February 1, 2023 marks the third anniversary of the UK officially leaving the EU. Brexit has always been accompanied by the promise of major legal restructuring.In the end, after 45 years of membership, the UK has severed ties with the world’s most deeply integrated economic region.
Commentators have focused on how Brexit would affect the UK’s relationship with the international economy, as many of the legal provisions that accompanied EU membership concerned international trade. Before Brexit, the UK enjoyed the benefits of being part of the European Single Market. No import duties or quotas apply to transactions with the other 27 market members. The EU also had clear customs rules under which the UK traded with the rest of the world.
However, Brexit removed the UK from the single market and created strict legal boundaries between the UK and the continent. Moreover, it is no longer party to tariffs negotiated between the EU and the world.
Three years later, what impact have these changes had on international trade in UK goods and services?
Decline in value of UK exports to the EU
The most direct impact Brexit has had on trade has been a decline in UK exports to the EU. Researchers at Aston University found that the UK’s exports to the EU fell by an average of 22.9% in the first 15 months after her departure from the EU, from January 2021 to March 2022. I found1
EU data show a similar picture, with UK exports falling by nearly 14% in 2021 compared to 2020 before Brexit. The study considered the impact of the pandemic.2
But a more notable change was the fall in the value of UK exports to the EU.3 Experts believe this is due to the increased fixed costs of exporting to the EU and the bankruptcy of many SMEs.Four
trade cooperation agreement
What makes post-Brexit rules so cumbersome for small exporters? It all goes back to the new trade deal between the EU and the UK. The first change in the UK’s international trade relations after Brexit came with the Trade Cooperation Agreement, a law that governs the future relationship between the UK and the UK.
The Trade Cooperation Agreement entered into force on January 1, 2021. The law upholds some of the benefits of her EU-era free trade for the UK, such as ensuring that trade between the UK and her EU is free of tariffs and quotas, but new tariffs and We set regulatory boundaries. It is on the border between regions.
New customs checks on goods leaving the UK and heading to the EU have forced UK manufacturers to deal with new bureaucratic procedures. This is very ironic given that the Brexit campaign has consistently emphasized EU bureaucracy as the reason for leaving the EU.
In 2021, a group of researchers from the Universities of Glasgow and Birmingham interviewed senior manufacturing executives in central England about the implications of a new trade deal between the EU and the UK.
One respondent said providing full export documentation for goods leaving for the EU was the biggest rupture with Brexit. This is a fundamental change in the system. ”
What makes this additional documentation so cumbersome for businesses is the constant potential for human error. [..] Errors occur up and down the supply chain, adding complications to capacity issues at borders. ” Delayed orders due to errors mean lost business and lead to loss of competitive advantage.Five
UK buys less goods from EU
Another big change after Brexit is the decline in UK imports from the EU. EU exports to the UK fell by around 25% compared to other countries’ imports into the UK.6 The drop is evident in UK figures on where imports are sourced. In 2021, the share of total UK imports originating from the EU has fallen from 58% to 45%.7
These figures may be due to the UK choosing instead to increase its trade with the non-European world.
Despite this, the EU remains the UK’s largest trading partner in absolute terms. About 42% of all UK exports will go to her EU in 2021.
Transactions outside the EU: rollover transactions and WTO rules
If the UK is doing more with the rest of the world these days, how have its trade relationships outside Europe changed?
When the UK was part of the EU, it was able to operate under the EU’s comprehensive MFN tariff schedule. Under this timeline, the EU had everything ready for the UK in terms of defining trade relations between the UK and the rest of the world.
With the UK no longer a party to this blanket tariff schedule, the country embarked on the painstaking process of negotiating individual deals with all other economic entities with which it traded.
Much to the comfort of business, the UK could easily take over EU free trade agreements with 69 non-EU countries after Brexit.8 Of course, the UK is now a party to these new independence agreements as a sovereign entity.
However, there remain all other countries to which the UK has not taken over EU trade relations. Moreover, the rolled-over EU agreement is only a temporary measure, with a more permanent and lucrative agreement in the UK government’s pipeline.
The UK has a long list of countries that want to strike a post-Brexit trade deal. Government priorities are currently in negotiations with India, Canada, Mexico, Israel and the Gulf Cooperation Council.
Canada is one of the countries where the UK has successfully rolled over its EU trade agreements, but this is only a temporary fix. Canada and the UK have customized ‘more ambitious’9 An agreement was reached in the near future.
The UK is also fighting to reach an agreement with the Comprehensive and Progressive Treaty on Trans-Pacific Partnership (CPTPP), a regional economic bloc much like the EU.
The UK has so far only had a limited number of customized and individual trade agreements with other countries.Ten Currently, it is traded with many countries in the world under WTO rules. WTO trade rules are the default state under which economic interaction between countries reverts if they do not have specific trade agreements between them.
New Deal: Australia and New Zealand
New Zealand and Australia are two countries the UK has already signed custom bilateral trade agreements with. These are the only countries where the UK has signed a deal that is completely independent of her EU-era rules.
The Australian deal came first. The 32-chapter agreement, signed on December 17, 2021, covers everything from digital trade to intellectual property to agriculture.
The most politically controversial aspect of Australia’s Free Trade Agreement (FTA) is the new rules on agricultural trade. The UK government has said these will be done slowly, but most UK farmers are not convinced the new arrangements will work in their favor.
The National Farmers Union (NFU), the UK’s largest agricultural industry body, issued a statement in April 2022 saying that the FTA “will require UK farmers to ensure that they are producing to the same standards as legally required.” It will open up the UK agricultural market for Australian produce regardless.” “11
The NFU is concerned that cheaper commodities made under less stringent Australian regulatory standards will flood the market, driving down prices for British agricultural products that must meet stricter legal standards.
The NFU was equally critical of the UK’s new FTA with New Zealand, signed on 28 February 2022, which eliminated tariffs on New Zealand goods. He said the FTA would hurt British farmers.
The NFU said “British agribusinesses face significantly higher production costs than New Zealand farmers”, which means they are unable to compete for British goods and markets. To do.
The New Zealand-Australia trade deal is not yet in force (at the time of this writing): it must first undergo inspection by the UK Parliament before it can come into force.
Location of Northern Ireland
Northern Ireland is uniquely positioned in the post-Brexit situation. Due to the historically significant tensions between Northern Ireland and the Republic of Ireland, post-Brexit negotiations will see the Republic of Ireland (still part of the EU) and the Republic of Ireland (no longer in the EU as it is governed by the British Parliament). The emphasis has been on avoiding the rigid boundaries that emerge between member).
Negotiations between the EU and the UK have agreed to no new checks on goods crossing the border between Northern Ireland and the Republic of Ireland to avoid a tight border between these regions. Indeed, Northern Ireland is still subject to many EU laws.
textiles and apparel
The same story is unfolding in the textile and apparel industry, which faces new administrative burdens and associated costs if it wishes to continue expanding into the European market.12
The EU is by far the largest export market for UK fashion and textile imports, absorbing 74% of the sector’s goods sold abroad in 2016.13
It’s no surprise that UK apparel and footwear is one of the hardest-hit sectors by the departure from Europe.14 Between 2015 and 2019, total textile and garment imports fell by 6.45%. Although the UK had not formally left her EU during this time, there was already great uncertainty about the new trade restrictions businesses would face, which worsened international trade in clothing. It is believed that15
This has largely to do with the fact that the new trade agreement between the EU and the UK only exempts customs duties if the products originate in the UK. , very few products sold from the UK meet this standard.
Another trend has picked up in the UK textile trade. Textile imports from EU countries were low, but imports from non-EU countries were high.16
The EU sector was also affected by Brexit. Between January and September 2021, the EU lost more than €3.4 billion of her, according to trade data.17
Statistics for 2022 are set to paint an even more pessimistic picture as a full set of new customs controls will be implemented on 1 January 2022. Currently, the product must already have a valid declaration secured and undergo customs clearance.18
The effects of Brexit are not yet visible
The key to all this is that the full impact of Brexit on trade is yet to be seen. This is especially true as Brexit, the pandemic slowdown, and post-pandemic inflation all happened in rapid succession, making it very difficult to disentangle their impact on trading patterns.
The full impact of Brexit will also depend on the terms on which the UK negotiates its own trade deals with many countries around the world.
What is clear is that Brexit is not working for small businesses. Large multinationals operating with large economies of scale can absorb the additional costs of new border rules, but not all companies can.
A December 2022 survey by the British Chamber of Commerce revealed that 92% of respondents are SMEs. More than half say they are struggling to adapt to new rules for trading commodities.
A large survey of the UK fashion value chain, sponsored by the UK Fashion and Textile Association, conducted between June 2019 and January 2020, found that more than 60% of businesses felt that uncertainty over Brexit reported to be influential.19 Meanwhile, only 4% reported an increase due to increased UK orders from retailers switching to local products to circumvent the new regulatory regime at EU borders.
The UK fashion industry is bracing for further headwinds in the years to come as raw material inputs refuse to return to pre-pandemic and pre-Ukrainian war levels.