Special Report

Changing Lanes: The impact of different post-Brexit trading policies on the cost of living

Changing Lanes examines the impact two “no deal” Brexit scenarios – reverting to WTO ‘most-favoured nation’ (MFN) or unilaterally reducing all tariffs to zero – on prices and living standards.

The report finds that the average annual household spend would rise by £260, and that over three million families would experience price rises of over £500 a year. In addition, the research shows that poorer households would be most affected by a ‘no-deal’ scenario in which tariffs and prices rose.

See also: Changing Lanes Appendix

 

Briefing Papers

Our Briefing Papers provide a unique analysis of various elements of trade policy in the post-Brexit era. In reverse chronological order:

November 2017 – Author: Peter Holmes

Consumers face many challenges post-Brexit. The new UK Trade White Paper published by the Department for International Trade in October 2017 has stated that it will give a major priority to consumers, but details remain to be spelled out. Increasing scepticism about free trade puts at risk the classic gains from trade – lower prices and better choice – and gives rise to fears of job losses from increased imports. On the other hand, some fear that Brexit – and potential trade agreements with third countries – will weaken or undermine consumer protection. In the addition to these substantive issues there are procedural questions too – how is consumer interest represented? This briefing paper addresses these issues of trade policy and consumer interests.

Read Briefing Paper 12 – TRADE AND CONSUMERS AFTER BREXIT

November 2017 – Author: Erika Szyszczak

The UK is searching for a framework for its post-Brexit trade arrangements with the EU. A clean Brexit from the EU has always been unrealistic and the EU is limited in the kind of trade arrangements it offers to third countries. This briefing paper examines the EU-Ukraine Association Agreement (AA) suggesting how a similar agreement may offer a way forward for the UK-EU negotiations. The EU-Ukraine AA reveals that the EU is willing to adapt previous Agreements to new circumstances. A similar UK-EU Agreement could provide access to the Single Market, maintain inward investment incentives and provide an attractive location for establishment of firms and enterprises, especially in the services sector – an area the UK is keen to protect. For the UK, the adoption of this approach would require less unravelling of existing UK laws, but offer some room for independence in negotiating future issues.

Read Briefing Paper 11 – A UK BREXIT TRANSITION: TO THE UKRAINE MODEL?

September 2017 – Authors: Emily Lydgate and L. Alan Winters

The EU Customs Union and Single Market created a significant volume of trade between the UK and the EU and stimulated the development of European value chains.The UK government has stated its intention to leave the Single Market and Customs Union and this remains the position of the leadership of both main political parties. Yet both enable a degree of integration far exceeding that attainable through any simple tariff-free Free Trade Area (FTA). In this briefing paper we examine the possibilities for maintaining some of these benefits in key sectors. WTO rules are drafted and applied in such a way that the UK and the EU27 could design a WTO-consistent trade agreement that goes some way towards preserving current trading conditions in a subset of sectors. We discuss how this might be achieved and also some of the limitations that such an approach entails.

Read Briefing Paper 10 – AN A UK-EU FREE TRADE AREA PRESERVE THE BENEFITS OF THE SINGLE MARKET AND THE CUSTOMS UNION IN SOME SECTORS? 

May 2017 – Authors: Kym Anderson and Glyn Wittwer

The UK has accounted for a major share of the world’s wine imports for centuries, and wine currently accounts for more than one-third of UK alcohol consumption. Its withdrawal from the European Union (Brexit) therefore will affect not only UK wine consumers, producers, traders, distributors and retailers but also suppliers of those imports. Based on a model of the world’s wine markets, the impacts of various alternative Brexit scenarios are determined through to 2025, involving adjustments to UK and EU27 bilateral tariffs on wine imports and any changes to UK income growth and the value of the pound over the period of adjustment. The research finds that in the main scenario considered, for consumers in the UK the price of wine in 2025 is 22% higher in local currency terms than it would be without Brexit, the volume of UK wine consumption is 28% lower, and the value of UK imports is 27% lower because of Brexit. Such a sales reduction in the UK would be a blow to participants in UK wine bottling, transporting, storing, wholesaling and retailing businesses, as well as restaurants and pubs.

Read Briefing Paper 9 – WILL BREXIT HARM UK AND GLOBAL WINE MARKETS?

March 2017 – Author: Kamala Dawar

This briefing paper looks at some of the legal issues that will affect the UK’s public procurement laws and policies following Brexit. When the UK leaves the EU, it is unlikely to be able to simply rollover its current procurement coverage under the WTO Government Procurement Agreement. However, this opens up the possibility of pursuing horizontal policy objectives, such as promoting SME or green public procurement, which is possible under the WTO GPA obligations, but will also need to comply with other multilateral rules. Brexit could offer the UK the possibility to craft a procurement system flexible enough to incorporate the devolved procurement legislation, under the supervision of the Competition and Markets Authority. Such an integrated approach would be beneficial for value for money, legal clarity, and enforcement. It would help to ensure conformity to WTO commitments, while acting as a counterweight against fragmentation.

Read Briefing Paper 8 – BREXIT AND GOVERNMENT PROCUREMENT

January 2017 – Author: Alan Swinbank

EU policies have directly influenced UK food supplies and prices, the profitability of farm businesses, and the rural environment and land use. While Brexit offers the UK an opportunity to design a more efficient agricultural policy that would benefit farmers and the environment, this new policy could have possible implications for consumer prices and will have to conform to World Trade Organization (WTO) rules. This Briefing Paper explores the issues around existing and continuing support for farm businesses and the rural environment, and the UK’s future agri-food trade relations.

Read Briefing Paper 7 – WORLD TRADE RULES AND THE POLICY OPTIONS FOR BRITISH AGRICULTURE POST-BREXIT

November 2016 – Author: Ingo Borchert

Trade in services is economically significant for several reasons; it directly affects UK consumers’ welfare in such sectors as telecommunications, health or retail distribution; producer services such as finance, transportation or professional services are inputs into both the production and international exchange of goods; and it makes a positive contribution to the UK’s current account. Brexit will have important repercussions for the UK’s economic ties with the EU in the realm of services markets. This paper highlights how Brexit might directly and indirectly affect UK services trade and policy-making in this area.

Read Briefing Paper 6 – SERVICES TRADE IN THE UK: WHAT IS AT STAKE?

November 2016 – Authors: Michael Gasiorek, Peter Holmes, Jim Rollo

This briefing paper provides an evaluation of the feasibility of different options for post-Brexit trade relations. With the EU accounting for close to 50% of the UK’s imports and exports of goods and services, the focus in this paper is on the UK’s future trading relations with the EU itself. Whilst all of the options listed in this paper are problematic, the aim is to examine the limitations of what may be feasible and – in so doing – to suggest a way, or ways, forward. Given that the UK’s objectives take the form of seeking to impose certain constraints on the post-Brexit outcome, we look at the extent to which each option is consistent with these ‘red lines’.

Read Briefing Paper 5 – UK-EU TRADE RELATIONS POST BREXIT: TOO MANY RED LINES?

October 2016 – Authors: Erika Szyszczak and Emily Lydgate

Article 50 of the Treaty on European Union (TEU) will govern the UK’s withdrawal from the EU. Several aspects of the interpretation and application of Article 50 TEU pose particular challenges, including domestic controversy regarding the constitutional requirements for triggering Article 50 TEU, the short time-span of negotiation, and the uncertain role for the UK in trade negotiations with the EU and the rest of the world during the withdrawal process. This paper outlines these issues, focusing in particular on the EU and international trade dimensions of withdrawal, in order to provide clarity and highlight potential pitfalls affecting both the EU and the UK.

Read Briefing Paper 4 – TRIGGERING ARTICLE 50 TEU A LEGAL ANALYSIS

October 2016 – Author: Peter Holmes

This briefing paper summarises two issues that a post-Brexit United Kingdom would face if it re-joined the European Economic Area (EEA). It introduces the concept of the EEA+EU as a ‘regulatory union’ within which products, once approved in one country, can circulate freely. Secondly, Rules of Origin (RoOs) — which in effect specify the domestic share of value-added — would need to be adhered to, raising concerns about the viability of supply chains with UK links.

Read Briefing Paper 3 – ROOS AND RULES: WHY THE EEA IS NOT THE SAME AS MEMBERSHIP OF THE SINGLE MARKET

September 2016 – Authors: Emily Lydgate, Jim Rollo, Rorden Wilkinson

This paper discusses the challenges for the UK as it attempts to redefine and renegotiate its post-Brexit foreign trading relationships. This briefing makes the assumption that the UK will not, after leaving the EU, remain part of the customs union. On this basis, the paper examines the nature of such trade negotiations; the scale of the negotiating tasks confronting the UK; and potential approaches that may reduce the immediate negotiating load. It also identifies the countries that should be prioritized for trading negotiations, and examines the likely resources that will be required to undertake these.

Read Briefing Paper 2 – THE UK TRADE LANDSCAPE AFTER BREXIT

July 2016 – Authors: Jim Rollo, Ingo Borchert, Kamala Dawar, Peter Holmes, L. Alan Winters

By electing to leave the European Union, the United Kingdom has chosen – among many other things – to leave the customs union (and the single market that includes all member states) and reassert its status as an individual member of the World Trade Organisation (WTO). In doing so, it will take sole responsibility for the control and governance of its external trade policy with all other WTO members (including the EU) within the framework of WTO rules. This paper explores the nature of those WTO commitments and how they might impact the UK from the date of its exit from the EU.

Read Briefing Paper 1 – THE WORLD TRADE ORGANISATION: A SAFETY NET FOR A POST-BREXIT UK TRADE POLICY?

 

Other publications

In addition to our Briefing Paper and blog series, the Observatory also produces various other written materials as categorised below.