Brexit: an economist has spoken

17/02/2021

Despite considerable – although poorly recorded – anecdotal evidence that UK exports have taken a hit, government sources are trying to play down the damage. They claim that, while overall freight traffic both to and from the UK fell in January, there was a recovery in February and levels now stand at 97 percent of the normal for the time of year.

However, if the government is claiming that the cross-Channel situation is nearly back to normal, that in itself is something of a mystery. As the New European reminds us, there has been a major shift in Irish trade flows with trucks routed directly to the continent, avoiding the UK landbridge. Taking that into account, one might expect cross-Channel traffic to be marginally reduced anyway.

Nevertheless, the controversy has been picked up by Channel 4, which acknowledges that a key metric is the proportion of empty lorries travelling to the EU, although no-one seems to be able to agree on a figure. Thus concludes Channel 4, we will have to wait for official statistics later this year showing flows of imports and exports by value in pounds sterling to see the full effect of Brexit on trade so far.

That, of course, was always going to be the case, and especially to ascertain the impact on services, which cannot be measures in terms of lorry traffic. And regardless of the trade in goods, there can be little doubt that we will see a significant downturn. With little provision being made for services in the TCA, it is hard to see how this could be otherwise.

The absence of hard data on trade in goods, thought, has not stopped MPs seeking more information, only for them to be told the obvious, that for many businesses, trading with the EU is becoming financially unviable.

That, in the first stages, will not always result in an immediate reduction in trade flows, as businesses honour existing contracts – even when they incur substantial extra costs – and struggle to find ways through the thickets in the hope that difficulties will ease.

In some areas things will get easier as traders, hauliers and officials become more used to the systems. But there will be an irreducible level of frustration, which will confirm "slower and more costly" to be the new normal for cross-Channel trade.

But that isn't deterring people such as Liam Smyth of the British Chambers of Commerce from calling on the UK government to ease the burdens on businesses trading with the EU. This seems to suggest that that Britain's predicament still hasn't fully sunk in.

Skip the national media, which is stall largely hung up on wandering minstrels, and the evidence of problems isn't hard to find. Wales online, for instance, tells the story of Dominic Delfino managing director at a Cardiff-based food exporter. His firm, Famiglia Castagnetta, has 90,000kg of stock stuck in a warehouse because of what he calls "Brexit red tape" and, if he fails to clear it, it could cost him £400,000.

The business is one of the many that exist on the margins of the meat industry. He buys pork rind – trimmings from an English ham-processing company – and sells it to the most lucrative European markets – in Holland, France and Italy – where it is used to make edible gelatin for the pharmaceutical and confectionery industries.

In thirty years of business, his firm has sold thousands of tons to a customer in Italy, who is willing to keep buying and has forward contracts worth £400,000. But, since the end of the transition period, Delfino complains that they've been treated like a "third world country" by European officials.

Certainly, the story is one of nightmares. "When we presented to French customs our bona fide health certificates", Delfino says, they were rejected because the pork rind in question was originally European and entered into the UK. Under the "new Brexit rules", he was told, the product could not accepted back into Europe "because it had been outside of the EU".

He says he had one lorry load which had been waved through at Calais and arrived at Turin only to be forced to turn back to Calais to get the correct paperwork. On that occasion, he shelled out £3,000 for transport and for a specialist veterinary service provided by DEFRA, only to find out, he says, that French officials were never going to let the lorry through. They demanded that it "to be removed from our territory" immediately, Mr Delfino said.

Nevertheless, Mr Delfino seems a little muddled about events, saying that we now know that our driver should have stopped in Calais to collect a CHED, which he calls a "European Health Certificate". In fact, it is a Common health Entry Document, completed by veterinary officials at a border control post – which seems to have been omitted from the product itinerary.

Nor is it entirely clear that Delfino is correct about the reasons for the rejection of his product. For someone who seems to operate out of a Spar grocery store in suburban Cardiff, there is no evidence that his firm been awarded an "establishment number" under EU food safety rules – an essential part of the clearance process.

Anyhow, as to his load which was headed for Turin, he acknowledges that the driver should have gone through the red line to declare, "yet the French customs waved him through the green line". If it had been booked in with the BCP, though, it is unlikely that that would have happened.

Thus, 48 hours later when he [the driver] arrived at the Italian customs agent in Turin he was told that he should have collected this document (CHED) and that they should destroy the goods. "Thank goodness common sense prevailed and they allowed the truck to go back to Calais", says Delfino, "and that is when we found out that the French customs rejected our DEFRA UK veterinary certificates".

Difficult though it is to unravel the precise situation here, the rejection doesn't seem at all surprising. A load of pork rind of indeterminate origins without the necessary documentation is unlikely to get red carpet treatment from any border administration.

Yet Delfino feels that the Europeans are being "obstructive" for no reason and claims, "It feels like there's an agenda to show us we've made a mistake". He can see no reason for such "preposterous bureaucracy".

But if that is genuinely an example of the degree of preparation and understanding of some UK exporters, then a lot more loads will be rejected before the necessary lessons are learned.

For all that, Mr Delfino is not alone. Closer to the source of the rind are East Yorkshire's pig farmers. They say they are being hit by a "perfect storm" of Covid-19, rocketing feed prices and Brexit. Sorrows, as always, come not as single spies but in battalions.

The effects of the pandemic, which has caused staff shortages at meat processors, mean pigs are being held back for longer on farms and are growing too large for the market. With "new" export regulations, the high cost of animal feed and cheaper imported meat lining supermarket shelves is all having a negative impact on local pig farmers.

Kate North (no relation), who runs a pig farm near Driffield with her sisters, Vicky Scott and Rachel Lucas, said: “When you are losing 20 pence a kilo on an 87kg deadweight pig, that adds up to a lot of 20 pences".

Kate, whose parents established their pig farm in 1996, said: "Brexit has made it difficult for us to export, there is lots of paperwork to fill in and checks to be made – 33 percent of our loads going out are checked but, coming in, it's less than one percent, our Government haven't looked after us".

And that's another interesting – if somewhat vital - little twist. While holy merde is raining down on hapless British exporters, the continentals are getting a free pass, and will continue to have an easy time of it until at least 1 July, if not beyond.

But, if we're all struggling to make sense of this, at least we have the Independent helpfully reminding us that forecasts of a long-term hit to GDP as a result of Brexit were dismissed as "Project Fear" by Leave campaigners during the 2016 referendum campaign.

The paper then calls in aid Andrew Goodwin, chief UK economist at Oxford Economics, to tell us - just in case we couldn't have worked it out for ourselves - that "non-tariff barriers" of additional form-filling, queueing and regulatory obstacles to trade, which are now hitting sectors from fisheries to parcel delivery to financial services, are going to damage our GDP.

The disruption caused by these NTBs, Goodwin says, cannot be dismissed simply as "teething problems", but represents the first signs of structural issues which will cut UK GDP for years to come.

"The onus now is on the government to find ways of boosting growth in other ways", he says. Rather than teething problems, the difficulties now being experienced are "the inevitable consequences of leaving the single market and the customs union".

So there we are – we can rest easy in our beds now that an economist has spoken, leading us to the path of enlightenment which we could never have found unaided. As they say, every silver lining has a cloud.

Also published on Turbulent Times.