Download Briefing Paper 51 Briefing Paper 51 – December 2020 Ilaria Fusacchia, Luca Salvatici and L. Alan Winters Key Points Introduction The Baseline Modelling Trade Policy The Effects of Brexit Incomes and Welfare Is the Global Tariff an Improvement? Has Signing a Free Trade Agreement Helped? Conclusion Key points Even with the free trade agreement (FTA) announced on Christmas Eve, Brexit increases UK-EU trade costs, reduces trade between them, and requires resources for form-filling, queuing, etc. These in turn, lead to changes in consumption which reduce UK residents’ welfare. Exports of value added will fall by nearly 5.5% relative to a pre-Brexit scenario and GDP by 4.4%. If there had been no FTA, each of these harms would have been about one-third larger and the variability of the losses across sectors would have been larger. The biggest losses in UK exports to the EU are predicted to be in motor vehicles, chemicals, and food. These large declines in gross exports of goods reduce the indirect exports of their suppliers of services very significantly Brexit will have a major impact in terms of reducing global value chains. The competitiveness of UK inputs into EU exports will induce declines in [...]

Download Briefing Paper 48 Briefing Paper 48 – September 2020 Pierluigi Montalbano, Silvia Nenci, Nicolo Tamberi and L. Alan Winters Key Points Introduction: Brexit and ACP countries Do ACP countries’ incomes depend significantly on UK-EU trade? Cocoa, Brexit and Rules of Origin Conclusion Appendix and References Key Points Brexit will impinge on the African, Caribbean and Pacific (ACP) countries currently governed by the Economic Partnership Agreements (EPAs) negotiated by the EU. The main reason for this is that UK incomes, and hence demand for ACP products, will be lower than expected over at least the next decade. There is also a concern that the new Brexit-induced frictions on UK-EU trade will reduce the demand for ACP inputs into the goods that the UK and EU trade with each other: so-called “indirect effects” on exports. Our empirical results show that, while these “indirect effects” on ACP countries’ exports may exist, their economic effects will be tiny in aggregate even in the case of a ‘No Deal’ Brexit. This is because the ACP countries supply only small amounts of inputs into the products involved in UK-EU trade. In addition, we show that in one industry in which ACP inputs are [...]

Download this Briefing Paper Briefing Paper 44 – July 2020 Yohannes Ayele and L. Alan Winters Key Points Introduction What has happened since 2016? Effect of Exchange Rate Changes on Prices and on Trade Quantities On consumer prices Global Value Chains Entry and Exit in Export Markets Understanding the UK Economy’s Response to the Brexit depreciation Conclusion Appendix and references Key Points The effects of exchange rate changes on prices and trade are difficult to predict with confidence. However, empirical results suggest that when a country depreciates its currency, import prices are likely to rise significantly, but by a smaller percentage than the depreciation. The extent to which these import price rises affect the cost of living and the cost of local production depends on the shares of consumption and inputs that are imported. Developed country exporters pass a relatively large portion of a depreciation onto importers of those products, the proportion being slightly smaller for more sophisticated goods and the more efficient exporters in a sector, and larger when the imported inputs account for a large share of production costs. The UK’s relatively heavy involvement in international value chains helps to explain why the June-2016 depreciation of [...]

Download Briefing Paper 43 Briefing Paper 43 – July 2020 Peter Holmes, Julia Magntorn Garrett, L. Alan Winters Key points Introduction Trade in Goods – Rules of Origin Trade in Goods – Technical standards (TBT) Trade in Goods – Sanitary and Phyto-sanitary regulations (SPS) The Level Playing Field (LPF) and Government Procurement Trade in Services and Investment Three areas of difficulty The Temporary Movement of Natural Persons Conclusion Key points Both the UK and the EU have now published their draft texts for a Comprehensive Free Trade Agreement. The UK’s draft Free Trade Agreement (FTA) with the EU is very different from the vision implied in the Political Declaration which the UK and EU agreed as the basis of their future negotiations. The various points of divergence would require long and complex negotiations to resolve. In some areas the UK is unwilling to agree such deep integration as the Political Declaration foresaw and which the EU is seeking; the most infamous of these is the so-called level playing field, but it also includes government procurement rules. The UK protests that these are not consistent with the ‘ordinary’ FTA that it seeks with the EU. In other areas, the [...]