Brexit: Services & Regional Impact Flashcards
Is UK in trade deficit for goods and services
UK trade deficit for goods, surplus for services (services is 80% of UK economy)
Examples of how services can be linked to goods
Car sellers may also offer insurance
Services is 80% of UK GDP. How much did EU & EFTA account for in UK service exports
43%
Huge, thus may be difficult to replace any lost EU trade if leave brexit
UK services by sector summary
Runs surpluses for most except ‘other personal travel’ (exports services more than it imports)
4 traditional modes (types) of services
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
Pressure for 5th mode to be included: what is this?
Services in boxes i.e services that make up a part of manufactured goods.
Currently have to pay tariffs
Aims of SEM (2)
Increase firm efficiency
Benefit consumers
How does SEM do this
Remove NTBS
(Since global tariffs have fallen following trade round agreements, so NTB remains a bigger barrier)
SEM impact on services was limited. Why? (2)
Nature of service made it harder to see benefits E.g legal - communication issues
Many service sectors didn’t achieve full harmonisation financial services e.g banking in Spain required foreign banks to hold higher capital reserves.
So EU-UK TCA was able to get no tariffs, but unable to include services.
Where did EU and UK find agreement to cooperate… i.e in sectors where (2)
Trade barriers are low
The UK does not have a large share of exports within the EU, or an advantage (UK had comparative advantage in services, thus didn’t want to grant free movement of services) I.e focuses on traded goods not services
So why is an agreement on services less likely (3)
UK has a comparative advantage in services (don’t wanna give them too much power)
Services harder to negotiate terms for - more complex
Services are linked to free movement of people (free movement of people was not allowed anymore in TCA, so thus harder to cooperate) as opposed to goods which dont require labour movement.
Do gravity models apply to both goods and services?
B) statistic on services following distance increase
Yes - Further away = less trade flows (applies to both goods and services, although IT advances make services less reliant on distance. So being close (neighbouring EU countries is important for trade)
B) 10% increase in distance leads to a 7% fall in services trade (distance does still matter for services! I.e gravity model holds)
What breaks gravity model in the UK
US - UK exports a lot of services to the US despite the long distance, so an anomaly
Best model for services
Norway option. Ensures trade services not harmed
But didn’t chose this option as UK didn’t like the freedom of people - wanted their own immigration policy
WTO rules had GATS: General agreement on trade in services -
What were the implications for UK service providers
Passporting - UK service providers must adhere to rules in each individual country.
(Particularly hard for banks as mentioned in essay as have to properly set up!)
Regional impact of Brexit in the UK
Estimated Brexit will impact manufacturing sector most, so areas of manufacturing impacted the worst. (Increased regional inequality
Also services within those regions are negatively impacted too due to services in boxes
Brexit impact on economic growth up to 2033 for:
Norway option
Strike a free trade deal with EU
No deal
Norway option (remain in SEM) = -2%
UK free trade deal with EU = -5%
No deal = -8%
Cross Whitehall exit analysis also looked at NTB tariff equivalent cost by sector
A) retail and wholesale
B) financial services
NTBS for retail and wholesale were equivalent to a 7-20% tariff!
Financial services 5-10%
Complies with NTBs being equivalent to a 8% tariff
What did Cross Whitehall estimate in terms of regional impact up to 2033
North East suffer: up to 16% fall in GDP
West Midlands: up to13% fall
London least impacted: up to 3.5% fall
Why are West Midlands and North east hit hardest (2)
Industry type in these regions and their supply chains (manufacturing hit worse as mentioned)
Although London producers most services exports in total, WM&NE export a greater proportion of their services to EU (NE -49% of service exports go to EU, WM 45%) so thus are most negatively impacted by Brexit
UK’s future service agreements with non-EU may be difficult to negotiate. Why? (4)
Service agreements are harder to negotiate - more complex than goods
Services often entail free movement of people more than goods. Uk doesn’t like that!
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 just not open up their services sector to the UK services are competitive (protectionist)
