29 March 2017
New analysis shows that the nations of the UK are exposed to trade with the EU in quite different ways. If the UK leaves the EU without a trade deal the effects across regions will be quite different and this should therefore influence our trading priorities
Our Fellows have analysed trade data to examine the regional and sectoral impact of Brexit as well as the overall national impact.
Their findings, portrayed in a short video animation show that choosing trade priorities on the basis of aggregate UK data does not take into account the fact that the nations within the UK are exposed to trade with the EU in different ways.
In triggering Article 50 today (March 29 2017), the UK has set off on the path of leaving the EU. As well as sorting out a deal with the EU, the UK needs to negotiate more than 50 trade agreements with other countries to keep market access at the current status, initiate agreements with new partners and confirm its schedules with the 164 member states of the World Trade Organization (WTO).
This is quite a challenge and, as some would argue, also an opportunity. How can we make sure that the UK’s international trading environment is reconstructed in a manner that benefits all parts of the UK?
Dr Michael Gasiorek, Fellow of UKTPO, Director of InterAnalysis and Senior Lecturer in Economics, University of Sussex, said:
‘Identifying which sectors matter in the negotiations is complex because you can use various criteria, such as: which sectors are most important for imports and exports; in which sectors is the UK becoming rapidly competitive; which sectors might see the biggest impact because they currently trade a lot with the EU; or where the (potential) barriers to trade are higher.’
Furthermore, as the UK will no longer be a member of the European Single Market, there is likely to be extra paperwork and added border controls for all international trade that will make it harder to do business, even if tariffs do not change at all.
Using the Standard International Trade Classification that divides trade into 66 sectors, the researchers have analysed the HMRC database of national and regional trade and identified that, if the UK doesn’t negotiate a new free trade agreement with the EU, 19 sectors will face taxes on trade and tariffs greater than 5%. This will apply on UK exports to the EU, and probably also EU exports to the UK.
These 19 sectors account for 41% of the UK’s imports from the EU and just over 30% of its exports but the shares vary between UK regions and nations. With regard to exports, these sectors account for over 35% of what the England exports to the EU, but only around 14-15% for Wales and Scotland. On the imports side, these sectors account for 53% of the imports of Northern Ireland, and only 25% of the imports of Scotland.
Aside from road vehicles, which we know to be very important for the economy, and tobacco, which is different, we see that for the UK as a whole:
‘For producers in these sectors, changes in trade with the EU are likely to matter much more, so these sectors should be part of the key priorities for the UK in free trade agreements with third countries,” explains Dr Gasiorek. “However, we can see where these goods are traded elsewhere and this could influence the priorities for renewing or creating trade agreements with others.’
Professor Jim Rollo, CMG, Deputy Director of UKTPO, Emeritus Professor of European Economics at the University of Sussex, and Associate Fellow Chatham House, explains:
‘For the individual region-sector combinations, what also matters is how much of their exports go to the EU. For example, although these sectors only account for 30% of Northern Ireland’s exports to the EU, 77% of these sectors’ exports go to the EU. Hence, any change in trade with the EU will have a big impact on those sectors in that region. Similarly for Scotland and Wales – while these sectors only account for about 15% of their exports to the EU, the EU takes nearly 58% of Scotland’s exports and nearly 70% of Welsh exports in these sectors.’
The research reveals that the sectors most exposed to trade with the EU in each of the regions are:
‘Our research shows that taking into account these national and regional differences could allow each region and nation to identify the opportunities from any new trade agreements in line with national, regional and sectoral strengths,’ concludes Dr Gasoriek.
‘The current rapid structural change in the world economy and the consequent destabilisation of global trade policy structures is a difficult environment in which to make radical changes to British trade policy,’ underlines Professor Rollo.
The challenges facing the UK on post-Brexit trade policy are unprecedented in scale. Choosing partners and sectoral priorities will be a complex task and needs the best available sectoral data for the UK and at the level of nations and regions.
The opinions expressed in this blog are those of the author alone and do not necessarily represent the opinions of the University of Sussex or UK Trade Policy Observatory.