The Growing Pains of Brexit, 50 Days In

The crucial services exports, manufacturing exports and imports, the arts & entertainment industry, fishing industry… it’s a mess.

This article — the first installment of a two-part series — explores some of the dark sides of Brexit that have emerged so far. It is not intended to reopen any debate about the 2016 referendum or the negotiations over 4 years between the EU and the U.K. which culminated in the Withdrawal Act and subsequently the Trade Deal. Its focus is on the current short-term effects, though they may become medium-, if not long-term ones. Time will tell. The second installment in a few days will look at some of the isolated bright spots that are beginning to shine through.

Brexit began in earnest 50 days ago, on January 1, with the entry into force of the EU–UK Trade and Cooperation Agreement. It is — at least to my mind — the first ever trade agreement that actively seeks to slow down the flow of trade between the two signatory parties. And the costs are mounting for companies on both sides of the English Channel, particularly the British one. And the benefits remain largely elusive. This is no great surprise: Brexit is a process, not an event, and it will take time for most of the benefits of separation from the EU to feed through. Many of the costs, meanwhile, are of immediate impact, although some will no doubt fade as companies adapt to the new procedures.

The UK’s fishing industry is one of the hardest hit sectors, despite the disproportionate attention the sector, which represents just 0.5% of the economy, received in the final stages of negotiations. Prior to Brexit, about 80% of fish caught in the U.K. was exported to the EU. But on January 1 the industry started to unravel. In no time fishing ports from Scotland to Cornwall were up in arms about border delays and unanticipated changes in regulations, causing fish to be left rotting by the roadside or deliveries to be aborted.

The arts and entertainment industry, which is worth an estimated £111 billion to the U.K. economy each year, is hurting. According to the Creative Industries Council, it employs over 2 million people. Already hammered at home by Covid-induced lockdowns and social distancing rules, which led to the closure of cinemas, theaters, art galleries, and museums, and to the cancellation of live events, tours, and festivals, the industry woke up on January 1 to discover that the Brexit deal has made it almost impossible for British bands, artists, or musicians to resume touring in Europe, even once Covid has died down.

In some EU countries, work visas are now costing UK workers hundreds of pounds. The rules also mean that, once visas have been purchased and paperwork completed, a truck can only make one delivery stop in one country, plus an interior move within that country, and an additional move to just one other country before returning home. The result? Touring and festival hops become untenable. The only way forward for a UK haulage company serving the industry is to relocate to the EU. If they go, so, too, could lighting companies, sound companies, and video companies.

Manufacturers are also running up against major obstacles, as they discover that the UK government’s claim that the trade deal with the EU guaranteed zero-tariff, zero-quota trade between the two partners is not entirely true. Those protections only apply to goods traded between the EU and UK that originate from whichever side exported them. The rules of origin included in the trade deal aim to ensure that goods imported from, say, India into the UK can’t be sold on to the EU tariff-free. Complying with these rules is notoriously hard – especially for processed agricultural or industrial goods, which typically include ingredients or components from around the world.

Non-tariff barriers — largely consisting of regulatory barriers that are arguably the biggest obstacle to international trade these days — were not adequately addressed by the trade deal. With Britain now formally outside the bloc, customs checks and formalities now apply, which can be time-consuming and burdensome. Exporters now have to navigate inspections, safety regulations, and a vertiginous mountain of paperwork. Customs bureaucracy has also caused some freight forwarders to reject contracts for delivery of goods into the UK.

Some business owners say that Brexit is an even bigger problem for their business than the economic impact of Covid-19…

Continue reading the article on Wolf Street

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