Non-tariff measures (NTMs) could cause major fractures in post-exit trade relations between the United Kingdom (UK) and the European Union (EU), knocking up to $32 billion, or 14 per cent, off of UK exports to the EU, according to a new study by the United Nations Conference on Trade and Development (UNCTAD), which projects that even if a ‘standard’ free trade agreement (FTA) were to be signed by the parties, UK exports could still drop by 9 per cent.
NTMs are policy measures other than ordinary customs tariffs that can potentially have an economic effect on international trade in goods, changing quantities traded, or prices, or both. They are the key factors mediating market access in the world economy.Non-tariff measures could cause major fractures in post-exit UK-EU trade ties, knocking up to $32 billion, or 14 per cent, off of UK exports to the EU, according to a new study by the United Nations Conference on Trade and Development, which projects that even if a 'standard' free trade agreement were to be signed, UK exports could still drop by 9 per cent.#
Potential losses under a ‘no-deal’ Brexit from tariffs that may be imposed by the respective parties are estimated at between $11.4 billion and $16 billion or 5-7 per cent of current exports.
The new study, titled ‘Brexit beyond tariffs: The role of non-tariff measures and the impact on developing countries’ says NTMs would double those losses, according to an UNCTAD press release.
The losses would deal a major blow to the British economy, as the EU market accounts for 46 per cent of the United Kingdom’s exports. Mounting trade costs due to NTMs and potentially rising tariffs would more than double the adverse economic effects of Brexit for the UK, the EU and developing countries, the study notes.
“EU membership has its advantages to deal with non-tariff measures that even the most comprehensive agreement cannot replicate. This offers important lessons to other regions trying to deal more effectively with such non-tariff measures,” said UNCTAD’s director of international trade, Pamela Coke-Hamilton, while presenting the study’s findings.
On the flipside, exports from developing countries into the UK, and to a smaller extent into the EU, could increase if the former doesn’t increase tariffs for third countries.
A no-deal Brexit could offer some opportunities for developing countries as trade barriers between the UK and the EU would benefit suppliers from third countries. By contrast, a deal between them would preclude the incentive to turn to third countries, the study finds.
However, the positive third-country effect could be diminished by increasing regulatory divergence. If the UK’s regulations divert over time from the EU’s, trade costs would rise for third countries due to production process adjustment costs and potential duplication of proofs of compliance. This would disproportionately affect smaller and poorer countries as well as small and medium-sized enterprises.
The study quantitatively explores the post-Brexit role of NTMs and the consequences for developing countries by simulating possible impacts using a panel data gravity model.
Under a tariffs-only scenario, exports of developing countries to the UK would increase 1.3 per cent to 1.5 per cent while a tariffs-and-NTMs scenario would see them rise 3.5 per cent to 4 per cent, according to the study.
The positive impact would be strongest in agriculture, food and beverages, wood and paper sectors and weakest in electrical and machinery, metal products, chemicals, and textiles and apparel industries.
The UK left the EU in January. The two parties aim to determine their future trade relations during a transition period that lasts until the end of this year.
While a ‘hard’ exit scenario would result in the study’s projections, the economic effects of a ‘soft’ exit in which the status quo is largely maintained pending negotiation of a future trade relationship would depend on the details of that relationship.
Around one-third of the EU’s total trade promoting effect among members is accounted for by the way in which it deals with NTMs.
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