question 8

How did they do this

Answer 8

Remove NTBS

Question 9

SEM on services

Answer 9

Harder to negotiate common regulation for services (as seen in my essay)

Question 10

Norway thing

Question 11

Potential impact of Brexit on GDP

Answer 11

Most models predict slower growth rates outside of EU compared to remaining

Question 12

EU-UK TCA cooperate in sectors where

Answer 12

Trade barriers are low
The UK does not have a large share of exports within the EU, or an advantage

I.e EU-UK TCA focuses on traded goods not services

Question 13

So capital markets e.g exports 80% of total EU

And thus after leaving Brexit, they weren’t given more protection in the EU-UK TCA

Question 14

So why is an agreement on services less likely

Answer 14

UK has a comparative advantage

Services are linked to free movement of people

Question 15

EU-UK favours cooperation in manaunfactured goods

Question 16

Gravity models

Answer 16

S

Question 17

Do gravity models apply to both goods and services?

Answer 17

further away, less trade (applies to both goods and services, although IT advances make services less reliant on distance.

10% increase in distance leads to a 7% fall in services trade

Question 18

What does this imply for the UK following Brexit

Answer 18

Neighbouring countries are still important for UK goods and services trade

Question 19

What breaks gravity model

Answer 19

US - uk exports a lot of services to the US, so an anomaly

Question 20

Norway option

Answer 20

Join European Economic Area

Remain in the SEM but not the customs union

Question 21

Why was the Norway model the best option for services

Answer 21

Ensures trade services not harmed

Question 22

Why not feasible for UK

Answer 22

Due to free movement of people

Question 23

So they agreed the EU-UK TCA in 2020

Answer 23

Removes tariffs on goods (services generally not covered, as have comp adv as mentioned already)

Free to negotiate trade agreements with other countries

UK control their own immigration

ECJ not arbitrate on most UK issues, there is a joint committee but ECJ have ultimate authority

Question 24

WTO rules (GATS)
General agreement on trade in services - what were the implications for UK service providers

Answer 24

UK service providers must adhere to rules in each individual country.

Known as PASSPORTING

(Particularly hard for banks as mentioned in essay as have to properly set up!)

Question 25

Regional impact of Brexit

Answer 25

Estimated Brexit will impact manufacturing more than other sectors, making regional inequality worse as poorer ones that depend on manufacturing are negatively impacted. Also the services within those regions are negatively impacted too due to services in boxes

Question 26

Why could the manufacturing regions services be negatively impacted too

Answer 26

Services in boxes

Question 27

Brexit impact on economic growth if it were to:
Norway option
Strike a free trade deal with EU
No deal

Answer 27

Norway option (remain in SEM) = -2%
UK free trade deal with EU = -5%
No deal = -8%

Question 28

Cross Whitehall exit analysis also looked at NTB tariff equivalent cost by sector

Answer 28

NTBS for retail and wholesale were 7-20%!

Financial services 5-10%

Question 29

What did Cross Whitehall estimate in terms of regional impact across 15 years as a result of Brexit

Answer 29

North East suffer: up to 16% fall in GDP
West Midlands: up to13% fall
London least impacted: up to 3.5% fall

Question 30

Why are West Midlands and North east hit hardest (2)

Answer 30

Industry type in these regions and their supply chains

Export more services than other regions in the UK into EU (NE -49% of service exports go to EU, WM 45%) so thus are most negatively impacted by Brexit

Question 31

UK’s future service agreements with non-EU may be difficult to negotiate. Why? (3)

Answer 31

Service agreements are more complex than goods

Most EU FTAs have MFN clauses; if non-EU offered UK a better deal, it has to offer it to the EU too, which they are unwilling to do since EU is 6x larger than UK

Non-EU countries may not open up their services sector to the UK services are competitive (protectionist)

Question 32

Conclusion: does EU-UK TCA post Brexit agreement have good provision for services?

Answer 32

No