EU27 and the UK: Product Dependencies and the Implications of Brexit

The decision of the UK to leave the EU imposes a key challenge for trade relations and, depending on the outcome of the ongoing Brexit negotiations, will cause severe increases in bilateral trade costs. The experience from former crises has shown that disruptions caused by negative shocks are more severe in case of highly dependent goods, which are sourced from few suppliers. This report provides an overview on product dependencies between EU27 and the UK and uncovers several stylized facts. It shows that, whereas for most of the EU27 countries less than 10% of the highly dependent goods are sourced from the UK, the majority of UK’s imports of highly dependent goods are sourced from countries in the EU27. However, for both, the UK and the EU27, Brexit imposes challenges for supply chains, as in both cases most of these goods are classified as intermediate goods, which are used as input for final production in the destination country. For those goods, uncertainty and rising costs due to Brexit may cause an additional distress on supply chains.