Brexit: an unrealisable dream

20/02/2021

Although the impetus for the Single Market came from the European Council in Milan in June 1985, when it endorsed the programme for completing the Internal Market by 1992, as set out in the Commission' s White Paper, at that time the term "Single Market" was not to be seem.

Nor indeed, in its progress report for the European Council of 26-27 June 1986, did the Commission refer to the Single Market. Instead, it wrote of "an area without frontiers".

Two years later, that description had changed slightly to an "area without internal frontiers", which was a slightly more accurate handle.

The same year, the term Single Market did emerge but it didn't really achieve common currency until 1990, when the term "area without internal frontiers" seems to have appeared for the last time in official Commission papers.

Perhaps, if the Commission had kept its original label, it might have helped people understand quite how wrong shysters such as Shanker Singham and his ERG sponsor Steve Baker were about the Single Market.

The upshot is that we now have an area with internal frontiers or, to be more specific, a frontier between Great Britain and the European Union 27. And it is the existence of that frontier which is the cause of most of the grief being experienced by our exporters.

Talking of which, there is that (very old) joke about the senior Army officer compiling the annual performance review of one of his subordinates, who wrote: "this officer is so stupid that even his brother officers have noticed".

On parallel lines, we have an article in The Times which suggests that the prospect for exporters have become so dire that even a national newspaper has noticed.

More specifically, this is James Dean, the paper's chief business correspondent who writes under the title "Exporters are being left to sink or swim in the Brexit trade revolution". Despite his apparent understanding, though, Dean thinks that, although the immediate effect Brexit is having on the economy is destructive, hopefully, that destruction is a prelude to reconstruction.

From where he gets this optimism, Dean does not say – he does not offer any evidence to support it. On the other hand, there are various estimates which suggest that the UK's GDP could take a hit of anything up to five percent. But there is also a possibility that this could represent a long-term shrinkage of the economy.

For my part, I think there are factors relating to our trade with the EU which are not being properly factored into the assessments. If these are added in, the hit could be far worse than even the most pessimistic predictions.

Some time ago, for instance, I wrote about a peculiarity in the egg trade, noting that few of our domestic producers actually export directly to Europe, although export is vital to the profitability of the sector.

The issue, I wrote, was the spring flush. Although commercial laying birds are far distant from the original jungle fowl and live in completely artificial environments, they still go into high gear in the spring (their natural laying cycle), whence egg production peaks.

This period, though, also matches Easter, one of the periods of highest egg demand – but not exactly. Before the Easter demand takes off, the hens are already in overdrive (especially if Easter is late). Producers watch nervously as a national egg surplus build up, and prices teeter on collapse. With predatory supermarkets, they can easily end up selling at less than the cost of production.

Fortunately, there was an answer – export. For reasons that were never clearly explained to me, the Dutch demand cycle was slightly different to that of the UK, taking off earlier in the year before the hens got going. Thus, by the early Spring, the industry could usually anticipate an egg shortage in Holland, driving up the prices there.

What then would happen was a number of entrepreneurs would contact UK farmers and buy up the entire UK surplus for a few weeks, and strip the wholesale market. They would fill up a number of containers for transport to the Dutch market. Because of regulatory harmonisation and the Single Market, that had become a simple operation, allowing the price to be stabilised. For many egg producers, the money they then made represented their profit for the entire year.

The point here is that most of the time, most egg producers did not export. But during that short period of intensive export, many do – without even being aware that their product is being sent abroad. Take this vital, price-stabilising mechanism out of the equation and many producers would run at a loss.

We've seen not dissimilar mechanisms in other sectors, where the sale of unpopular cuts of meat, and offal, to the European market, act as a cross-subsidy to UK producers, enabling them better able to compete against cheap foreign imports. Remove the export option from the market and many livestock producers could go under.

Then, yesterday we saw recounted the experiences of perfume-maker Sarah McCartney, who had been relying on profitable online sales to the European market to make up for loss of domestic sales. The permanent removal of those sales could render her business unviable.

This is why, of course, exporters cannot just be left to fend for themselves. Brexit, as I've always argued, is not an event but a process and it is becoming increasingly evident that the TCA was not the end game. It leaves a myriad of loose ends and unresolved issues which will keep our negotiators busy for years to come.

Giving further insight into the scale of the problems facing an increasingly diverse range of businesses, we see a perceptive article on the fate of the fashion industry – not a sector to which I have devoted a great deal of attention.

Yet, under the heading, "British fashion must fight back against Brexit – or crash and burn", the predicament of a sector which is in serious trouble is laid bare. And, at £35 billion a year, the fashion industry, it is said to be worth more to the UK economy than film, music, fishing, pharmaceutical and automobile industries combined, while employing nearly a million people.

For London’s designers, we are told, the impact of the TCA has been worse than anticipated. Brands have been lumped with unforeseen administrative duties, which now come with operating inside and outside the EU, ranging from complex VAT charges, newly applied customs regulations, intellectual property applications, haulage handling, and penalty fees for getting any of it wrong.

A prominent member of the industry, Harry Fisher, says: "it affects every single link in the chain". Brexit's reams of red tape are not only "challenging for creatively minded people to understand" but "it hugely impacts the cashflow and time" of fashion designers.

"It's a lot to take on overnight", says South London's Richard Quinn, a who is producing accessories out of Italy and Spain. "Packages have been held due to customs, and because the regulations are so new, it's tricky to fully grasp who is responsible for what, and how to speed up the process. Timelines on shipments have been really sporadic making it increasingly difficult to plan ahead".

Haulage firms aren't coping with the red tape either, meaning brands like Roksanda Ilincic, who "pride (themselves) on working with artisanal companies throughout Europe" are now experiencing "unprecedented delays".

So while operational costs have multiplied, designers are also struggling to access their goods. And this doesn't just endanger the final garment, but all the prototypes, fabric, trims, zips, and buttons that all come before. It's a real stress.

Nothing of this, of course, is new to readers of this blog, although you will struggle to find a detailed account of the industry's woes outside the specialist press – unless you count a squib about Samantha Cameron a week ago.

That piece did at least suggest that the industry's current £35 billion GDP contribution could fall to £26.2 billion, "a hammer blow to a sector that had been thriving for several years", but where British brands are haemorrhaging European sales as a result of customs charges which add up to 40 percent to the price of garments.

But then, dig deep into any sector which has significant exports (or relies on supplies of materials from abroad), and you will find similar tales.

Now, therefore, is not the time for the media to walk away of for the Labour opposition to go AWOL. Clearly, the adverse impacts of Johnson's deal are far worse than had been anticipated, while his administration's response to business difficulties has been pathetic. A letter from the Fashion Roundtable to the prime minister, for instance, has gone unanswered.

Without the problems of business being addressed, any post-Covid economic recovery might be significantly curtailed. In the longer-term, we might even find that the very idea of economic recovery is an unrealisable dream.

Also published on Turbulent Times.