Last reviewed 1 April 2022
Although there has been no formal announcement, Foreign Secretary Liz Truss has reportedly said that there will be no progress in the Brexit negotiations during the Ukraine crisis.
Certainly, there have been no statements this month regarding the ongoing dispute over the Northern Ireland Protocol and there have been no reported meetings between Ms Truss and the EU negotiators. However, the war in Ukraine seems to have at least temporarily put an end to the ill-feeling between the two sides as the UK has stressed its support for the EU’s sanctions and other actions against Russia, while the Union recently invited Ms Truss to attend its Foreign Affairs Council meeting — a first since Brexit.
Bad news for the OBR
The Spring Statement delivered this month by Chancellor Rishi Sunak came in for a lot of criticism over his failure to act more decisively to help poorer households in the context of rising costs and inflation. Analysis of this part of his Statement rather overshadowed the accompanying documents published by the Office for Budget Responsibility (OBR) on the state of the economy. These will have made difficult reading for those Ministers still insisting that Brexit had set the UK free to expand its trade with the world.
According to the OBR, Brexit has left Britain a “less trade-intensive economy” because the nation has “missed out on much of the recovery in global trade.” Not only has trade as a share of gross domestic product (GDP) fallen by 12% since 2019, but that reduction is 2.5 times larger than suffered by any other member of the G7. Despite repeated assurances from Number 10 and the Government generally that any shortfall in trade with the EU would be more than made up by new deals with non-EU countries, the OBR figures argue differently.
While conceding that extra business with other countries could offset some of the decline in trade between Britain and the Union, the OBR told the Chancellor that “none of the agreements concluded to date are of a sufficient scale to have a material impact on our forecast”. Overall, it estimated that UK trade volumes were 15% lower than they would have been had Britain remained a member of the EU. Overall, it has not moved from its initial assessment that Brexit will reduce long-run UK productivity by 4% relative to remaining in the EU. Furthermore, it concluded, none of the new free trade agreements (FTAs) will have “material impact on our forecast”. Nor will regulatory changes, the OBR said, which will come as a blow to Jacob Rees-Mogg who has said that one of the main Brexit benefits he has been charged to uncover will be the removal of regulations which the EU “forced” the UK to accept.
PAC casts doubt on new FTAs
Last month, Parliament’s Public Accounts Committee (PAC) argued that Brexit has meant a clear increase in costs, paperwork and border delays for UK businesses. In March, it issued another report which warned that “there is no guarantee” that the new international trade agreements being negotiated by the Department for International Trade (DIT) “will deliver actual economic benefits”. In Progress with trade negotiations, the Committee criticised the DIT for being opaque and secretive about the deals it is negotiating.
It is, the report argues, failing to provide the necessary information to Parliament and the public to allow them to assess the practical, real-world, impact of the new deals, or if the interests of businesses and the public are actually being served. The Committee casts further doubt on the benefits that might actually be realised in the new trade deals unless the DIT provides vital support to help businesses use the agreements, particularly for smaller businesses wanting to export worldwide.
Back in Northern Ireland
Recent polls conducted for the Conservative party have shown that Brexit has dropped almost to the bottom of the list of people’s main concerns. It is now far below the threat of increasing prices, the war in Ukraine and problems in the NHS. In Northern Ireland, however, it remains a live issue with arguments still going on between political parties about the value or otherwise of the Northern Ireland Protocol.
As we reported last month, the question had been raised in court proceedings and the judgment in that case is now available. The Court of Appeal in Belfast ruled that the Protocol for post-Brexit customs controls is legal. Judges concluded that the deal between the UK and the European Union was “simple or straightforward”. This assertion may have come as a surprise to some people, with even Lord Frost who helped to write it apparently finding the Protocol incomprehensible, and it certainly upset unionists in Northern Ireland who object to being kept in the European single market and customs union by the last-minute deal that the Prime Minister used to declare that “Brexit was done”. Justice Siobhan Keegan rejected the unionists’ claims, ruling that the UK Government had acted lawfully and that the Protocol was indeed consistent with UK and EU laws.
Still on the Horizon
For several decades, UK researchers and academic bodies have benefitted to the tune of many millions of pounds through the EU’s main research programme, Horizon. As we have reported previously, it had been hoped that the UK would continue to enjoy access to the programme which allows a number of “third countries” (non-EU states) to take part.
In March, the House of Lords European Affairs Committee wrote to the UK Government, the European Commission and the European Parliament raising concerns over the “ongoing and mutually damaging delay” in the UK’s association with Horizon.
The Committee said that it views the apparent politicisation of mutually beneficial scientific co-operation as a deeply regrettable development and urges both sides to work together to unblock the impasse. There seems to have been little movement on this issue and, a few days after the peers’ letter, matters were made worse when the EU published legislation accepting a wide range of countries into the programme. They included Albania, Israel, Turkey, Georgia, Moldova, Armenia, Kosovo and even Ukraine, but still no sign of the UK.
EU Court still holds sway
If there was one benefit of Brexit that everyone who voted to leave the EU could agree on, it was probably that the thoroughly disliked EU Court of Justice (CJEU) would no longer have the final say in how EU rules and regulations are interpreted in the UK. Indeed, it is the EU’s continued insistence that the Court should have jurisdiction in cases involving Northern Ireland that is one of the reasons why it has proved so difficult to agree on how the Protocol should be policed.
Imagine, then, how irritating it must have been for the UK Government this month when a case which was brought by the European Commission in 2019 finally reached the CJEU (which still has the power to rule on it). The Court found against the UK and said that it failed to fulfil its obligations in relation to customs control and combating fraud with regard to undervalued imports of textiles and footwear from China. Over a number of years, dating back to before the UK left the Union, the European Anti-Fraud Office (OLAF) sent out warnings to Member States highlighting the risk of extreme undervaluation of imports of textiles and footwear from China by shell companies registered for the sole purpose of giving fraudulent transactions the appearance of legitimacy.
According to OLAF, fraudulent imports were increasing significantly in the UK because of the inadequate nature of the checks carried out by its customs authorities, encouraging the shift of fraudulent operations from other Member States to the UK. Eventually, the Commission brought an action before the CJEU for a declaration that the UK had failed to fulfil its obligations under EU legislation on customs duty and on VAT. Because it refers to failings when the UK was still operating under EU law, the Government will have to pay compensation to the Commission for the duties it failed to collect. The Court has left this sum for the Commission to calculate but it is expected to total hundreds of millions of pounds.
Exports to EU remain weak
To conclude a disappointing month, the official figures for UK trade in January 2022 became available, with the Office for National Statistics (ONS) revealing that exports to the EU continued to fall. Changes to the way HM Revenue & Customs (HMRC) collects data led to some confusion but British Chambers of Commerce (BCC) Head of Trade Policy, William Bain, said that a better comparison for trade flows would be to compare 2018 with 2022. On this comparison, he pointed out, goods exports were 10.4% down in January this year.