Italian trade: Challenges and Opportunities of a “NO DEAL” between UK and European Union

UK is a relevant market for the Italian international trade. Indeed, in 2017 UK was the fifth trade partner of Italy - after Germany, France, USA and Spain - and the second in the surplus ranking for Italy after the USA. According to the report of the Italian Trade Agency (ICE - Istituto Commercio Estero), in 2017 the trade between UK and Italy was 34,5 billion euro compared to 33,7 in 2016 (+2.4%). In particular, the Italian exports amounted to 23.1 billion of euro (+3.2%), while the imports from UK amounted to 11.4 billion euro, 1.3% more compared to 2016. The balance is positive for Italy for 11,7 billion of euro, up 4.5% compared to 2016 (see the list below related to the most relevant items of the Italian-UK trade).

The vote of the British Parliament of the 15th of January 2019 which rejected the May’s Deal has shown a very delicate moment for the Italian and European markers. A so-called “NO DEAL” between UK and the European Union could create uncertainty and fear among the markets bringing a potential domino-effect where companies could decide instinctively to leave the British market (and vice versa). Indeed, a “NO DEAL” could negatively impact both the multinational corporations - which have chosen to establish their office in London - and the SMEs - which are exporting and importing from the UK market. Thus, in case of a “NO DEAL” there is the possibility to fall back into a scenario in which, at least for a certain period and for specific categories of products, the WTO agreements will rule the trade with the British economy.

In negative terms, it should also be considered that the UK subsidiaries in Italy have a relevant weight, indeed they assure an annual turnover of about 35 billion euro (equal to 9.5% of the total turnover of multinational companies in Italy) and with 85 thousand employees.

Despite the negative effects, a “NO DEAL” scenario could bring in Italy and the EU countries also interesting opportunities. Indeed, the UK's exit from the EU could trigger at least partial reallocation of FDIs and attract multinational companies in other EU countries. The effects would be produced in the medium term and their real impact are difficult to be quantify in advance. A 2016 study estimates a decrease of FDI in the United Kingdom by 22% in ten years. This amount would correspond to € 282 billion of foreign capital that could flow into EU countries. The attraction of these foreign investments by individual countries will depend on their structural characteristics. Opportunities to attract investments could also arise for Italy. On the basis of the degree of similarity between the sectorial distributions of incoming FDI - with the important exception of financial services that have a leading role for the UK economy - it emerges that the Italian market could have a good chance, because its sectors with a greater presence of foreign capital (manufacturing, wholesale, telecommunications and IT services) are the same that occupy the first positions in the distribution of FDI in the UK economy.

In 2017 the main items of Italian exports to the UK were: machinery (2.7 billion euros); motor vehicles (€ 1.6 billion); medicines and pharmaceuticals (€ 1.3 billion); clothing (1.2 billion euros); drinks (1 billion euros); components for cars (902 million euro); furniture (€ 902 million); footwear (605 million euros).

On the side of imports from Great Britain, the most relevant items were: motor vehicles (1.9 billion euros); medicines and pharmaceuticals (€ 1.1 billion); machinery (836 million euros); chemical products (501 million euros).

Data source: Elaboration on Istat data (ICE London)

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