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11 February 2022

Nicolo Tamberi is Research Officer in Economics at the University of Sussex and Fellow of UKTPO.

With trade data for the full year 2021 just released, we update our earlier estimates of the UK-EU Trade and Cooperation Agreement’s impact on bilateral trade between the UK and the EU for the first year of the agreement.

Although the TCA, signed between the UK and EU in a last-minute deal on Christmas Eve 2020, came into being amidst much fanfare, the picture of bilateral trade between both economies continues to be rather gloomy. Using the latest release of HMRC data we estimate the impact of the TCA on UK exports to, and imports from, the EU excluding gold trade.

Data speak clearly. On the one hand, whilst UK exports to the EU saw a jaw-dropping fall in January 2021 (-41%), exports quickly recovered in subsequent months, resulting in a moderate fall of -3% for the whole of 2021, relative to what exports would have been without the agreement.

On the other hand, the effect of the TCA on UK imports from the EU is strong and, more importantly, turns out to be much more persistent. In the first year of the TCA, imports from the EU fell by -32%. And what’s more, it almost looks as if EU imports would be on a falling trajectory after the immediate hit in January 2021. The results for estimated impacts on exports and imports are summarised in Figure 1.

Figure 1: the effect of the TCA on UK trade with the EU

Although the results on total trade show that the TCA did not affect aggregate UK exports beyond January 2021, running the same counterfactual analysis at a more disaggregated level reveals that EU exports of certain broad product groups have been badly hit. In particular, we find that the negative impact on UK exports of Leather and Textile & Clothing (HS 41-43, 50-67) has been persistent across all months of 2021. For these two sectors, the TCA reduced combined UK exports to the EU by -59% or £5.7bn. The next most affected export sector is Food and agriculture (HS 01-24). For this sector, the recovery has been slower than for total exports, and over 2021 the TCA reduced exports by 19% or £2.8bn.

For imports, differences across sectors are less pronounced. The most affected sector is Chemicals and plastics, whose combined imports fell by 39% (£19bn), followed by Machineries and transport equipment (-28% or £29bn) and Metals (-28% or £4bn).

In summary, the TCA has had a strong and persistent effect on UK imports from the EU, while the effect on total UK exports to the EU appears to have been rather ephemeral in January 2021 only. That said, looking beyond aggregate exports at product level data shows that UK exports in particular sectors have also been severely hit.

One may ask what is driving these negative impacts.  After all, in the TCA, the provisions agreed on market access for goods ensure that, at least in principle, trade between the two Parties remained tariff-free and quota-free to minimise disruption for producers exporting and importing goods to and from the EU. Practically, however, we have seen that the disruption has been significant.

There is anecdotal evidence from UK businesses on the impact that the new customs and regulatory border with the EU has had on trading goods (UKTPO Briefing Paper 62). Generally, it has become more difficult and costly to trade with the EU as firms now face bureaucratic costs that were otherwise not present.

We acknowledge that isolating the effect on trade of the TCA is difficult because of several other concomitant shocks, in particular the Covid-19 pandemic. However, our previous analysis has shown the robustness of our estimates to the use of more-sophisticated econometric techniques. See the UKTPO Briefing Paper 57 and Briefing Paper 63.

Note on Methodology

In this blog, we update our analysis of the impact of the TCA on UK-EU trade using a difference in difference approach. More details on the methodology can be found in our earlier analysis of the TCA effects on trade in UKTPO Briefing Paper 57. In a nutshell, the estimation compares UK trade with the EU relative to UK trade with other comparable trading partners (the OECD and BRICS countries) over the period 2017-21. We exclude Canada and Japan from the comparison group as they signed a trade agreement with the EU in the period 2017-19. However, results are unchanged if these countries were also included.

Disclaimer:
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.

Republishing guidelines:
The UK Trade Policy Observatory believes in the free flow of information and encourages readers to cite our materials, providing due acknowledgement. For online use, this should be a link to the original resource on our website. We do not publish under a Creative Commons license. This means you CANNOT republish our articles online or in print for free.

February 11th, 2022

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29 July 2021

Yohannes Ayele is Research Fellow in the Economics of Brexit at the University of Sussex and Fellow of the UKTPO.

Since 1 January 2021, the UK’s trading relationship with its biggest and closest trading partner—the EU—has been governed by the Trade and Cooperation Agreement (TCA). Under the TCA, UK exports to the EU face zero-tariff and zero-quota. However, to claim zero tariffs, exporters must meet the rules of origin requirements and be able to provide proof of origin. Where exporters do not meet the requirements they end up paying the tariff. Even those exporters that can meet the rules of origin requirement, because of the cost of the paperwork and requirements for proof of origin needed to claim the zero tariff, they may instead choose to pay the tariff. The latter is more likely where the tariff preference margin (i.e., the difference between MFN non-zero tariff and the zero-tariff under TCA) is very low. These problems— the rules of origin requirements and costs associated to claim zero-tariff—could be particularly challenging for smaller companies. Therefore, in practice, firms may end up paying tariffs despite the zero-tariff and zero-quota deal under the TCA. (more…)

July 29th, 2021

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23 July 2021

Nicolo Tamberi is Research Officer in Economics at the University of Sussex and a fellow of the UKTPO.

We have updated our estimates of the effects of the introduction of the Trade and Cooperation Agreement (TCA) on UK-EU trade in 2021 through to April. The methodology used was described in the UKTPO briefing paper 57 (see the appendix for details). We find that over the period January-April 2021, the TCA reduced UK exports to the EU by 18.7% and imports from the EU by 25.8% compared to the scenario in which the UK did not leave the EU.

For the analysis, we used HMRC for UK trade and Eurostat data for EU trade excluding gold from both exports and imports (HS code 7108). Over the last few months, analysts and commentators have noted a big gap between UK exports to the EU as reported by the UK and the corresponding flows reported by the EU (that is, UK exports to the EU reported by the UK and EU imports from the UK reported by Eurostat). We have investigated the issue in detail in our latest working paper and concluded that we agreed with the ONS  that UK reported data should be used instead of the EU reported mirror flows. While both the UK and the EU changed the data collection method for UK-EU trade in 2021, the changes undertaken by the EU in its reported imports are larger than those of UK reported exports.

As always, these data are provisional and could be revised in the future, so our results should not be interpreted as definitive. Our preferred estimation, which uses the synthetic control method, shows that UK exports to the EU have been dramatically affected in January 2021 (-42%) and we find some milder evidence that they were negatively affected also in April 2021 (-14.3%). Adding up the period January-April 2021, UK exports to the EU were down by 18.7%. On the other hand, UK imports from the EU saw a smaller drop in January 2021, but they remained consistently below expectations for all months of 2021 to date. Over the entire period January-April 2021, UK imports have been 25.8% less than what they would have been otherwise. This can be seen in the figures below where the blue line depicts what actually happened, the orange lines give our counterfactual synthetic control estimates for what would have happened in the absence of Brexit.

Figure 1: UK-EU trade excluding gold (HS 7108) and synthetic counterfactual

UK exports to the EU

A) UK exports to the EU

UK imports from the EU

B) UK imports from the EU

The figures show actual UK exports to and imports from the EU excluding gold (HS 7108) and the synthetic series. We estimated the model for UK trade with each EU country and then aggregated the figure to EU total.

It is clear that over the period there has been a decline in exports and imports. The decline in imports appears to have been more consistent than the impact on exports and at this stage that is still somewhat puzzling. These are also still ‘early’ impacts as they only for the first four months.

 

Disclaimer:
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.

Republishing guidelines:
The UK Trade Policy Observatory believes in the free flow of information and encourages readers to cite our materials, providing due acknowledgement. For online use, this should be a link to the original resource on our website. We do not publish under a Creative Commons license. This means you CANNOT republish our articles online or in print for free.

July 23rd, 2021

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Share this article: Facebooktwitterredditpinterestlinkedinmail 20 April 2021.

Michael Gasiorek is Professor of Economics and Director of the UKTPO. Yohannes Ayele is Research Fellow in the Economics of Brexit at the University of Sussex and Fellow of the UKTPO.

A decline in trade with the EU was expected following the coming into force of the Trade and Cooperation Agreement between the UK and the EU on the 1st of January. Nevertheless, when the UK January trade figures were released in early March, almost unanimously commentators were surprised by the extent of the decline. We now have the data for February and so in this blog we update the numbers and discuss their significance. (more…)

April 20th, 2021

Posted In: UK - Non EU, UK- EU

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Share this article: Facebooktwitterredditpinterestlinkedinmail 23 March 2021

Michael Gasiorek is Professor of Economics and Director of the UK Trade Policy Observatory at the University of Sussex. Suzannah Walmsley is Principal Consultant and Fisheries and Aquaculture Business Development Manager at ABPmer.

Last week the UK’s trade data for January 2021 came out and the evidence was pretty striking. It showed a dramatic decline in UK exports and imports in January, and particularly so with the EU. Now some of this will have been driven by Covid-related lockdown restrictions, and some of the dramatic fall in trade with the EU itself may have been driven by firms’ stockpiling in November and December to protect themselves against the much-publicised potential border difficulties arising from the UK’s exit from the EU and the end of the transition period.

In this blog we dig a bit deeper into those numbers and focus just on fisheries. (more…)

March 23rd, 2021

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Share this article: FacebooktwitterredditpinterestlinkedinmailImage of Alan Winters12 June 2020

Simon Evenett is Professor of International Trade and Economic Development at the University of St. Gallen, and coordinator of the Global Trade Alert. He is an Associate Fellow of the UKTPO. L. Alan Winters CB is Professor of Economics and Director of the UKTPO.

The COVID-19 pandemic has disrupted trade policy, along with everything else.  As nations scrambled this year to source medical supplies – equipment, drugs and personal protective equipment – 89 governments imposed 154 restrictions on exports. What is much less well known is that 154 reforms easing imports of these goods were implemented by 104 nations too. It took a pandemic for some policymakers to grasp that taxing imported soap makes no sense.

As well as up-ending trade in the medical goods, these policy shifts have the unintended consequence of providing the foundation for a new trade bargain between nations over medical supplies. As a sizeable and reliable exporter of these goods this matters for the UK and comes at the time when British ministers and officials want to showcase an independent trade policy. It is at times like these—when the big beasts of the world trading system are at loggerheads—that, traditionally, the free trading so-called middle powers lay the groundwork for the next trade deals. (more…)

June 12th, 2020

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Share this article: Facebooktwitterredditpinterestlinkedinmail Image of Alan Winters27 May 2020

L. Alan Winters CB is Professor of Economics and Director of the UKTPO. Mattia Di Ubaldo is a Research Fellow in the Economics of European Trade Policies, and Palitha Konara is a Senior Lecturer in International Business at the University of Sussex. Both are Fellows of the UKTPO. 

COVID-19 and Brexit may appear as independent shocks but, in fact, they are interrelated. First, as the UKTPO and many others have argued, because COVID has disrupted the preparation for and conduct of negotiations on the future UK-EU trading arrangements, the UK government should ask for an extension to the transition period. This would allow the UK and EU to work out details of mutual cooperation that will be beneficial on both sides of the channel. (more…)

May 27th, 2020

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Share this article: Facebooktwitterredditpinterestlinkedinmail1 May 2020

An international agreement on vital medical goods that keeps import restrictions low and constrains the use of export bans could help ensure all countries have sufficient supplies for the fight against Coronavirus, our new briefing paper proposes.

According to the report, which was produced in collaboration with Global Trade Alert, a global bargain where exporting nations give assurances medical supplies will not be cut off arbitrarily and importing governments agree not to re-introduce their import restrictions would remove disruption and uncertainty around the availability of life-saving goods. (more…)

May 1st, 2020

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Share this article: Facebooktwitterredditpinterestlinkedinmail14 October 2019

Michael Gasiorek is Professor of Economics at the University of Sussex and a Fellow of the UK Trade Policy Observatory. 

With the current state of negotiations between the UK and the EU it is easy to see why attention is focussed on the politics of a possible agreement. The contentious issue is, of course, that of the Irish border. However, the focus on the politics means that there has been little discussion of the economic impacts and specifically of the vulnerability of the Northern Irish economy to the decisions being made. (more…)

October 14th, 2019

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Share this article: Facebooktwitterredditpinterestlinkedinmail1 April 2019

Dr Ingo Borchert is Senior Lecturer in Economics and Julia Magntorn Garrett is a Research Officer in Economics at the University of Sussex. Both are fellows of the UK Trade Policy Observatory. 

During the first round of the indicative voting process at Parliament, the motion that proposes a permanent customs union attracted the second highest number of Ayes and was rejected by the slimmest margin of all eight motions.  This result shows the prevailing preoccupation with trade in merchandise goods.  Amongst other things, a customs union alone does nothing for services trade.  In this blog, we set out why the continued neglect of services trade is a major concern for the UK economy.[1] A twin-jet aircraft with just one engine on would ordinarily be bound for an emergency landing rather than for a smooth journey ahead. (more…)

April 1st, 2019

Posted In: UK - Non EU, UK- EU

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