1. BREXIT: Which industries might see an impact if we fall off the cliff edge? Dr. Michael Gasiorek InterAnalysis & University of Sussex Going Global May 2017

2. Overview
“Falling off the cliff-edge” means no free trade deal with the EU:
What matters for market access?
Relations with the EU and future market access
Market access to the rest of the World
Identifying possible export opportunities

3. 1. Exporting and market access
Factors impacting on market access
costs of trade (transport, finance…)
border costs / formalities
tariffs
non-tariff measures (barriers)
standards and conformity assessment
regulatory issues, government procurement, competition policy
rules of origin
The nature of the supply chain: importance of trade in goods and services and how UK firms are integrated in value chains

4. 2. Relations with the EU:
Just under 50% of UK imports and exports of goods and services go to the EU
Goods trade accounts for nearly 60% of UK exports, and around 75% of UK imports
The next most important export partners in order of importance are USA (14.8%), China (3.5%), India (2.6%), and Canada (2.5%)
The most significant sectors, other than fuels, exported to the EU are machinery (11%), vehicles (11%), pharmaceutical products (8%), electrical machinery (7%), aerospace (5%)

5. 2. Relations with the EU: Leaving the customs union entails:
Freedom to set tariffs on imports from all countries
Therefore UK will now by treated by the EU as a ‘third country’
Customs declarations
Border checks on trade between the UK and the EU
Tariffs on bilateral trade between the EU and the UK, unless a free trade agreement is signed, and/or there is some form of transitional arrangement.
If there is a FTA:
This will require rules of origin. Estimates of the costs of rules of origin suggest these could be equivalent to up to a 10% tariff.
Has to cover “substantially all” trade (circa 90%), which in turn means (i) a sector specific deal only, eg. on cars is not possible; (ii) tariffs may be imposed on some sectors
What will be the costs of all this for your firm?

6. 2. Relations with the EU: Leaving the single market entails:
Ability to control migration
Absence of mutual recognition (of standards). Within the EU any product lawfully sold in one country can be sold in any other EU country.
UK firms will need to produce to the appropriate EU standards, which may be specific to each country
UK firms will need to prove that they produce to these standards (conformity assessment).
Greater restrictions on services trade (eg. passporting and financial services)

7. 2. Relations with the EU:
Research on the costs of non-tariff measures between the US and the EU, in comparison to intra-EU trade suggest these are often significantly higher than existing EU tariffs.
Transport equipment: %
Post and telecommunications: 11.7%
Textiles: ` 19.2%
Electrical and optical equipment %
Food, beverages and tobacco: 5.8%
(Source: Berden, Francois et.al 2009)
There might be ways of mitigating against some of the border / regulatory costs through electronic documentation procedures, trusted-trade programmes, pseudo customs union arrangements, but additional costs will be hard to avoid especially as EU and UK norms diverge over time

8. 2. Relations with the EU:
The nature of the supply chain / value chain will have an impact on the export opportunities, the changes in trade and production
There are approx. 3.8 million UK jobs directly linked to exporting to the EU
Nearly 40% of these jobs are in turn linked with EU exports to the world (i.e. the UK is part of EU value chains)
In comparison, 4.5 million jobs from UK exports to the rest of the world:
Approx. 15% of these are linked with ROW exports to the world
So the way in which the UK is linked to EU value chains is very different to ROW value chains so once again falling off the cliff-edge would matter

9. Out of 97 industries exporting to the EU:
For 29 industries more than 70% of exports go to the EU:
agriculture
food
toys
wood products
footwear
textiles and clothing
For over 70 industries more than 50% of exports go the EU. This includes:
aircraft
rubber and plastics
chemicals
iron and steel
tools

10. 3. Market access to rest of the world?
Given that market access to the EU is almost certainly going to be more difficult, liberalising access to other markets becomes more significant
Three aspects to this:
UK position in the WTO, and establishing UK tariffs with the rest of the world
UK relations with the 50+ countries the EU (and therefore the UK) currently has free trade agreements with.
Signing free trade agreements with new partners: eg. USA, Japan, China, India, Australia, New Zealand…Very approximately a 1% decline in UK export to the EU and the current countries we have a free trade agreement with would, would require a 3% increase in exports to all of these possible new FTA countries
Falling off the cliff-edge means that each of these becomes more important

11. 3. Market access and new FTAs?
Average EU (UK) tariffs are low. For example 90% of what the EU exports to the US has a tariff of less than 5%; and only 1% of exports have a tariff greater than 10%
As with access to the EU, improved access to eg. US, China, Canada will depend critically on reductions in non- tariff measures
NTMs are typically the areas in a negotiation which are the hardest to achieve
Any agreements therefore almost certainly some years away, need to be wary of going for quick shallow deals

12. 4. Identifying export opportunities:
Export opportunities depend on (changes in) competitiveness / supply capacity, and on (changes in) demand
Use the trade data to identify in which products the UK is doing well, and where demand is changing
Take the top 200 products UK exports to the world
Identify missed opportunities:
Those products where relative world demand is going up, but share in UK exports going down
Those where share in UK exports is rising but at a slower rate than relative world demand

13. 4. Identifying export opportunities:
Export opportunities depend on (changes in) competitiveness / supply capacity, and on (changes in) demand
Use the trade data to identify in which products the UK is doing well, and where demand is changing
Important to consider these in the negotiations, and to identify the tariff and non-tariff barriers to trade.
Otherwise cliff edge might have a bigger impact

14. Identifying missed opportunities
Comparing 2012 with 2016
Change in UK supply to the world
Negative
Positive
Change in World demand
Retreat 31
Declining Star 15
10.43%
2.43%
Missed Opp. 47
Rising Star
102
11.22%
39.53%
Missed Opportunities:
47 products where relative world demand is increasing while relative UK supply is declining. These products account for over 11% of the UK’s trade
Is there something wrong with the UK’s export strategy in these markets?

15. Identifying missed opportunities
Comparing 2012 with 2016
Change in UK supply to the world
Negative
Positive
Change in World demand
Retreat 31
Declining Star 15
10.43%
2.43%
Missed Opp. 47
Rising Star
102
11.22%
39.53%
Rising Star:
102 products where UK exports are growing in growing market, but….
… for 44 of these (accounting for nearly 20% of UK exports) world demand grew relatively more than UK supply…
… so these are also missed opportunities, or where there is space for improvement.

16. What about for a particular product? Whiskies:
Comparing 2012 with 2016
Countries to whom the UK is exporting
Negative
Positive
Countries where demand has changed
Retreat
Declining Star 57 15
20.41%
7.24%
Missed Opp.
Rising Star 25 65
8.26%
63.97% (16.61%)
Missed Opportunity
25 countries where demand is growing but UK supply is in relative decline….

17. What about for a particular product? Whiskies:
Comparing 2012 with 2016
Countries to whom the UK is exporting
Negative
Positive
Countries where demand has changed
Retreat
Declining Star 57 15
20.41%
7.24%
Missed Opp.
Rising Star 25 65
8.26%
63.97% (16.61%)
Missed Opportunity
25 countries where demand is growing but UK supply is in relative decline….
Rising Star
65 countries where demand is growing and UK is growing, but…
…in 33 of these, accounting for nearly 45% of UK whiskey exports, world demand grew relatively more than UK supply

19. 4. Conclusions: Market access is about much more than tariffs
Leaving the EU is an exercise in increased bilateral protection
Offsetting this both in terms of relations with the EU and other developed countries will be a difficult challenge
No deal is therefore a bad deal
Especially in a context where the UK is closely integrated into EU supply chains in a very different way to its links with the rest of the world
Identifying the sectors and countries and barriers where there is the most scope for increasing trade is extremely important
A free trade area is not free

20. Talk to us: InterAnalysis +44 (0) 1273 234641  info@tradesift.com
Sussex Innovation Centre
University of Sussex
Brighton
BN1 9SB UK
+44 (0)  