Brexit, Economy and Trade

Wales and the Single Market: A Threat Assessment

Wales stands to lose perhaps more than any other part of the UK as a result of the withdrawal, particularly if the Welsh Government’s wishes to remain in the Single Market are ignored in favour of a ‘hard’ brexit, writes Calvin Jones.

As we embark on the process of leaving the European Union, the differential attitudes to and impacts of Brexit across the UK are gaining increased attention.

In Scotland, it is the former that diverge; in Wales the latter. Wales faces the loss of a number of EU-related benefits which will happen irrespective of the nature of Brexit, including fisheries and agriculture payments (primarily to small farmers); Rural Development support; Structural Funds such as ERDF and ESF; and research monies.

These are together worth well over £500m per annum in additional funding to Wales. There are however, additional important consequences to any ‘hard’ Brexit, which placed the UK outside EU tariff boundaries.

Yes… exports

When it comes to exports, Wales is far more heavily dependent on the EU for its export markets than the UK average. Two thirds of Wales exports go to the EU whereas for the UK the figure is (just) less than 50%. Total (world) export earnings for Wales totalled £12.3bn.  Exports is one of only a small number of regional economic advantages.

Additional to direct exports to the EU and elsewhere, Wales provides a number of intermediate products that are exported to other parts of the UK as inputs into final goods that are then exported. Data are not available to estimate this activity, but perhaps the most pertinent example is Tata, supporting (in 2012) 18,000 jobs in Wales and with products used in packaging, automotives, wind turbines, electrical appliances and many other goods, some further processed then exported to the EU (and elsewhere).

We in the Business School estimated in 2007 that regional exports (rest of UK and World combined) comprised 30% of industrial demand in Wales.

Prospects for Post-Single Market Trade

The UK currently undertakes trade with the EU at zero tariff rate, and with the rest of the world via EU-negotiated tariffs with an average value-weighted trade tariff of 1.5% – down from a pre-EU single market 5% or so and far better than the average ‘World tariff’ of 2.9% (in 2012).

Wales’ current largest single export market is the USA where the UK currently has an average tariff level of less than 3% with the US because of numerous EU-US agreements.

Tariffs themselves are however, the less important part of the story. Evidence gathered for the (effectively defunct) Transatlantic Trade and Investment Partnership (TTIP) suggests that it is non-tariff barriers that are the largest issue for trade efficiency.

Outside the Single Market then, the UK (or its firms) will need to negotiate non-tariff measures for market access to the USA and all other countries or trade blocs and at an individual product level. These will include type and product approval, intellectual property, labelling and packaging, licensing and so on. And this in addition to negotiating the tariffs themselves (or defaulting to higher WTO levels).

The market access process can take many years and require significant capabilities, even within the EU and for relatively straightforward sectors like clothing (as Laura Tennison MBE pointed out in her recent Cardiff University Home of Innovation lecture.  There is some evidence the UK government does not have the capacity to help firms in this area, or undertake these negotiations satisfactorily.

And the Rural Economy?

Tariff-free access to food and other agricultural products from outside the EU (if negotiated) may reduce costs for consumers in the UK. Perhaps paradoxically, a successful outcome in wider free trade negotiations – for example with Australasia – might significantly harm rural areas of Wales. For example, the EU is by far the largest market for Australasian wool, meat and horticultural products, despite these being subject to tariffs (for lamb, 12.8%) and an EU wide quota.

Zero-tariff, no-quota NZ lamb in the UK (produced subsidy-free by large, efficient farms and transported to the UK chilled and at low cost) would effectively destroy the most important product market for many thousands of the smallest Welsh farms, at the same time as farm income subsidies were undergoing significant change (and possibly reduction). From an economist’s perspective, this increased efficiency is good news. However, socially, culturally and linguistically it is likely to be less so.


It is often asserted that EU Directives on public procurement are a barrier to increased levels of sourcing and hence local economic development. Adherence to such Directives is part of the Single Market and hence Brexit may provide opportunity. It is worth noting however:

The above suggests the public sector in Wales must work very hard – and very differently – to turn any theoretical Brexit procurement advantage into a reality.

Wales stands to lose perhaps more than any other part of the UK in the withdrawal from the EU. Should this include withdrawal from the Single Market the losses in rural and Structural funding will be exacerbated by significant disruption to trade over many years, with this focused in sectors of key economic, environmental and cultural importance. Critical here is not just access to the EU itself, but the access to the third party markets that the EU enables, often with very low barriers and tariffs.

Wales has limited capacity, industrially or in the public sector, to move swiftly to capture new opportunities. Importantly, as the First Minister has noted, people and organisations within Wales will have limited influence in the ‘shape’ of Single Market exit, with key decision makers based in Westminster, Brussels, Mumbai or Toulouse. Any reduction in access to the Single Market and its attendant benefits for third-party trade will likely significantly harm the Welsh economy; certainly in the short and medium term.

Calvin Jones is Professor of Economics at Cardiff Business School.

This post represents the views of the author and not those of the Welsh Brexit blog, nor Cardiff University.


  • David Collie

    It is not clear if the discussion of tariffs is about the tariffs faced by UK exports or by UK imports. The data on the average tariff of 1.5% looks like the average tariff on UK imports, but the context seems to be a discussion of exports.

    There are no EU-US negotiations that have reduced tariffs as that would be against the most-favoured-nation principle of the WTO.

    UK exports to the US will face the same US MFN tariffs after Brexit as before Brexit unless there is a UK-US free trade agreement.

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