The implications of Brexit on trade between Malta and the UK

Abstract

The decisions of the United Kingdom to withdraw from the European Union marked a pivotal moment in contemporary European economic history. This dissertation explores the economic ramifications of Brexit on trade relations between Malta and the UK, two nations bound by deep historical, political, and commercial ties. The focus of this dissertation is to investigate the trade effects across these four core sectors: pharmaceuticals, beverages and tobacco, financial services, and tourism, which constitute significant pillars of Malta’s economic engagement with the UK. The study adopts a mixed-method approach, utilising both qualitative and quantitative data, sourced from the National Statistics Office (NSO), Eurostat, the Office for National Statistics (ONS), and other policy documents and academic literature. The theoretical foundation of the research is anchored in the gravity model of trade, which assesses the bilateral trade flows based on economic size and distance, while also accounting for political and regulatory shifts. The findings indicate that Brexit has disrupted traditional trade flows, primarily due to the loss of the single market access and the introduction of new non-tariff barriers under the EUUK Trade and Cooperation Agreement (TCA). The pharmaceutical sector, heavily reliant on regulatory alignment and mutual recognition of standards, experienced initial trade frictions, although Malta managed to expand its exports due to increased demand during the COVID19 pandemic. Meanwhile, the beverages and tobacco sector encountered challenges related to customs documentation and rules of origin, resulting in temporary but significant trade declines. The financial services industry, particularly those dependent on passporting rights, witnessed structural adjustments, as both Maltese and UK-based firms adapted to a fragmented regulatory environment. Nonetheless, bilateral investment persisted, assisted by proactive measures by the Malta Financial Services Authority. On the other hand, the tourism sector showed resilience, with inbound UK tourism to Malta recovering steadily due to continued air connectivity and cultural familiarity. This dissertation concludes that while Brexit posed initial disruptions to Malta-UK trade relations, sectoral adaptability, institutional responses, and pre-existing bilateral goodwill, played a crucial role in mitigating long-term negative effects, however, the study also emphasises the need for ongoing regulatory cooperation and investment in trade facilitation measures to sustain Malta’s economic relationship with the UK in a post-Brexit context.