The challenges facing UK firms: trade and supply chains

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Briefing Paper 73 – March 2023

Sophie Clarke, Michael Gasiorek and Aldo Sandoval Hernandez

Key Points

Business Challenges and Opportunities

Difficulties and disadvantages of the TCA

Supply chain challenges

Conclusion

Methodological note

Key points

• Analysis of three surveys of firms conducted by the British Chambers of Commerce reveals that the biggest challenge facing firms across 2021 and 2022 has been increased costs. Labour, skill and supply chain issues are also major concerns but ease slightly in mid-2022.
• Significant issues for firms working with the new TCA trading arrangements with the EU are those associated with red tape and bureaucracy, shipping/transport issues and delays, increased costs, and customs and border controls. The least significant issue, in the context of the TCA, would appear to be labour and skill issues.
• Specifically related to the TCA, the biggest changes over time are the rise in the significance of taxes, tariffs and duties for firms, the role of increased costs for firms, and the increased perception of a competitive disadvantage for the UK.
• There is a notable rise in negative sentiment in the North East and in Northern Ireland. Negative sentiment is the highest in public administration, and in agriculture, and is also relatively high in manufacturing. The lowest negative sentiment scores are in education and legal services.
• According to the latest survey, Brexit and COVID-19 are the principal causal factors in supply chain shortages, with the most significant shortages amongst electronic components/goods and labour.
• The most frequently cited opportunity refers generically to business expansion opportunities, but was mentioned in less than 2% of the responses.

It is now over two years since the introduction of the Trade and Cooperation Agreement (TCA) between the UK and the EU. The introduction of the TCA’s new trading arrangements has led to a range of challenges and opportunities for firms in the UK. In addition, the global economy has been beset by some further stiff challenges over the past few years, notably the Covid-19 pandemic, and, over the last year, the disruptions caused by Russia’s invasion of Ukraine to both energy markets and food security. The British Chambers of Commerce (BCC) undertakes regular surveys of its firms across a range of issues – including international trade, and the results of these are regularly published in BCC reports and press releases. The most recent BCC report, published in December 2022, evaluated the TCA two years since its inception and was largely based on the July 2022 survey. (more…)

Charlotte Humma March 1st, 2023

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Trade and Security: The EU’s Unilateral Approach to Economic Statecraft

Briefing Paper 70 – October 2022

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Erika Szyszczak

Key Points

Introduction

Subsidies granted by third states

The Foreign Subsidies Regulation (FSR)

The definition of a concentration

Ex ante mandatory notification: qualifying thresholds

Financial contribution

An actual or potential distortive effect on the EU internal market

Implications for the UK

The Anti-Coercion Instrument

The definition of economic coercion

When diplomacy fails

Compatibility with international law

Conclusion

Key Points

• The EU is developing new legal instruments to respond to, and provide remedies against, trade policies of third states which harm the EU internal market.
• While China is the main threat to EU trade security the measures will be applicable to all third states, especially Russia, the US and the UK.
• The proposals give the European Commission a central role in the investigation and enforcement of trade remedies but will have significant consequences for business
• The proposals have less than transparent criteria for their application. This gives the European Commission wide discretion but may also entail further guidance, using soft law, if the European Commission wants to avoid legal challenges to the exercise of its new powers.
• The Anti-Coercion Instrument attempts to bypass the slow procedures of the WTO and this raises questions as to whether the measure is compatible with WTO and international law.
• The use of unilateral measures for trade security is a new form of statecraft for the EU, but it may undermine the EU’s pledge to maintain a rules-based global trading order.

Introduction

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Cosmo Rana-Iozzi October 12th, 2022

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The Energy Curtain – All Eyes On Fossil Fuel Prices This Summer

Briefing Paper 68 – August 2022

Camilla Jensen, Guillermo Larbalestier, Peter Holmes

Key Points

Introduction

Background

Oil versus Gas                                                                                                                    

The importance of market power to policy analysis         

Import tariffs, import bans or a buyer’s club price cap?

Policy evaluation

Conclusion

                                                                                                                                                                             Download Briefing Paper 68

Key Points

• Economic sanctions against Russia targeted at oil and gas could lead to the formation of an Energy Curtain, creating a renewed East-West divide not experienced since the dissolution of the Soviet Union in 1991.
• The aim of the sanctions is two-fold: First, to help stop the Russian invasion of Ukraine by reducing Russian revenues from oil and thus to inflict economic pain on Russia. Secondly, to decouple the West from a high dependency on Russian oil and gas.
• Russia is the largest supplier of petroleum oils and natural gas to the European Union, but the trade-related policies implemented and announced thus far concerning these commodities may have failed to reduce dependency on Russia or cripple its foreign revenues to finance the invasion.
• Due to Russia’s alliance with OPEC (as a member of OPEC+), Europe may not have sufficient influence to force the price of Russian oil downwards, neither by imposing tariffs nor through other sanctions that have been mooted. Tariffs risk driving up the world market price, at least in the short-run, by increasing OPEC’s pricing power.
• Import bans are the most effective means to achieve decoupling and the longer-term objective of creating an Energy C In the short term, there could be a similar side-effect, as with tariffs, that puts upward pressure on the world market price. A ban is also equally likely to be circumvented because Russia could redirect the rejected supplies to other countries. Yet, since a ban would force Russia to sell to third countries at a discount, it could be the best policy option for now.
• The latest proposal formulated among G7 leaders is a price cap in a buyers’ club, but this is likely to suffer from similar problems and would in particular be difficult to administer.
• Oil prices have responded to the different trade policy actions by Western governments, whereas gas prices have been more under the influence of Russia’s policies, few Western policy actions concern Russian gas.

(more…)

Cosmo Rana-Iozzi August 3rd, 2022

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Supply Chain Resilience: The dangers of ‘pick n mix’

Briefing Paper 67 – April 2022

Michael Gasiorek

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Key Points

Introduction

Background

Why is greater supply chain resilience desired?

The interest in supply chains is not just about resilience

What have been some of the policy responses?

The legitimacy of policy responses to supply chain resilience

What is the role of international coordination and free trade agreements?

Conclusion

Key points

• Economic and geopolitical shocks have raised concern over supply chain resilience whilst environmental problems highlight the need for sustainable supply chains.
• Resilient and sustainable supply chains require firms to have detailed knowledge of their production processes, and possibly labour standards both upstream and downstream and digitisation is making this traceability easier.
• In recent years, various countries have brought in a range of measures with a focus on enhancing the resilience of supposedly strategic sectors, but some of these policies have been introduced to protect domestic industry from foreign competition.
• The US has consistently introduced the greatest number of trade restricting measures, followed by the EU.
• Many of the policy interventions are also a direct response to concerns regarding China’s role in the global economy and policies pursued in China.
• The risk is that supply chain resilience is used as a get-out clause for a wide range of industrial policy interventions to disguise protectionism.
• We need to recognise that vulnerability can be either domestic or international and we need a taxonomy for understanding different possible legitimate reasons for being concerned about supply chains.
• In many circumstances, businesses themselves will be best placed to build resilience, hence we need clearer analysis of the circumstances under which government policies may be justifiable.
• Supply chain vulnerabilities have a strong international and multilateral dimension and will require cooperation and coordination between countries.
• This Briefing Paper suggests ten ways more coordination could be achieved. The aim is not simply to foster greater supply chain resilience, but also to avoid the poor use of, and justification for, a suite of pick and mix national policies and to minimise the risks of disguised protectionism. (more…)

Cosmo Rana-Iozzi April 12th, 2022

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