EU-UK Global Value Chain Trade and the Indirect Costs of Brexit

65 Pages Posted: 1 Aug 2019

Date Written: November 6, 2018

Abstract

Production networks in the European Union (EU) and the United Kingdom (UK) are highly integrated and Brexit poses a threat to supply and demand linkages across the Channel. In a world of Global Value Chains (GVCs), tariffs might be more harmful than in a world where trade is purely direct. In this paper we highlight the features of GVC-trade between the EU and the UK, disentangling the complex network of bilateral EU-UK value-added flows. Assuming that following Brexit the UK adopts the same Most-Favoured-Nation tariff schedule as the EU, we compute the direct and indirect costs of these tariffs, taking into account the EU-UK GVC-trade patterns. Tariffs would add almost 1 percentage point to the cost of manufacturing inputs in the UK, while the corresponding input cost in the EU would be only marginally affected, despite some heterogeneity at the country-level.

Keywords: Brexit, tariffs, global value chains

JEL Classification: D57, F13, F15

Suggested Citation

Cappariello, Rita and Damjanovic, Milan and Mancini, Michele and Vergara Caffarelli, Filippo, EU-UK Global Value Chain Trade and the Indirect Costs of Brexit (November 6, 2018). Bank of Italy Occasional Paper No. 468, Available at SSRN: https://ssrn.com/abstract=3429848 or http://dx.doi.org/10.2139/ssrn.3429848

Rita Cappariello

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Milan Damjanovic

Bank of Slovenia ( email )

Slovenska cesta 35
Slovenija, 1505
Slovenia

Michele Mancini

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Filippo Vergara Caffarelli (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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