Newly published research from the European Bank for Reconstruction and Development (EBRD) finds that a significant proportion of value chains within the 12 EU countries where the bank operates could be affected in the event of an exit of the United Kingdom from the European Union with no deal.
A no-deal Brexit could have extensive effects, not only on direct trade between the EBRD countries in the EU and the United Kingdom, but also on indirect exports through value chain integration within the European Union. An example of such a value chain would be car parts exported from the Slovakia to Germany, assembled there and then exported as a final product to the UK.
EBRD analysis based on the Trade in Value Added (2018) OECD database shows that in the case of the UK leaving the EU under a no-deal scenario, 6.8 per cent of the EBRD countries’ domestic value-added exports would be affected by potential disruptions to direct and indirect trade linkages with the UK. The share would be even higher for Cyprus, Turkey and Poland, for which the British market accounts for 7.9 – 9.1 per cent of total export volume. In absolute terms, both Turkey and Poland would face the highest exposure to trade disruptions with domestic value-added exports of around 12 billion US dollars being directly and indirectly exported to the UK in 2015.
Furthermore, the affected trade volume amounts, on average, to 0.9 per cent of total output of the EBRD countries in 2015, whereas the share is higher for countries such as Cyprus (1.9 per cent), Lithuania (1.3 per cent), Hungary (1.3 per cent) and Poland (1.2 per cent).
The 12 EBRD countries that are part of the EU, plus Turkey could also face modest value chain disruptions in certain economic sector exports in the event of a no-deal Brexit, as various trade barriers would evolve and disrupt supply links between industries in the UK and the EU. In absolute terms, the EBRD countries have a higher exposure to trade disruptions in value chain linkages with the UK than vice versa. As much as 7.5 billion US dollars of British inputs, mostly business services, were used as inputs in the production process of manufacturing exports of the EBRD countries in 2015. The UK also relies on foreign inputs for exports, but sourced only 4.8 billion US dollars of foreign inputs from EBRD countries in 2015, much of it for the UK’s transport industry.
