A bad divorce
It’s been almost a year since the U.K. came to an 11th hour exit agreement with the European Union on December 24, 2020, and Brexit became effective on January 1, 2021. Prime Minister Boris Johnson had hailed the exit agreement as fostering frictionless trade and lauded Brexit as opening a new era of prosperity for the United Kingdom.
However, this abrupt transition gave little or no time for companies to prepare for the new reality. A number of laws, rules and regulations had to change almost overnight.
A new border
The new border established between the U.K. and its largest trading partner the E.U. greatly affected the movement of goods.
A year into it, let’s look at the consequences. Having a border means that goods, which used to travel unhindered, now have to stop and go through customs paperwork and procedures, security, health and other clearances before proceeding to their destination. This invariably leads to additional costs, direct and indirect, as well as delays.
The impact seems to have been more severe for small and medium U.K. companies shipping small orders to E.U. consumers. The sanitary certificate alone costs £150 (about $255), in addition to the regular documentation and customs broker costs, plus new labelling requirements and higher transport costs due to the border waiting time. This penalizes small exporters and it’s been reported that many U.K. SMEs have stopped selling to E.U. customers as a result.
Larger companies overcame this by opening distribution centres in continental Europe, with the Netherlands and Belgium the main beneficiaries. This also has a cost, but allows companies to continue in business.
All industries were affected, but the seafood industry seems to have suffered the most, particularly Scottish exporters of fresh fish and shellfish. Another industry feeling the pinch is exporters of Scotch whisky. U.K. exports of whiskies to the E.U. were £105.7 million ($175.9 million) lower between January and May 2021 compared to 2019.
U.K. exports to the E.U. account for about 45 percent of total exports, while imports from the E.U. account for 55 percent of all imports. For some products, the dependence on supplies from the EU is striking. For example, the U.K. imports about 85 percent of its fresh produce from Europe. The Netherlands provides the bulk of tomatoes and onions. Spain supplies most of the cauliflower and celery, and France is the leading potato supplier.
In addition to shortages and higher costs in stores and supermarkets, British consumers have been hit with fuel supply issues caused by rising energy costs and labour shortages. When it was part of the European Union, the U.K. had access to truck drivers who now require work visas to drive in Britain. The U.K. government had to rely on the armed forces to help with the delivery of fuel across the country, while a special measure to expedite visas for up to 5,000 E.U. truck drivers brought no tangible results, as very few applied.
On the political front, things are rocky with every month or even week bringing new challenges. A major issue is the Northern Ireland Protocol, which the U.K. wants to repeal or renegotiate. The protocol leaves an open border between Northern Ireland and the Republic of Ireland, but introduces a sea border between Great Britain and Northern Ireland. This compromise was agreed to by both sides and enshrined in a treaty, which the U.K. is not applying, as border checks and controls have been delayed.
A dispute over fishing rights and licences, involving mainly French fishermen but also Dutch and Belgians, has flared up and there are threats of a “trade war” erupting between the U.K. and E.U.
The big picture
Overall, U.K. trade is lagging the rest of the world. Brexit is limiting trade as the country is trying to pull out of its worst economic downturn in a century. Great Britain is trailing the trading performance of the U.S. and the E.U. as the pandemic recedes and the economy picks up globally, while Brexit intensifies the disruption felt from global supply chain bottlenecks.
As to the new era of prosperity, it may have to wait a while. While being outside Europe, the British government will likely continue to blame the E.U. for many of its ills for some time, a convenient political survival strategy.
In 2016, the Brexit referendum year, who would have thought that things would turn out this way? At a time when governments around the world must work together to tackle the pandemic, the environment and global warming, growing inequalities, the economy and more, it’s highly regrettable to see the waste of time, energy and money resulting from Brexit, which is a totally self-created issue.