Brexit, once hailed as a grand natural experiment for economists to dissect the repercussions of leaving a low-friction trade environment, has proven messier than anticipated. Britain’s departure from the European Union coincided with the disruptive force of the pandemic and an unprecedented energyprice shock.
This confluence of events has clouded the ability to discern a clear economic fallout from Britain’s departure from the EU. The narrative unfolds against the backdrop of a reluctant British government, delaying full assumption of control over its borders. Although officially leaving the EU on 31 January 2020, the UK effectively remained in the single market and customs union until 31 December 2020. This transitional period shielded the nation from immediate border challenges. However, January 2021 saw the imposition of new controls and bureaucracy by European trading partners on British exports. In contrast, the British government, in a series of delays, postponed checks on goods arriving from Europe. After several delays, these controls started being enforced two weeks ago ~ from January 31. Despite tariff- and quota-free trade with the EU, imported goods into Britain will require additional paperwork this year. Sanitary and phytosanitary (SPS) checks will be mandatory for food products to ensure compliance with national standards. The phased rollout of customs and SPS checks over the next nine months means that European exporters will soon confront challenges akin to those faced by their British counterparts in the past three years.
The introduction of extra bureaucracy, albeit a necessary measure for regulatory adherence, has the potential to lead to significant delays. Hauliers highlight the precarious nature of customs code precision, where a simple error can lead to hours of resolution. For perishable goods, even a day’s delay can render an entire shipment economically futile. The concept of “groupage” adds another layer of complexity, with trailers containing various goods requiring individual checks. Recent trade figures underscore the asymmetric impact of Brexit on goods trade. British goods exports to the EU in Q3 2023 rose by 10.3 per cent compared to the final quarter of 2020, a lacklustre performance when contrasted with a 19.7 per cent increase in exports to non-EU countries.
On the import front, goods from the EU increased by 10.7 per cent, while imports from the rest of the world remained broadly flat. Trade body reports indicate that export problems to Europe persist for 90 per cent of manufacturers, demonstrating only a marginal improvement since December 2020. As new border checks take effect, the pain is expected to be more evenly distributed. Retailers, grappling with recent drops in food-price inflation, fear the potential for upward price pressure due to new border checks. The overarching lesson from Britain’s post-Brexit trade experience is clear ~ more trade frictions generally translate to less trade.