15 June 2016

CEBR: Brexit, exports and jobs

CEBR research for Britain Stronger in Europe examines the linkages between exports and employment within the UK. In particular, the research aims to understand the extent to which higher trade tariffs and a consequent reduction in exports could lead to lower levels of employment in the UK.

British exit from the European Union (‘Brexit’), if it were to occur, could potentially lead to higher tariffs if the UK is unable to negotiate a new trading arrangement with the EU. Furthermore, EU membership grants the UK additional easing of restrictions when it comes to trade with markets that lie outside the EU but with which the EU has negotiated a trade treaty. There are currently 68 countries with which the EU has such free trade agreements (‘FTAs’).

While it is impossible to know for certain what would happen to these trade arrangements in the event of a UK exit from the EU, for the purposes of this report the CEBR focus on a situation where the UK would cease to have access to these arrangements in the event of Brexit and would instead treat and be treated by its trade partners under the ‘Most Favoured Nation’ (MFN) principle of the World Trade Organisation (WTO). This counterfactual scenario is also commonly referred to as “the WTO option for the UK”.

MFN is a status or level of treatment accorded by one state to another in international trade. The term means the country which is the recipient of this treatment must receive equal trade advantages as the “most favoured nation” by the country granting such treatment. In effect, a country that has been accorded MFN status may not be treated less advantageously than any other country with MFN status by the promising country. Critically, as far as the Brexit debate is concerned, regional free trade areas and customs unions are exceptions where preferential treatment is allowed under the WTO rules.

The higher tariffs that are associated with the WTO scenario would be associated with a significant reduction in exports. When higher non-tariff barriers and the impacts on services and other products is considered, the job losses due to lower exports could be between a range of 487,000 to 794,000.

It is important to note that these reductions in employment arise due to the impact on exports and are therefore an underestimation of the total impact on employment, which would be impacted by wider economic factors. This is in line with other studies that have been made, notably the PWC’s assessment of ‘Brexit’ on the UK economy.

Full report

© CEBR