Post-Brexit Evidence Flashcards
According to gravity models which EU member states should be most impacted by Brexit
Ones in closer proximity, and trade a lot with UK e.g Ireland - Nearly 7% of GDP is from exporting to UK!
One benefit of Brexit was:
UK is free to make agreements with other countries. Name examples
Ones with Australia and NZ, but gains from these agreements small (less than 0.1% UK GDP by 2035) compared to loss of leaving EU
One with US, US declined!
So not really much of a benefit!
Why were gains small from such agreements
As UK was weaker party in negotiations - so gave sensitive concessions e.g agricultural access to UK markets
4 benefits of Brexit to UK (which weren’t so beneficial, have evaluations)
Strike own trade agreements (as mentioned)
Become more free market (reduce red tape) to improve business competitiveness
Develop own technical standards
FDI more attractive as seen as ‘flexible’ economy
2nd benefit: UK becomes more free market (reduce red tape) to improve competitiveness
How could they do this? (2)
Since not part of EU, reduce social policy!!!
Reduce environmental standards
3rd benefit: UK develops its own technical standards. Why may this not actually be good?
If UK standards diverge from EU standards - may need to produce 2 standards, increases costs and thus may deter trade
(Solve via regulatory alignment through mutual recognition agreements! E.g UKCA and CE!)
So if 2 standards, how to solve?
EU and UK agree on regulatory alignment through mutual recognition agreements (recognise and allow EU standards to pass in the UK, and let UK standard pass in EU)
E.g UKCA and EU’s CE mark
4th benefit: FDI inflow to UK more attractive since seen as a flexible economy: this hasn’t actually happened. Why?
Inward FDI to UK fall 22% by 2026
FDI 2021 fallen from 43bn to 23bn 2022!
Uncertainty - Firms consider relocating back to EU27 since NTBs reintroduced as not part of SEM
So after Brexit - NTBs reintroduced since UK left customs union and SEM. However TCA kept tariff free, provided goods meet required rules of origin
Implications of NTBs reintroduced to firms decision
Firms may not export (either out of will since additional paperwork etc, or inability since may increase costs for them), or move operations to EU27
How did VAT (an NTB) become more of an issue
Requires importer pays immediately when the UK good arrives in the EU, causing cash flow problems.
Previously, VAT payable was not immediate, importer could sell the product, collect the VAT and transfer the VAT revenue to the government
What is the EU-UK TCA rule of origin for vehicles
55% of components must be EU or UK (Hard as for electric vehicles most batteries from China)
Preference utilisation rate (PUR)
B) UK PUR?
Shows % of UK exports to EU that were eligible for tariff free (meet rules of origin)
B) 74% of exports don’t pay tariff since meet ROO
PUR varies by sectors
If tariff is low, producers more likely to just pay and thus PUR lower (since savings from the tariff removal are low so may not justify effort/cost of complying to ROO)
Thus high tariff goods have a higher PUR
Tariff range 1-5% PUR vs 20%>
For 1-5% (low tariff) - 70% PUR (lower since savings may not justify effort/cost of complying to ROO)
91% for 20%> (higher tariff so more incentive to comply, hence higher PUR)
How is effects of Brexit regressive in terms of firms
SME are disproportionally affected worse - since don;t have specialist export departments, so have to employ customs agents to do this stuff for them.
Export less, but face similar customs hurdles/costs as large enterprises
How have SMEs tried to mitigate this
Set up distribution centre in the EU27 so only have one set of customs procedures
Why Brexit a threat for automobile industry (3)
If UK diverge from EU regulation for electric vehicles, produce 2 standards (for Uk market and EU) higher costs thus deter trade
Also not involved in setting standards (so new standards may incur further costs to react to it)
Disruption to supply chains - UK cars 70% components are from EU. Customs checks can disrupt JIT and stop production line
Processed foods neg impacted
Custom delays may mean foods perish
Post Brexit evidence; what has happened to UK trade openness
Fallen relative to its competitors
Springford used counterfactual analysis (doppelgänger method - comparing countries that matched UK before Brexit in order to estimate UK growth as if it had stayed)
What did they find for difference in 2022 Q2.
(Don’t confuse with Cross Whitehall - measuring economic growth up to 2033 for different Brexit options e.g no deal, EU-TCA, Norway, and also looks at regional losses e.g NE -16% loss, 13% WM, London 3.5%)
Shortfall of 5.5% of GDP (£33bn) if it had stayed in EU
Criticism of this approach
Ignores impact of COVID and Ukraine war
Investment impact using counterfactual in Q2 2022
B) why is this shortfall bad
Shortfall of 11% (£12bn)
B) less investment since UK not as attractive since outside SEM. Means slower UK productivity growth
Trade in goods counterfactual
Shortfall of 7% (£15bn)
Trade in services impact
Hard to measure - issues regarding research methodology
Springford (THE GUY DOING THE COUNTERFACTUAL) says about services
B) reason?
Services have recovered , but finance and transport have not performed as well compared to other economies.
Since NTBs are high in those sectors
So goods worse affected than services (makes sense as RMB goods saw greater benefits of SEM, while services didn’t, so leaving SEM with these effects is expected)
Also rules of origin (3-5% equivalent tariff) e.g 55% components of cars must be UK/EU
And Brexit has made supply chains complicated (explained in automobile industry - custom checks can prevent JIT and production)
