Can you please introduce yourself?
I am an Associate Research Director at the National Institute of Economic & Social Research (NIESR), and I cover the areas of international trade, productivity and labour markets. Over the past couple of years I have been leading our work assessing the long-term economic impact of Brexit on the UK economy.
The Brexit vote has added to already high levels of uncertainty and has raised a number of questions for businesses in the UK. What steps should businesses take to adapt to further changes and reduce risk in the current climate?
My job is more to look ahead at the trends that we see emerging in the current economic environment. In my opinion, we do need to be prepared for leaving the single market, and also probably for leaving the Customs Union. The impact of leaving the single market will vary depending on the industry, and so for every sector the answer will be quite different.
If I were running a business in the UK today, I would try to focus on things that could be done in the UK that add value and that do not rely on an explicit trade agreement. One of the things that has been emerging from my recent work is that trade takes place in many ways. Many kinds of trade do depend mainly on market access via trade agreements, but others also are sensitive to what we call behind the border restrictions. In addition, there are other kinds of trade that are hard to measure, such as exports of research and development services. What I mean by that, is when I develop a product or a new drug here in the UK, the value from that drug patent or from a new product may then be embodied into physical goods. So there may be an export of UK R&D services embodied in goods that never passed through the UK, therefore not measured as a UK export in the data. This kind of implicit trade is also hard to regulate, and does not necessarily require a trade agreement. We do not yet have a good idea of how important this kind of trade is for the UK, though.
Another important thing for UK businesses to consider is that we are leaving the single market and it’s not clear how long it will take to get a comprehensive trade agreement with the EU into place. This interim period could be used for each business to assess what being in the single market means for them, what activities they do that require a formal trade agreement and what activities they can engage in with the EU and globally that might fly under the radar. There are many things that could be done in the UK that benefit the whole company – a business could focus on developing a product design or R&D centre, or focus on product marketing strategies. All activities that can take place in the UK without a formal trade agreement whilst contributing to the value of creating a final product which might be manufactured somewhere else. Key areas to focus on are in design, marketing and R&D, as trade that occurs via those functions may fly under the radar and not be so dependent on trade agreement.
What do you think is the UK’s bargaining power against a 27-country bloc?
I think it may be misguided to think of the EU-27 as a bloc - each country might expect something different from its relationship with the UK. In some cases, the key issue is an economic one, perhaps that the UK is a cheap, reliable source of finance for businesses across many EU member states. Although it is true that some countries with financial centres seem to be expressing a desire to lure City businesses to their shores, we shouldn’t forget that for the countries who don’t have a major financial centre, the City might be important as a source of finance, so they might be amenable to London maintaining its strong position as the main European financial centre. How much this matters to them, however, is hard to gauge. On the other hand, there are non-economic considerations in terms of defence and security. One current key concern on the Eastern periphery of the EU is security and Russia, so the UK’s strength militarily may be important. Some of these non-economic factors could strengthen the UK’s position in negotiations, while others of course might not.
What sort of projects have you been involved in recently?
Some of my recent work focuses on how the UK could potentially benefit from trade agreements with BRIC countries or with the Anglosphere, what those trade agreements would look like and how difficult it would be to replace trade that we might be losing if we leave the single market. The main point is that very few service trade agreements in existence are effective, for instance CETA doesn’t do as much for services as the single market, and the US hasn’t displayed willingness to open up in terms of financial and business services – these are among the UK’s biggest export service sectors, hence we have to be careful about how much we expect to gain from future trade deals in these areas.
We have also been doing more specific work on financial services trade and within that we have conducted research on depth of distance. The answer is distance still matters for trade, both for goods and services. However, it may be the case that distance matters less for some industries, such as financial services. Distance is still important broadly speaking but there may be some industries in which distance doesn’t matter as much, and those are potentially areas where the UK could focus its efforts in trying to get access to further flung markets.
You can hear Monique share her insights on Post Article 50 at the start of this year’s ACT Annual Conference, 16-17 May in Manchester. Make sure to reserve your place today.
For more ACT Annual Conference updates, ensure you follow #ACTAC17 and @actupdate on Twitter. You can also view the latest programme and details on booking here.
