The mystery of disappearing imports from the EU
Jin Talog organic gin, brewed in a corner of Carmarthenshire, may be proudly Welsh, but it relies on products from all over Europe.
Co-founder David Thomas describes how he and business partner Anthony turned to the Continent in their search to create a premium drink: corks from Italy, bottles from France, occasional botanicals from Austria. “Some of these things are really hard or impossible to find in the UK,” he says. “We cannot source them from anywhere else.”
Like many other small businesses, Jin Talog has had problems since the start of the year, with new regulations leaving it facing increased costs on imports from Europe.
Up until now much of the focus has been on the problems UK companies have faced selling to the Continent but after decades of frictionless trade imports are also feeling a squeeze. They remain below late 2020 and pre-pandemic levels with a shortfall likely to be evident in the figures for May, which will be released on Friday.
Some Brexiters hoped the UK’s exit from the EU would involve a tilt to imports from the wider world, with companies looking beyond the bloc as they build supply chains. But it appears that a sizeable chunk of imports from the bloc have disappeared and not been replaced. The issues are particularly notable because many checks will only come into effect over the coming year.
Thomas Sampson, at the London School of Economics, says the drop is larger than he would have expected. “There are clearly still frictions that exist. But it is slightly surprising to see such a fast drop off, given that we haven’t actually seen the customs border come into place on the UK side.”
Every pound not being spent is likely to represent lower output in Britain and Europe. Mutual benefit is the foundation of trade, and both sides miss out when things go wrong. There is not enough data to draw firm conclusions about what is happening, but Sampson warns there will be a “real economic cost” associated with the shortfall.
“The difference in the changes of EU imports versus non-EU imports is not because firms have suddenly found wonderful new import sources from the rest of the world,” he says. “It’s because their trade costs have gone up with the EU.”
The ongoing damage can be seen across the top EU import categories. Although material imports are flat compared with the final quarter of last year, machinery, food & animals and chemicals are 16pc, 20pc and 25pc lower respectively.
Experts say food and chemicals are being buffeted by delays, which means that companies are forced to scrap orders that will perish en route.
The disruption caused by the pandemic has made it hard to isolate the impact of Brexit. But John Glen, at the Chartered Institute of Procurement & Supply, warns “the cloak of Covid is starting to wear a bit thin”.
For would-be exporters, practical problems such as a lack of drivers exacerbated by new immigration rules add to the challenge. The haulage industry has already complained worker shortages are at a crisis level, with salaries shooting up as companies try to tempt new employees.
This shortfall means companies can get goods past the border but are unable to distribute them further once in the UK. Facing such challenges, many are simply cutting back on the scale of orders. “There’s a whole confluence of factors that are coming together – both Covid-related and Brexit-related – which mean that it’s not surprising that chemicals and food are particularly hit,” says Glen.
He warns the problems are particularly acute for smaller firms, which are being muscled out by larger rivals in the competition for supplies.
Looming onslaught of red tape
The problems are likely to get worse as full controls are brought in. Cabinet Office minister Michael Gove pushed back plans to introduce many new import controls in a March statement to the Commons, in a move which business groups welcomed.
The UK is yet to fully introduce sanitary and phytosanitary (SPS) controls, with new rules requiring pre-notification on imports of products of animal origin not due to kick in until October. The full regime will not take effect until March next year.
Labour MP Hilary Benn, chairman of the cross-party UK Trade and Business Commission, is calling for increased help for firms facing new regulations. “The Government should increase their meagre support for our export/import businesses and set out a clear plan to help them,” he says.
A crisis is also building up over customs, leading experts to warn of a looming onslaught of red tape. Under current rules, customs requirements for exports are simplified. Traders are required to keep sufficient records, but do not have to submit customs declaration until January 2022. In practice, however, it means that many companies have already seen their admin loads shot up.
Anna Jerzewska, an independent customs consultant, warns of a looming “wave of non-compliance”.
“Hardly anyone’s compliant at this point,” she says. “And HMRC is in a very difficult situation. On the one hand we don’t want to penalise traders, because there’s just a general-level confusion and lack of awareness. But, on the other hand, how do you then promote more compliance?”
Businesses have had more time than initially expected to adjust to Britain’s new trading relationship with its closest and largest trading partner, but these new rules – and likely hiccups at their introduction – could put imports under further pressure.
Despite apparent headaches for businesses, Sampson says EU trade is likely to return to an upwards trend in the coming years, just at a lower level than would have been otherwise, with slightly more business happening with the rest of the world.
Things are tough, and only likely to get tougher as further controls come into effect. But the Government, says Jerzewska, will need to get a grip eventually. “If you want to be a serious, trading, global Britain, you do need to know what’s happening on your borders … this is already a massive problem, and it’s going to be a massive problem going forward.”