Blog 4: Brexit – The origin in trade statistics

To: Prof Albert Veenstra

 

Nottingham, 8 March 2021

 

Dear Albert,

Thank you so much for your letter. What busy few weeks it has been! On the bright side, primary school children were allowed to return to school today, in England. It was rather strange seeing my son back in school uniform! You mentioned that you struggled to find Brexit related news stories… I thought I might use this letter to help you out a little J.

One Brexit story brewing over here has been the fall in EU-UK trade. According to a report in the Financial Times on 5th March 2021, French exports to the UK were down 13% in January and imports from the UK, down by 20%. German exports to the UK were down by 30% and Italian exports were down by 30%. The FT journalist also highlighted that there had been a lot of Brexit and Covid-19 related stockpiling in the months preceding January and it is tricky to work out the exact impact of Brexit – especially since the EU’s and UK’s respective trade with trade partners elsewhere in the world declined, too.

The problem with aggregated trade statistics is that they highlight that something is definitely going on, but the detail is lost. Yet, it is the detail that matters. In classroom teaching we might talk about the bullwhip or Forrester effect which demonstrates that minor changes in demand can lead to significant production fluctuations further up the supply chain. I can foresee Brexit and Covid-19 related disruptions echoing throughout the supply chain for some time to come – a bit like throwing a stone into a pond and then observing ripples for an extended period of time thereafter.

But I suspect that there is more at play than the “out of whack” inventory levels. This is where a related story, published early on in February, caught my attention. UK hauliers stated, in an open letter to the government, that loads from the UK to the EU had reduced as much as 68%. They also lamented an increased level of empty trailers, suggesting that the available statistics do not tell the full picture. Some press reports then equated “loads” with “exports” to which the government responded that it does not recognise these figures, but did acknowledge that freight traffic has fallen.  It was a rather public spat between the road haulage sector and the UK government. Within all those reports about figures the real issue, as I see it, is that UK haulage sector does not feel it is being heard. With my trade facilitation hat, this raises alarm bells. Open and healthy consultation approaches are essential for any solutions that drives down friction. Such culture, of course, takes time and requires careful nurturing. Unfortunately, much of Brexit was agreed at the 11th hour with very little time to prepare for the details – especially in regards to smaller operators. This was also recently highlighted by no other than Elton John, who joined the bandwagon (sorry, I could not resist this pun) by highlighting the red-tape faced by bands when going on tour around Europe.

Meanwhile, the Brexit related details are also becoming all too clear in the trade between Great Britain (i.e. England, Scotland and Wales) and Northern Ireland. The time available to reconfigure supermarket supplies from GB to NI was not considered to be enough. The UK government thus extended the grace period on checks for agri-food products from the end of March to October. The EU warned about legal actions to which UK Brexit negotiator Lord Frost accused the EU of “ill will”. Others have been accusing the UK Government of “playing games”. I cannot help resist highlighting that this is a prime example of how complex the task of trade facilitation is – it is at once a political, technical, administrative, legal and economic challenge with the devil hiding in the detail, throughout.

In your last letter you mentioned the preferential origin rules for Scottish whisky. The CEO of the Scotch Whisky Association used to be no other than Lord Frost! I thus allowed myself the distraction of quickly checking the EU-UK Partnership Agreement (page 453) to double-check the rules for goods falling under heading 22.08. They are indeed not straight forward and demand a familiarity with how preferential origin rules work. That said, I also checked the EU’s customs tariff and found that – the “erga omnes” rate for 2208.30.30.00 (single malt scotch whisky) is 0%. As far as I can tell, there would be no need for claiming preference under the EU-UK Partnership Agreement since duties are already zero. That said, in February, the BBC ran a story about whisky exports in 2020. Apparently, they slumped to the lowest in a decade, mostly due to Covid-19 and the EU-US trade dispute. That dispute along with the USA’s punitive tariffs on spirits, as reported in the FT, is now to be suspended. Perhaps another reminder that trade policy can be volatile. I would dread to imagine how a dispute between the EU and UK might manifest itself.

Sorry I rambled on about whisky as you had asked about vegetables in your letter. I recall that at one point Brexit was set for 1st April 2019. The trade procedures for Dutch lettuce were something that did cross my desk back then. The worry was that delays at the ports would cause shipments to spoil. As you highlight, from 1st April 2021, pre-notification and relevant health documentation will need to be submitted for imports of Products of Animal Origin (POAO) or regulated plant and plant products. It will be interesting to see whether there will be a run (creating another bullwhip?) on imports before 31st March. The Guardian Newspaper has already highlighted that “UK importers brace for disaster as new Brexit customs checks loom”.  Further down the line, from July onwards, UK importers would also have to:

  • “Meet full customs requirements
  • Submit Safety and Security declarations on all imports
  • Be prepared for customs compliance checks either at port or an inland site
  • Be prepared for relevant SPS goods to enter GB via a Border Control Post either at a port or an inland site, accompanied by SPS documentary requirements”.

Businesses, if they have not done so already, are well advised to become familiar with the requirements so that they can make informed decisions about how they wish to trade with the UK. It would be very interesting to capture the many issues and requirements faced by Dutch exporters to the UK….  research project worth undertaking?

I look forward to your next letter.

Take care,

Andrew

 

Read here previous letters: Blog 1, Blog 2 and Blog 3

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