Finnish Think Tank Warns Of Brexit's 'Unexpected Effects' On International Value Chains

Finnish Think Tank Warns of Brexit's 'Unexpected Effects' on International Value Chains

The Research Institute of the Finnish Economy (Etla) on Thursday said in a report that the United Kingdom's expected withdrawal from the European Union could have broader consequences on international value chains than it was previously expected

MOSCOW (UrduPoint News / Sputnik - 14th March, 2019) The Research Institute of the Finnish Economy (Etla) on Thursday said in a report that the United Kingdom's expected withdrawal from the European Union could have broader consequences on international value chains than it was previously expected.

UK Secretary of State for International Trade Liam Fox said in late February that the national economy would survive a no-deal Brexit scenario, but noted that this would undoubtedly cause some disruptions for UK business.

"Our findings suggest that the UK is heavily involved in European value changes and GVCs, having both backward and forward linkages. These linkages could have unexpected effects for a number of countries if their expectations are based only on bilateral trade flows with the UK. In many cases, components or other products cross the UK border several times, which could result in multiple delays and tariffs if a hard Brexit materializes. Companies will probably react to these increased delays by changing their value chains," the think tank said in a report.

London's divorce from Brussels could also slow down value chains, which would be particularly hurtful for UK businesses due to reliance on materials imported from EU countries, Etla noted.

"Some goods and services exported to the UK continue their journey to other countries. This type of passthrough trade accounts for 22 percent of Finnish exports to the UK. Typically, these goods and services continue their journey to the United States (US), Germany, or France. Of the 10 most important next destinations, no fewer than six were EU member states. Thus, value chains of the UK and other EU members are deeply intertwined, creating a potentially large impact in the case of a so-called "hard Brexit." However, close to 80 percent (i.e., 100-22=78%) of Finnish exports to the UK do not continue on to other countries but instead remain in the UK, highlighting the importance of the UK as an ultimate export destination," the report read.

On Wednesday, UK lawmakers rejected the idea of leaving the European Union without a withdrawal agreement after voting down the updated Brexit deal that Prime Minister Theresa May negotiated with President of the European Council Donald Tusk in Brussels. The vote on the extension of the Brexit deadline will take place on Thursday evening.

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