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It is now a month since Brexit began in earnest and it is fair to say that on the face of it, the worst-case scenarios have not come to pass, at least not yet.
This may have been clever expectation management on the part of the government, but when Michael Gove warned of a “reasonable worst-case scenario” of 7,000 trucks backing up outside Dover, it conjured visions of haulage hell.
This hasn’t happened. Indeed, it seems as if the requirement for all drivers to have a Covid-19 test before travelling is at least as responsible for delays and driver “turnbacks” as issues over customs paperwork.
But the lack of queues, while providing the government with some breathing space by keeping the Brexit rollout problems off the front pages, tells only one half of the story.
The lack of queues is also a story of trade that would have happened, but has not — either because pre-Christmas stockpiling has meant business can avoid making the trip, or because they simply haven’t dared and loads are left waiting at the depot or on the farm.
An example: pig meat exports. You may have read reports that pig meat is rotting in Rotterdam, but the other side of that story is the 100,000 pigs that are stuck on farms waiting to go to market.
Some of those are the tougher, older “cull sows” that would normally be sold for salami in Germany, and the smaller, tender meat animals that should be slaughtered at 80kg for bacon and chops, but are currently stuck on the farm.
All need to be fed, whittling down pig farmers’ profits, while the failure to deliver reliably into EU supply chains risks long-standing EU clients looking elsewhere.
Pig farmers are not alone, just ask the Scottish and Cornish fishermen whose boats are tied up at harbour, or the poultry farmers who estimate that exports to Europe are 20 per cent of what they were this time last year.
Some of this is “teething problems”, but as one meat importing specialist describes it, this is just the tip of an “iceberg of pain” caused by the almost complete lack of easements for animal and plant products in the EU-UK trade deal.
This means that product that was going straight into Europe in a matter of hours now takes 48 hours at best, thanks to bureaucratic procedures that are really designed for sending products over long distances with long lead times.
At the same time, EU food imports into the UK are flowing freely since the UK is not imposing a border until July — a situation that is infuriating farmers such as Rob Mutimer in Norfolk who can see old German markets disappearing since he cannot get his pigs to market, while simultaneously cheap EU pig meat is undercutting his UK sales.
The industry speculates that if EU exporters were facing similar border problems as their UK counterparts are, both sides might be incentivised to start reducing the frictions — but that is still some way off and, for now, the priority for government is the “flow” that keeps the shelves stocked and such problems hidden from the view of the general public.
For small businesses selling non-perishable products into Europe, the pain is even less visible since it is composed of a million tiny pin-pricks, rather than the headline-friendly stories about langoustines or pigs’ heads stranded on the docks.
These businesses are rapidly discovering that a zero-tariff deal doesn’t help you either if you import from non-EU countries — a pair of jeans from Japan, say — and then sell them on to a customer in Europe. That customer will pay the EU’s external tariff.
But perhaps even more importantly, even if the product is tariff-free, the recipient in Europe will still need to pay VAT and other handling charges and to do that you need a VAT-registered business in that country to raise the VAT invoice for them to pay.
In practice, that means UK companies getting an agent in the EU or registering in that country for VAT, which is expensive, time consuming and means that many UK small businesses struggle to supply EU clients on “DDP” (delivered duty paid) terms.
The alternative is to supply clients “DAP” (delivered at place) but this transfers risk and cost on to the receiver of the goods, a situation that big players such as supermarkets won’t accept and which smaller customers often can’t afford, or would prefer to avoid.
Many small businesses I’ve spoken to, some of which have only just started to test the waters after exhausting pre-Christmas stockpiles, are still trying to work out what this means for their old business relationships.
For now, some are finding customers willing to pay the VAT and charges, but how many will continue to do so, or will switch to alternative suppliers inside the EU single market, only the next few quarters will tell.
Kiran Tawadey, who exports her Hampstead brand of organic teas into the EU, is braced for a round of calls after her EU customers start doing the first-quarter books and begin adding up the costs of doing business with the UK.
For now, these are some of the largely unseen world of Brexit effects that are just bubbling below the surface of public consciousness, but is quietly building pressure and stresses on existing ways of doing business, many of which will change over time.
On professional services — from architects to fashion models — Covid-19 travel bans have provided a buffer, but many companies are only just starting to understand what the lack of a mobility chapter in the deal means for their businesses.
Again, the aggregate impacts are unclear. As the boss of one UK software company that has opened a 12-person office in the Netherlands to service EU clients observed: “The government doesn’t care about me relocating a dozen jobs to Europe, but it might care if 20,000 companies moved a dozen jobs to Europe.”
In short, we are in a world of multiple known unknowns in which business must decide whether it can absorb the costs of adapting, find new ways of doing business or simply give up on doing business with Europe altogether.
On the other side of the ledger, UK importers and EU exporters have all their pain to come as the UK imposes its own border from July. It is true that there is room for the UK to be more flexible, but as the pig farmers’ experience shows, the government will come under pressure if it creates a permanent imbalance with the EU, which already runs a goods surplus with the UK.
The hope among many UK exporters is that the EU might get a bit more pragmatic when its exporters are facing similar hurdles, although the spat over Covid-19 vaccines suggests the political temperature might not be entirely conducive to compromise.
One small illustration of where a “tariff-free” Brexit deal doesn’t mean a frictionless or fee-free deal is the wine industry.
Some importers have estimated that the cost of doing business will put £1.50 or so on to the price of a £12 bottle of wine, as a result of higher haulage costs and the administration costs of raising the relevant certificates on both sides of the border.
It may well be that no-one ultimately really notices this, since if you can afford a £12 bottle of wine, you can presumably afford the same bottle at £13.50 — but nonetheless it will hit some smaller businesses and entrench the power of supermarkets and big retailers that can spread out new costs over large volumes.
With so many smaller businesses still in the early stages of Brexit discovery — a quarter of the UK’s SMEs do some trade with Europe — it will be many months before a clearer picture emerges of Brexit’s impact on trade, and even then the impact of Covid-19 will mean meaningful year-on-year comparisons are impossible to make.