Agri-food trade between the United Kingdom and the EU countries is likely to decrease steeply, especially for the meat and dairy sectors. For Finland, however, the impacts will remain moderate, writes Senior Scientist Ellen Huan-Niemi.
Three years ago, Britons voted in a referendum to leave the EU. The United Kingdom (UK) is supposed to leave the European Union (EU) on March 29, but the UK is offered a delay by EU member states until May 22, if the British Parliament approves the withdrawal deal negotiated with the EU. If the deal is not approved, the EU will back a shorter delay until April 12. This is to avoid a no-deal Brexit that would hurt Britain grievously, but it would also hurt the EU-27 member states.
Furthermore, Ireland will be hurt as severely as Britain and even more if it is a challenge for peace in Northern Ireland, where Brexit is more than a political or economic issue. As the Irish border becomes an external border of the EU, the psychological impact of building any form of a barrier for a population that was devastated by decades of armed conflict will be immense compared to the economic impact. The Economist magazine poignantly coined the process is likely to be not just miserable but also interminable.
There is no simple way out of this endgame. Whether the Brexit deal is accepted or rejected, it will scar the UK for many years. Most of the manufacturing products used and consumed in the UK are imported since manufacturing accounts for only about 10 per cent of the UK economy, meanwhile services make up about 80 per cent. This specialization structure has been highly fostered and never been altered since Margaret Thatcher’s economic policy.
Macroeconomic impacts of Brexit on Britain are significantly larger than to the EU.
The trade relationship between the UK and the EU-27 is characterized by a marked dissymmetry, because the EU-27 member states represent a large market with a total of more than 446 million inhabitants and a gross domestic product (GDP) of USD 13,779 billion in 2016. In contrast, the UK is relatively smaller with a population of 66 million people and a GDP of USD 2,619 billion.
According to a study* commissioned by the European Parliament, the macroeconomic impacts of Brexit on the UK are significantly larger (-2.4% in GDP) compared to the entire EU-27 (-0.3% in GDP). All EU-27 member states will be negatively affected by Brexit because the UK is currently the second largest EU member states and highly integrated with the EU-27 member states in terms of trade and value chains. The magnitude of the impact will increase with economic proximity to the UK. Among the EU member states, in particular, Ireland (-3.4% in GDP) will endure the largest impact and to a much lesser extent Belgium & Luxembourg (-0.7% in GDP) and the Netherlands (-0.5% in GDP) are the most affected countries.
Ireland is affected the most by Brexit because of its close relationship with the UK. Subsequently, Ireland deserves particular attention when considering redistributive policies to mitigate the negative impacts of Brexit. Ireland is the only country whereby imposing tariffs and non-tariff measures on imports instead of the current custom union would entail loss of exports not only to the UK, but also to other EU member states as well as the rest of the world because Irish production relies heavily on imported intermediates from the UK.
The UK is the main export destination for many EU member states’ agri-food sectors.
This would result Ireland losing competitiveness in all export markets. As a consequence, the expected impacts in Ireland are particularly concerning: Irish GDP loss exceeds the British (-3.4% versus -2.4%, in relative terms), and the Irish economy is highly dependent on trade with the UK especially the agri-food sectors.
The UK is the main export destination for many EU member states’ agri-food sectors even though the UK is a small market compared to the vast market of the EU with 27 countries. The study from the European Parliament indicated that exports of agri-food products from the EU-27 member states to the UK will decrease by USD 34 billion and imports from the UK by USD 19 billion. Compared to manufactured products, agri-food products represent only 11% of current trade flows between the UK and EU-27 member states.
Nevertheless, agri-food products will face the largest increases in trade protection, both in terms of tariffs and non-tariff measures due to a no-deal Brexit. Therefore, agri-food trade is likely to decrease steeply, especially for the meat and dairy sectors of the EU-27 member states, including Finland.
The UK is Finland’s seventh biggest trading partner. Finland’s exports of goods to the UK amounted to EUR 2.7 billion, while exports of services were EUR 1.4 billion. The largest Finnish exports to the UK are paper and paperboard products, mineral oil products, machinery & equipment, metal products, chemical products, and timber products. Agri-food exports accounted for only 2% of the total goods exported from Finland to the UK, whereas agri-food imports from the UK accounted for almost 8% of the total goods imported into Finland.
As a result, the trade of agri-food products with the UK is insignificant compared to manufactured products. Brexit may cause disruptions in the agri-food sectors in Finland, but the negative impacts may be minimal.