A Brexit threat assessment for Wales’ economy
Wales could lose more from a “hard Brexit” or the failure to conclude a new trade deal with the EU than other parts of the UK, says a leading economist.
Calvin Jones, professor of economics at Cardiff University, claims Wales is more vulnerable to a hard Brexit than other regions because of likely lost exports, changes in subsidies and an inability to exploit new opportunities in public procurement.
In a blog on the Cardiff University website, Professor Jones writes: “When it comes to exports, Wales is far more heavily dependent on the EU for its export markets than the UK average. Twothirds of Wales’ exports go to the EU whereas for the UK the figure is (just) less than 50%.”
Prof Jones adds that Wales also provides intermediate products that are exported to other parts of the UK into final goods that are then exported. He gives the example of Tata, whose steel is used in a variety of products from cars to packaging and electrical appliances, some are which are made in other parts of the UK before being exported to other EU countries.
Under the single market, exports from the UK to the EU attract no tariffs, while those with other parts of the world are traded according to agreements negotiated through the EU. On average, these EU-negotiated agreements provide a “value-weighted trade tariff of 1.5% – down from a preEU single market 5% or so and far better than the average ‘world tariff’ of 2.9% (in 2012)”, writes Prof Jones.
Wales’ largest single export market apart from the EU bloc is the US, where the UK has an average tariff level of less than 3% as a result of various EU-US agrgeements, he notes.
But he adds that non-tariff barriers are often more important than tariffs in promoting or hindering efficient trade.
“Outside the single market then, the UK (or its firms) will need to negotiate non-tariff measures for market access to the USA and all other countries or trade blocs and at an individual product level. These will include type and product approval, intellectual property, labelling and packaging, licensing and so on. And this in addition to negotiating the tariffs themselves (or defaulting to higher WTO levels),” he writes.
He points out that even within the EU this can often take many years, adding: “There is some evidence the UK Government does not have the capacity to help firms in this area, or undertake these negotiations satisfactorily.”
Prof Jones claims the Welsh agricultural sector could be particularly badly affected if a free trade deal with Australasia is successfully and speedily concluded.
“Zero-tariff, no-quota NZ lamb in the UK (produced subsidy-free by large, efficient farms and transported to the UK chilled and at low cost) would effectively destroy the most important product market for many thousands of the smallest Welsh farms, at the same time as farm income subsidies were undergoing significant change (and possibly reduction).
“From an economist’s perspective, this increased efficiency is good news. However, socially, culturally and linguistically, it is likely to be less so,” he writes.
Prof Jones argues that “the public sector in Wales is underresourced and under-skilled in the area of procurement, and hence we are unlikely to reap the benefits of any loosening of the procurement reins.”
He adds that Wales lacks large first-tier suppliers and is likely to lose out to competitors from other parts of the UK post-Brexit.
He argues that “the losses in rural and structural funding will be exacerbated by significant disruption to trade over many years, with this focused in sectors of key economic, environmental and cultural importance.”