Hard Brexit would have no significant impact on Catalan economy

Import tax hikes would have a moderate effect on Catalonia’s exports to the UK

Talks between the British government and the European Commission about a UK-EU trade deal are ongoing. There is a chance that no deal will be reached eventually, which would mean that Catalan exports to the UK would be subject to import tax. However, a study by the Bank of Spain shows that Catalonia would not be among the worst-hit Spanish regions.

The UK left the EU on January 30, a date that marked the start of a longer negotiation process that is still in progress and will determine how close the political and economic ties between both parts will be in the future. Talks are scheduled to conclude on December 31. In the absence of a deal, any trading between the EU and the UK will be conducted under World Trade Organisation (WTO) rules —as with most foreign countries— from that date onwards and European exports to the UK will be subject to import tax .

A no-deal scenario —also known as a hard Brexit— would have a significant impact on Spain’s exports, but this would be more moderate in the case of Catalan companies, according to the Bank of Spain survey. The report states that “in the hypothetical event that import taxes are imposed between the EU and the UK, the potential exposure of each region would depend not only on the relative weight of its exports to the UK, but also on the structural nature of said exports, as different goods may be subject to different tax rates”.

Therefore, in the event of a hard Brexit import taxes would amount to roughly 7 per cent of the total value of Spain’s exports. This would be nearly the same for Catalonia, although Catalan sales to the UK represent a smaller share of Catalonia’s total exports: while Spain exports to the UK to the tune of about 6.5 of the country’s GDP, in Catalonia’s case it is only 5.3 per cent.

Regions such as Murcia and Valencia would not fare as well: due to the type of goods they export, import tax on them would be over 8 per cent and, furthermore, Murcia and Valencia’s sales to the UK account for 9.3 and 8.1 of their GDP, respectively. The Madrid region and La Rioja would also have to endure high import taxes while their UK exports amount to more than 7.5 per cent of their GDP.

Nissan’s influence

Catalonia is Spain’s top trading region with the UK. The survey points out that over a fifth of all Spanish exports to the UK are manufactured by Catalan firms. So what are they?
The reports estimates that in 2018 the automotive sector recorded the highest sales to the UK: over a third of all exports (34.9 per cent, to be precise). The food industry and the chemical sector took the second and third slots, respectively, accounting for 15.4 and 13.4 per cent of Catalonia’s total sales to the UK.

This means that Catalan exports to the United Kingdom might take a hit that is unrelated to Brexit: the closure of Nissan’s plant in Catalonia. According to ACCIÓ, the Catalan government’s foreign trade bureau, in 2018 Catalonia exported €1.366 billion worth of automotive goods, 85.6 per cent of which (€1.169 billion) was actual motor vehicles while the remainder was parts and body frames. Nissan’s departure from Catalonia means that some of those sales will be lost, as Seat is the only car maker that will be left in Catalonia.

As a matter of fact, Nissan’s management announced that they are shuttering every single European plant except the one in Sunderland, in the north of England, where much of the manufacturing that was spread across Europe will now be concentrated. Like in Catalonia, the automotive sector is one of the key exporters in Britain’s economy, which explains why a trade deal with Japan is a top priority for Boris Johnson’s government. The head offices of Nissan and other car manufacturers with UK-based plants are in Japan.