‘Eyes wide open’ The importance of a smooth transition to a new EU deal Speakers: Carolyn Fairbairn , CBI Director-General Rain Newton-Smith , CBI Chief Economist Chair: Professor Tony Travers Thursday 6 July | 18.30 – 20.00 Twitter Hashtag : #LSEBrexit Old Theatre, LSE @LSEEI
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THE EU IS THE WORLD’S DEEPEST PREFERENTIAL TRADE AGREEMENT Depth of trade agreements: number of legally enforceable provisions Source: “Trading off a ’soft’ and ‘hard’ Brexit”, Mulabdic, Osnago & Ruta; CEPR/World Bank 2017. 5
UK EXPORTS HAVE BECOME MORE FOCUSSED ON SERVICES, ESPECIALLY IN EU TRADE Share of total exports, % 100 Services Services 90 Services accounted for 80 40% of EU trade in 2015, up from 23% in 1999 EU 70 Goods Goods trade 60 50 Services 40 Services accounted for Services 48% of non-EU trade in 2015, 30 Non-EU up from 42% in 1999 trade 20 Goods Goods 10 0 1999 2015 6
UK IS HIGHLY COMPETITIVE IN SERVICES UK Revealed Comparative Advantage in intra-EU and extra-EU trade 1 Score of +1 implies UK accounts Intra-EU RSCA for all exports, RoEU none 0.8 Extra-EU RSCA 0.6 0.4 0.2 Score of 0 implies export shares 0 in UK and RoEU are equal -0.2 -0.4 -0.6 -0.8 Score of -1 implies RoEU accounts for all exports, UK none -1 Insurance & pension Financial services Other business Transport Telecoms & IT services services services Source: CBI analysis of OECD & UN Comtrade data. 7
SOME SECTORS COULD SEE A SIGNIFICANT RISE IN EXPORT TARIFF COSTS Average MFN tariff across all sectors is 4.3% (average MFN tariff per sector below) Billions (£) 8.5% 10.5% 3.5% 16.4% 10.3% 1.6 1.4 Additional tariff costs depending on UK content in exports 1.2 1 0.8 0.6 0.4 0.2 0 Motor vehicles Agriculture Textiles, clothing & footwear Food, drink & tobacco Chemicals (excl. pharma) Source: CBI, Heteronomics; HMRC; OECD. 8
WEAKER POUND IMPROVED COMPETITIVENESS % balance ITS: Has your competitiveness improved or worsened on three months ago? 40 EU (lhs) Non-EU (lhs) Long-run average 30 20 10 0 -10 -20 -30 -40 2004 2006 2008 2010 2012 2014 2016 Source: CBI, Industrial Trends Survey. 9
NON-TARIFF BARRIERS BY INDUSTRY Non-tariff barriers by sector Chemicals (ex pharma) Machinery Agriculture 160 138 133 140 132 118 120 102 100 85 82 76 80 60 Aerospace 60 52 51 & defence 41 36 40 22 22 20 20 20 9 0 Sources: CBI; World Bank. 10
UK GOODS & SERVICES EXPORT BY MARKET TYPE £bn 600 510 100 500 19% 100 100% 400 310 20% 62 300 26 12% 222 61% 5% 200 44% 100 0 EU EFTA FTA/Customs Total FTA & US Non-US Total Union Single Market Sources: Making Brexit Work for British Business, Peter Sands et al. 11
IN 10 YEARS’ TIME, THE EU WILL STILL BE OUR BIGGEST EXPORT MARKET FOR GOODS Forecasts for UK goods exports over the next 10 years ($, billions) 5.0% EU 4.8% US 6.9% Africa and Middle East 6.2% Rest of Asia 7.8% China 8.8% India 2.9% Japan 4.3% Russia 5.4% Brazil 0.0 50.0 100.0 150.0 200.0 250.0 300.0 350.0 2016 2026 Source: Oxford Economics. 12
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