Brexit: bigger fish to fry

By Richard North - December 21, 2023

I missed this when it was first published a couple of days ago – the British Chambers of Commerce annual survey on its members’ trading experiences with “Europe”.

The full report is here running to a fairly comprehensive 48 pages, headed: “The Trade and Cooperation Agreement three years on”, setting out some proposals for the reform of the UK-EU Trading system.

The Guardian seems to have been the first national newspaper to pick it up, which it did so on Tuesday. Its headline was: “British exporters call on government to ease post-Brexit trade frictions with EU”, the sub-heading noting that although though Johnson promised “no non-tariff barriers” (although it’s doubtful if he actually knew what they were), firms say they are struggling under a “compliance burden” of customs and safety checks.

The report itself summarises the BCC survey, as you would expect, telling us that almost two-thirds of British exporters have said selling to the EU has become harder in the past year. Three years on from Johnson signing the TCA, small businesses – which make up much of the BCC’s membership – are still struggling to negotiate trade barriers.

The figures themselves are pretty unequivocal, having 60 percent of respondents who export to the EU saying it had become more difficult than a year ago, compared with the 18 percent of exporters to non-EU companies who reported that trading had got harder.

In terms of the overall benefits to the exported, only 14 percent agreed that the TCA was helping them to grow their business, while 49 percent disagreed.

Then William Bain, the BCC’s head of trade policy, gets to comment, reminding us of an underling truth about Brexit – which I recall describing as “a process, not an event”. “It’s not a static mechanism”, says Bain: “You’re dealing with a growing compliance burden that’s started to come in increasingly over the past 12 months. It creates more paperwork; it creates more cost”.

While I was focusing on Ukraine in yesterday’s post, however, Pete had seen the Guardian report and commented on it on social media.

While Brexit has been and gone – we’re out of the EU – obviously, we’re still living with the effects, good and bad. And Pete takes the view, as do I, that the economic effects of leaving the Single Market would be a slow bleed rather than a big bang, and that it’d be some time before we could get an accurate reading how it had impacted trade.

He refers to a recent report from the British Beauty Council (yes, there is such a thing, which shares its initials with a well-known broadcaster). Its 2023 “Value of Beauty” report claimed that Brexit had resulted in a £850 million decrease in the export value of the UK’s beauty market, which gives some indication of where some sectors are going.

Actually, I wrote a piece in EUReferendum in March 2017, triggered by a Financial Times article of the period, predicting chaos in the wake of Brexit if the WTO option was chosen as part of the settlement.

Remembering those times, it is hard to believe that this was ever a “thing”, but it is a symbol of the madness of the moment that it was ever taken seriously by so many people. But the piece pointed out some of the pitfalls that would arise outside the Single Market and – as predicted – some rather plump chickens are coming home to roost.

Despite that, Pete says, aggregate statistics gathering exercises have been a very poor measure of Brexit effects and are widely disputed, but we are getting an accumulation of anecdotal and sectoral analyses (such as the current BCC report) which seems to be giving us a more accurate picture.

Pete himself has recently been working as a systems analyst for a mid-ranking UK chemicals distributor and found that the bureaucratic impact had been considerable. It hadn’t exported much to the EU, but suddenly trading with Northern Ireland became a nightmare and the freight costs shot up.

Interestingly, regulatory compliance costs remained about the same, not least because most of the standards and labelling rules were dictated by international bodies such as UNECE. They hadn’t changed and wouldn’t change – something we often pointed out during the leave campaign, while the morons held sway about the WTO option.

Needless to say, the Guardianistas are gleefully leaping on the BCC report as an example of another “Brexit failure”, instead of evidence of the stupidity of those involved in the Brexit process, but – as Pete points out, there is far more than Brexit at play.

We are, for instance, facing the enormous bureaucratic burden that goes with the new EU Carbon Border Adjustment Mechanism, which no doubt a brain-dead British government will in due course adopt.

In fact, that much is probably inevitable as regulatory harmonisation is pivotal to frictionless trade, and continued harmonisation with EU standards is at the core of the TCA. But this is a particularly onerous EU system that will drive up the cost of everything and will be expanded in scope when the system is fully operational – nice timing at the height of a cost-of-living crisis.

And therein lies the emerging story: net-zero measures imposed by the EU since our departure have had a profound impact on food production, vehicle manufacture and energy production. By contrast with the likes of Germany, Britain is weathering the storm relatively well if only because we’re ahead of the game in the deindustrialisation stakes.

As German manufacturing takes a nosedive, though, Britain would be able to take advantage is we were note also hampered by net-zero insanity and had the political courage to dump EU/UN climate goals in favour of cheap and reliable energy.

Viewed dispassionately, the impact of Brexit – such that it is – is dwarfed by the costs of net-zero insanity. At least Brexit allows us the flexibility and independence to dump it faster than the Europeans can.

As to the future, Pete argues that it is doubtful that there is much can be done to restore EU trade as it bleeds out. In part, although it would like to see some changes, the BCC seems to agree. Compliance burdens continue to be raised by SMEs trying to trade cosmetics and other chemicals products in Great Britain and the EU, it says. Solutions are not easily foreseeable here, given the inclusion of these products within a key part of the EU Single Market approach to regulation.

And, says Pete, once supply chains begin to divert, you can’t simply pledge unilateral alignment and expect things to revert to normal, especially in this time of economic and political turbulence when EU member states are quietly closing the single market down, reimposing borders and lobbying for trade protectionism.

Of course, the disaster here lies in the past. Ultimately, there was only one opportunity to remain in the Single Market. Remainer MPs comprehensively voted against it, and even amongst the ranks of the Leavers, it EEA – even as a transitional option – had few friends.

That still leaves us with a great deal of denial about the economic impacts of Brexit, much of which has been obscured by lockdowns, the war in Ukraine and the lack of economic stability. Moreover, ERG free-traders have had a bucket of cold water thrown over them as the US has shelved a comprehensive FTA.

Tensions around the Middle East and Houthi terrorism in the Red Sea point to the folly of extending supply chains across the globe, while drought conditions in the Panama region are teaching similar lessons about our reliance on South American produce, as the Panama Canal dries up.

With that, amidst a growing backlash over unsustainable levels of immigration, growing domestic political turbulence, rising fuel and energy bills and falling wages, the Brexit-orientated arguments about food safety and customs rules have slid to the bottom of the agenda.

Even now, we have only an additional piece about the BCC survey in The Times , which has the BCC warning that the divergence of British and EU regulations will cause further headaches for companies, and an unrelated piece in the Financial Times about an “end to naivety for EU trade rules”, talking about the Brussels response to a unilateralist US and a more coercive China.

In a very real sense, the EU has bigger fish to fry than Brexit, but then so does the UK – if for different reasons. Who cares about export rules if energy costs are so high that nobody can afford to make anything, asks Pete.

It’s only going to get worse too since the “adults in the room” think you can power a first-world economy with windmills and Chinese solar panels, and that farming and food production is evil. “Interesting times”, is one way of putting it. There are other words one could use.