Questions for the Committee to pose to the government modellers

House of Commons Treasury committee taking evidence on the economic impact of the Withdrawal Agreement

Submitted by the UK Trade Policy Observatory

03 December 2018

 

These questions are designed to help to elicit details of the government’s modelling exercise, which was a ‘what if’ exercise. They are suggested in the same spirit. The questions are not asking whether a particular outcome is likely or is government policy; they are asking for the modellers’ expert opinion about hypothetical cases – exactly as the Treasury’s publication did.

  1. You assume that the White Paper outcome would have no rules of origin on UK-EU trade (Technical Paper, Table 2.C). But this would require the UK to apply the EU tariff to any good that might conceivably end up in the EU, either itself or as part of another good. These additional tariff costs have not been modelled. Roughly what effect might correcting for this have on the modelled White Paper outcome?

 

  1. If the UK were locked into applying the EU tariff to any good that might conceivably end up in the EU, that will mean that the UK has little or no scope to sign a free trade agreement with any country with which the EU does not have one. Roughly what effect might correcting for this have on the modelled White Paper outcome?

 

  1. The EEA agreement covers almost the entire acquis communautaire and the White Paper plan proposes to harmonise only those rules “necessary to provide for frictionless trade at the border”. The former provides almost complete mutual recognition of regulations for goods and the testing and certification necessary to enforce them, whereas the latter has less coverage and nothing on testing and certification. However, the modelling assumes that the White Paper entails a 1 percentage point increase in non-tariff barriers and the EEA 5 percentage points. Please explain.

IN ALTERNATIVE FORM:  The EEA option has both wider and deeper coverage than the White Paper.  Why is it then that the latter has a less adverse impact compared to the EEA? 

3A              Given the previous question, would you not agree that the White-Paper-sensitivity scenario (with increases in non-tariff barriers of 4.5 percentage points) is a better, if still rather favourable, representation of the government’s plan? If you do not agree, please explain?

  1. What is assumed about tariff revenues in White Paper scenario?

 

  1. Your EEA option assumes that, in parallel with Norway, the UK would have an FTA with the EU rather than a Customs Union. But the latter is necessary to avoid border inspections in Ireland (and at Dover and other ports). From all the simulations you have done, what, roughly speaking, would be the consequences of adding a Customs Union to the EEA assumption?

 

  1. From all the simulations you have done, what, roughly speaking, would be the consequences of the UK being obliged to trade under the backstop – a customs union plus potential divergence on regulations – for your period of analysis?
     
  2. You report the results at a fairly aggregate sectoral level yet the underlying model has 57 sectors. At what level of aggregation was the model run? If it was run at a more detailed level and then the results aggregated, will you publish the more detailed results?
     
  3. The central estimates suggest that the additional gain from rolling over all the existing FTAs and signing a wide range of new FTAs will lead to a modest welfare improvement of 0.2% of GDP. What is the reason for the small additional impact?

 

  1. You have done some modelling of the impact of changes in investment which suggest that under the White Paper outcome GDP would be 0.1% lower and with no deal it would be 2.3 % points lower. How do you reconcile this with independent estimates which suggest that GDP is already 2% lower as a result of the referendum? Have you explicitly taken into account the impact of uncertainty on investment?

 

The UK Trade Policy Observatory (UKTPO) at the University of Sussex is an independent expert group that focuses on the international trade aspects of Brexit and offers a programme of research and analysis of both current and post-Brexit options for UK trade policy. The University of Sussex has the largest concentration of academic expertise on the world trading system in the UK with specialists in economics, international relations and law. Created in June 2016, the UKTPO is committed to engaging with a wide variety of stakeholders to ensure that the UK’s international trading environment is reconstructed in a manner that benefits all in Britain and is fair to Britain, the EU and the world.