The UK's Participation in Global Value Chains and Its Implications for Post‐Brexit Trade Policy

Abstract

The aim of this paper is to provide quantitative information about the position of the UK in the network of global value chains (GVCs) and to discuss its implications for the UK's post‐Brexit trade policy. We find that the UK has become much less integrated into global production networks than other EU countries over the period 2000–14, and is almost unique among EU countries in that the domestic content of its exports increased over this period. This reflects the relatively high and growing domestic service content in UK exports. As a result of this, reducing the UK's tariffs on imported goods is unlikely to have a large direct effect on the average export competitiveness of UK firms. Potentially more significant for the UK is how future trade barriers with the EU are likely to affect its participation in cross‐country value chains that meet final demand in markets in North America and East Asia. Such indirect exports are not captured in conventional trade statistics and can only be analysed using a GVC approach. Our findings suggest that the UK will benefit only to a limited extent from bilateral trade agreements with countries outside the EU (a ‘Global Britain’ strategy) if it gives up its role in the supply chains that service these countries via the EU hub.

Trade policy shocks in the UK textile and apparel value chain: Firm perceptions of Brexit uncertainty

“…Several studies aimed at forecasting the consequences of “hard Brexit” have shown that it is unlikely that UK exports to non-European countries, particularly (but not exclusively) because of larger geographic distances, will increase sufficiently to compensate for the losses in trade with the EU (Ijtsma et al, 2018 ). Both in a no-deal scenario, where trade between EU and the UK would be regulated according to the WTO rules 11 , and with a free trade agreement (FTA) 12 on the terms of access to specific markets, the cost of trade will increase in terms of market access measures, administrative burden, and behind-the-border rules that define the extent of non-tariff barriers (Gasiorek et al, 2018 ).…”

“…Trade policies implemented in one country of the continent, and associated with adverse shocks, are likely to have a ''cascading'' effect in the GVC context, affecting other firms, regions, and countries within the area and beyond. Therefore, a significant proportion of value chains within and outside the EU countries could be affected by Brexit in terms of direct and indirect trade relationships (Ijtsma et al, 2018;Mulabdic et al, 2017).…”

“…Second, unsurprisingly, the impact of Brexit on trade and foreign direct investment (FDI) will be strongly negative and more severe in the case of a no-deal Brexit and, more specifically, for denser GVCs (e.g., Cappariello et al, 2020;Dhingra et al, 2016;Mulabdic et al, 2017). Third, Brexit may also affect extra-EU countries engaged with FDI or sourcing relationships with the UK (e.g., Ijtsma et al, 2018). Fourth, there is a considerable heterogeneity in the way different sectors will be affected by Brexit.…”

Value Added Trade in Non-Primary Industries Between Russia and the European Union: Is There a Growth Potential?

“…Другой подход к анализу участия страны в международных ЦДС -более ориентированный на внешние факторы, влияющие на характер этого участия, -часто используется при анализе Брекзита и его последствий для британской экономики. Одна из таких работ [4], также используя рассмотренные выше методы декомпозиции и структурнодинамического анализа статистики торговли добавленной стоимостью, содержит выводы о том, что после Брекзита Великобритания может испытывать значительные сложности в торговле с третьими странами вследствие того, что она торгует с ними промежуточными продуктами, которые проходят через страны ЕС. Таким образом, создаваемая Соединенным Королевством система двусторонних торговых соглашений должна будет учитывать этот фактор.…”

Post-Brexit no-trade-deal scenario: Short-term consumer benefit at the expense of long-term economic development

“…Here we build on and apply this theory by combining multi-regional Input-Output (MRIO) data with an agent-based modeling approach. MRIO data are well suited for investigating economic interdependencies [15,16] but have so far only been used for static analyses of different Brexit scenarios [17][18][19][20]. Contrary to these works, we here provide a dynamic shock simulation of the days to weeks following a no-trade-deal event.…”