It is now more than five years since the UK voted to leave the European Union and almost 12 months since the Brexit transition period ended. As we said at this time last year, however, “Brexit may be done, as Mr Johnson would argue, but there is general agreement among trade and diplomatic experts that …negotiations between the UK and its largest trading partner will go on for years – if not decades”. Nothing that has happened in the intervening months has served to prove that gloomy prediction wrong.
Still a touch of frost
As with almost every month in 2021, November saw regular meetings between the UK Brexit Minister Lord Frost and the European Commissioner Maroš Šefčovič as the two struggled to find any measure of agreement on how the Northern Ireland Protocol should work in practice. The EU has continued to point out that the Protocol is part of an agreement signed into international law and that it was warmly welcomed on its signature by Prime Minister Boris Johnson and Lord Frost. The latter has consistently argued that the EU has been too bureaucratic in its interpretation of the Protocol and has stuck too often to the letter of the law rather than its spirit.
A November deadline was set for an agreement between the two sides but, as the talks moved into December, no one was prepared to guarantee that they would end this year.
Lord Frost is still threatening to invoke Article 16 of the Protocol which allows either side to suspend any part of the agreement that causes “economic, societal or environmental difficulties”. Unless this is done with the agreement of the EU, however, and that is highly unlikely, the Union could respond with measures which would impose tariffs on aspects of trade. And that way lies a trade war which neither side can afford in the current economic climate.
Out of court
The EU has offered changes to the way it interprets the Protocol which would, Mr Šefčovič said, remove many of the restrictions which are currently making life difficult for those trying to move goods between Great Britain and Northern Ireland. Identity and physical checks would be reduced by around 80% compared to the checks currently required, he claimed.
This did not impress the UK negotiators who want an end to all customs checks between the two parts of the UK. Goods could then move without hindrance straight from the UK to the Republic of Ireland, however, and that, in the Commission’s eyes, would directly affect the integrity of the single market. It argues that there always had to be checks on these goods at some point and, if they were not to be at the land border, which no one wants, then they must be somewhere on the journey from Great Britain to Northern Ireland. That, of course, is an eventuality that Mr Johnson promised would never happen.
Just to add to the problem, Lord Frost has again made clear that he wants to remove the EU’s Court of Justice (CJEU) from having any sort of oversight role in policing the UK-EU Trade and Cooperation Agreement (TCA) and the Protocol. As the CJEU has the final say on how any EU legislation is interpreted, that is another demand the Commission is unlikely to take on board. This leaves both sides sticking firmly to their own positions while demanding compromises from the other.
While these seemingly endless negotiations plod on, the National Audit Office (NAO) has been examining how the Government managed the post-transition period with regard to trade with the EU. The UK Border: Post UK–EU Transition Period, which can be found here, recognises what it calls the very challenging set of circumstances faced by government departments and notes the “significant achievement” that, collectively, they delivered the initial operating capability needed at the GB–EU border.
However, the spending watchdog goes on, this capability was achieved in part using temporary measures such as delaying imposing import controls, putting in place easements and providing direct financial support to businesses to help them continue to trade. The current overall operating model for the EU–GB border is not sustainable, the NAO warns, and much more work is needed to put in place a stable operating model that eliminates any risk of World Trade Organization (WTO) challenge from trading partners, does not require any temporary supports and has clarity and ease of use for border users.
More changes ahead
HM Revenue and Customs (HMRC) has issued its own warning in recent days, reminding traders that new customs changes will come into effect on 1 January 2022. With regard to Customs declarations, it highlights that they will no longer be able to delay making import customs declarations under the Staged Customs Controls rules that have applied during 2021. Most customers will have to make declarations and pay relevant tariffs at the point of import.
HMRC also points out that ports and other border locations will be required to control goods moving between Great Britain and the EU. This means that, unless goods have a valid declaration and have received customs clearance, they will not be able to be released into circulation and in most cases will not be able to leave the port. Rules of origin, for imports and exports, will come into force meaning that traders will need proof that the goods they import from the EU originate there and similarly that those they export to the EU originate in the UK.
What trade deals?
To complete an unhappy month for the Government, the UK Trade Policy Observatory (UKTPO), a partnership between Chatham House and Sussex University, cast its eye over post-Brexit trade deals and was not impressed. Professor Alan Winters pointed out that the UK has signed no new trade agreements relative to what it would have had as a continuing member of the EU. Furthermore, the two agreements in principle announced this year (Australia and New Zealand) will, on the Government’s own figures, increase UK GDP by only between £200 and £500 million annually — that is, 0.01% to 0.02%.
“We were asked to sum up the economic benefits of the UK’s new post-Brexit trade agreements,” Professor Winters said. “Our first observation is that, if we take as a starting point the trade agreements that the UK would have been party to as a member of the EU, the Government has, to date, signed no new trade agreements.”
Voting with their feet
In November, the Institute of Directors (IoD) asked member firms about their experiences of trading with the EU since the TCA came into force at the beginning of the year. Nearly half (47%) of those that trade with the EU are doing less trade or have stopped trading entirely with the Union since January, while 62% of those trading with the EU say their costs in this respect have risen this year, with the great majority (70%) having to absorb some or all of these costs themselves.
As a result, the IoD was told that 26% of SMEs that trade with the EU are now considering moving some of their European operations out of Britain, while nearly a fifth (16%) have already decided to move some or all of their EU operations to inside the single market because of Brexit. IoD Chief Economist, Kitty Ussher, said: “Brexit has meant that many firms have had to fundamentally adapt their business model. For some, that has meant that they have dramatically reduced their trade with the Europe, whilst for others they have had to move some of their operations on to the continent.”
Over 1000 universities and thousands of researchers involved with the Horizon programme have urged the European Commission to move swiftly to finalise the UK’s involvement in the EU’s €95.5 billion R&D programme. Their letter to the Commission warned that failing to keep the UK involved risked “a major weakening of our collective research strength and competitiveness”.
Strategy to boost exports to £1 trillion
To close our Brexit Watch reports for this year on another positive note, the Department for International Trade (DIT) has published a plan to help businesses across the UK double exports by selling around the globe. Made in the UK, Sold to the World is a 12-point export strategy which can be found here
This includes details of a new Export Support Service (ESS), the DIT’s first end-to-end service to support businesses exporting to Europe. This will, it said, target specific difficulties businesses are having in exporting to Europe. The strategy document also describes the new £37.8 million European Regional Development Fund (ERDF) Internationalisation Fund, which will provide 7500 SMEs in England with financial assistance to build their capability to internationalise. The DIT states: “We will continue to deepen our trading relationships with some of our closest allies, including the United States and the European Union. These markets are ready to trade, and we will continue to promote exporters across them.”