The first three months of the flesh and blood Brexit, once the transition period ended on December 31, have been a trail of unpleasant surprises, unfortunate anecdotes and, above all, the announcement of a time of uncertainty. The scourge of the pandemic, which hit the UK harder than anywhere else on the continent just as the moment of disengagement came, has helped spread a cloak of pessimism. The rupture has exacerbated the pandemic crisis. The consequences of the divorce are there, but they will emerge with more force in the coming quarters.
Exports to the EU fell by a drastic 40% last January, the worst figure in two decades, and freight traffic between the two shores suffered a sudden drop. But part of the reasons had to do with a stockpile of inventory from many companies, the need to take the time to understand and adapt to the new customs paperwork, and the hibernation suffered by British shops, bars and restaurants during the strict lockdown that It started in mid-December and lasts today.
“It will still take a while until we get a clear idea of the effect of Brexit on our business,” explains Daniel Juliá. Originally from Las Palmas de Gran Canaria, he is 50 years old and has spent half his life in the United Kingdom. In 2004, together with another partner, he founded KBRH Catering Equipment, a company dedicated to the import and export of catering supplies. Last year, its turnover reached 1.2 million pounds (1.4 million euros). And he already has a good handful of problems to tell. Some dismiss them as specific. Trust that time will fix them. The bar carts – a luxury product, minority, but from which to make a good profit – that you buy from a Spanish manufacturer took four or five days to reach the United Kingdom. “The last sale, which was commissioned from me in mid-December, came a month and a half later. At the end of January ”, he says.
Customs procedures, doubts from carriers and traffic stoppages have been constant during the first weeks of Brexit. More worrisome, however, are the fixed tariff expenses that many entrepreneurs will have to start living with. Juliá imports cutlery made by an Austrian company, which in turn buys the material from a Chinese manufacturer. Before Brexit, import duties from outside the EU were a single payment. But with the new “rules of origin” regulations, established in the trade agreement signed between London and Brussels, any product whose composition exceeds 40% of a non-EU origin must pay again when arriving on the islands. The Austrian company pays, and Juliá also pays to import those knives, forks or spoons. “Or we agree to see who bears the extra expense, but inevitably the amount is already doubled permanently,” he explains.
A blow for specific sectors
For now, Brexit takes its toll on very specific sectors, such as carriers, who return to their countries from the United Kingdom with empty trucks. Despite peering over the cliff several times, neither Brussels nor London ended up falling. But having skirted the cliff so much already has a price. The European Commission estimated that the pre-departure cost for the United Kingdom was between 1.7% and 2.9% of GDP and, according to a report by the think tank Centre for European Reform (CER), exports fell by 10% in the hectic period between the 2016 referendum and the end of the transition period, in December 2020. The blow, therefore, was already behind us.
The European partners and the British Government reached an agreement by which both parties undertook to keep their exchanges of goods free of tariffs and quotas. Even so, the exit had an impact on business activity. According to Office of National Statistics (ONS), sales of British products to the EU sank in January by 40.7% compared to December, to 8.1 billion pounds sterling (almost 9.5 billion euros), while 28.8% less was imported from the Twenty-seven.
Caution against data drought
Community sources, however, ask to be cautious with the little data available so far. Bureaucratic problems at the border are obvious, they add, but wait until more data becomes available. Despite the fact that this is the largest setback in the historical series –whose beginning dates back to 1997-, the data may be clouded by the restrictions imposed by London due to the pandemic and by the possible anticipation of purchases in the months prior to the expiration of the transitional period. The CER analysis tries to extract the effect of these two elements by seeing how other similar economies performed. And the conclusion is that the UK’s exit from the single market and the customs union led to a 22% drop in exports.
The turmoil also affected financial markets. According to the British newspaper Financial TimesThis month, the holders of stakes in around 50 Irish companies moved their assets, valued at around 100 billion euros, from London to Brussels. However, financial assets – especially derivatives – are protected by the temporary “equivalency” system that will be in force until June 2022. Brussels does work to reduce dependence on the United Kingdom.
Neither does fishing, another sensitive sector, still notice the consequences. Diplomatic sources explain that the EU hopes to close an agreement with the United Kingdom on fishing possibilities between the two parties shortly. For now, the EU has decided to extend its quotas until July.
One of the sectors that has plummeted the most this year is passenger transport, although this drop is mainly due to closures imposed by London and several capitals. The sector that is noticing it the most is that of transporters, especially the Spanish. They took their goods to the United Kingdom and returned with merchandise from that country or from other EU states that they crossed, especially France. This last option was the majority. Now many carriers give up returning loaded from the United Kingdom to avoid the formalities and, in addition, they cannot carry out cabotage operations on their return. That, according to these sources, is substantially increasing transport costs.
Eddie is an Australian news reporter with over 9 years in the industry and has published on Forbes and tech crunch.