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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). Although the TCA is a zero-tariff and quota-free trade deal, several reports indicate that it is having a negative impact on the UK’s trade with the EU (see, 1, 2, and 3). While looking at the aggregate effect of the TCA on the UK trade is important, such analysis also misses the substantial differential impact of the TCA across the UK’s devolved administrations and regions.

Regions in the same country can be affected differently by new trade barriers because of the difference in industrial production structure and, second, the differential exposure of industries to trade policy changes. In this blog, we provide a brief report on how the UK’s regional trade with the EU fared in the first quarter since the introduction of the TCA. (more…)

July 29th, 2021

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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.

 

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July 23rd, 2021

Posted In: UK- EU

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