Presentation by Dr Angus Armstrong, NIESR

12 Pages·2016·1.02 MB·English

All Party Parliamentary Group
FREE TRADE AGREEMENTS and the
IMPLICATIONS of Brexit for the UK

Dr Angus Armstrong, ESRC Senior Fellow
@angusarmstrong8

E-mail: [email protected]
1st November, 2016
National Institute of Economic and Social Research
1. Gains from trade
“Thousands of important and
intelligent men have never been able
to grasp the principle of COMPARATIVE
ADVANTAGE and believe it even after
it was explained to them”
Paul Samuelson
National Institute of Economic and Social Research
2. Distance matters
UK Export markets (£bn), 2013 (ONS)
Goods Services Total % Total
EU 27 154.9 72.8 227.7 45%
US 40.6 49.5 90.1 18%
China 13.2 4.2 17.4 3%
Swiss 6.1 9.7 15.7 3%
India 6.1 2.0 8.0 2%
Australia 4.3 5.4 9.7 2%
Canada 4.0 3.5 7.5 1%
Source: ONS and NIESR
National Institute of Economic and Social Research
3. Global value chains
iPhone 4. Factory gate price of $144
Source: OECD
National Institute of Economic and Social Research
4. Services matter more than goods
EXPORTS BY TWO MEASURES
Goods Services
40%
64%
60%
37%
GROSS VALUED ADDED
Source: ONS (LHS, 2013), OECD (RHS, 2011) & NIESR
National Institute of Economic and Social Research
5. GATS Modes of services trade
Mode 1: cross-border supply e.g. call centre (c.20%)
Mode 2: consumption abroad e.g. foreign students (c. 15%)
Mode 3: commercial presence e.g. banking passports EU (c.60%)
Mode 4: presence of person e.g. temp. & service contract (c.5%)
• Is there a Mode 5 (c. 30%?): embedded in manufactures
Source: GATS, EC and NIESR
National Institute of Economic and Social Research
6. Trade taxonomy by function
Most Favored
Nation Status
(WTO)
Free trade
area
(EFTA)
Regulatory
union
(EEA)
Single
market
(EU)
Source: NIESR
National Institute of Economic and Social Research
7. Domestic value added by industry
As per cent of total gross exports, 2011. Source: OECD TiVO database
16%
14%
12%
10%
8%
6%
4%
2%
0%
National Institute of Economic and Social Research
8. Overseas contract enforcement
Body Institution Countries Cases per
year (approx)
EU European Court of Justice (ECJ) 28 1,700
European Economic European Free Trade Area Court 3 26
Area (EEA) (EFTA)
World Trade Dispute Settlement 160 25
Organization (WTO) Understanding (DSU)
Investor State International Court for 59
Dispute Settlement Settlement of Investment
(ISID) Disputes (ICSID)
Source: NIESR
National Institute of Economic and Social Research
9. Impact: levels and long term
Brexit implies less ‘integration’ or trade & investment with EU
This implies less specialisation and less productivity
Which implies a lower level of output than otherwise the case
How much depends on new trade & enforcement arrangements
By 2030 (most effects by 2020) relative to projected output without Brexit
OECD LSE/CEP HMT NIESR
WTO/FTA EEA/FTA EEA FTA WTO EEA FTA WTO WTO+
△Trade (%) -15 -12.6 -9 -17 -21 -14 -16 -25 -22
△Invest (%) -27 0 -10 -18 -22 -10 -17 -24 -24
△GDP (%) -5.1 -7.9 -3.8 -6.2 -7.5 -1.8 -2.1 -3.2 -7.8

Source: NIESR, central points of range estimates
National Institute of Economic and Social Research