Counting the cost of Brexits impact on trade – The Economist

The government talks of teething troubles, but the red tape is here to stay

Feb 24th 2021

TWO MONTHS after Britain left the single market and customs union in favour of a trade and co-operation agreement (TCA), complaints are multiplying, from seafood sellers and pork exporters to fashionistas and musicians. Some of these are teething problems, but most are the consequence of Boris Johnsons decision to prioritise sovereignty over market access.

The biggest political problem is the Northern Ireland protocol, under which the province stays in the single market for goods and the customs union. The government chose this route as an alternative to a hard border on the island of Ireland. But now that border checks have begun, disrupting trade, the Democratic Unionist Party and some Tories are demanding that Mr Johnson should scrap the protocol entirely. He will not do that, but the protocol will be an issue in the elections next year to the Northern Ireland Assembly.

Trade across the channel is suffering even more. The British Chambers of Commerce report that almost half of exporters to the EU have met obstacles. Although the TCA promises zero tariffs and quotas, that is subject to rules-of-origin requirements to ensure that exported goods are not first imported from outside the EU. Rules of origin have hit businesses from supermarkets to pet foods to fashion designers. Strict sanitary rules are similarly obstructing exports of shellfish and many agrifoods. Daniel Kelemen, a politics professor at Rutgers University who is collating examples of Brexit trade barriers on Twitter, had by this week recorded nearly 200 cases.

Services are no better, mainly because the TCA omits them. The City of Londons hopes of retaining business across Europe through a grant of regulatory equivalence have evaporated. Instead, the EU crows about Amsterdam unseating London as the continents largest share market. Musicians, actors, fashion designers and professional-service firms are griping about expensive red tape and travel restrictions. A provisional decision to accept the adequacy of Britains data-protection standards is a rare ray of hope, and even this may be challenged in court.

The chances of reducing these barriers are small. Mujtaba Rahman of the Eurasia Group consultancy says there could be improvements at the margin, but anything substantial (such as Britain aligning with EU sanitary standards) would require Mr Johnson to cross his sovereignty red lines. The promotion of Lord Frost, the hardline negotiator of the TCA, to replace Michael Gove as minister in charge of EU relations, does not augur compromise. Nor does the row over the EUs ambassador in London, to whom the Johnson government (alone in the world) refuses full diplomatic status. Vaccine wars, even if only rhetorical, do not help.

The cost of Brexit may take time to emerge. Tom Sampson of the London School of Economics notes that the first goods-trade numbers for January will be known in mid-March. He thinks what he sees is consistent with the modelling of the TCA he did for UK in a Changing Europe, a think-tank, which points to a fall over ten years in British exports to the EU of 36% and in incomes per head of 6%, bigger than the impact of covid-19. There could be offsets from trade deals with third countries or regulatory divergence, but they are far off and uncertain.

Unusually for a big trade deal, the government refuses to conduct an impact assessment of the TCA, doubtless because it would produce negative results. Dominic Raab, the foreign secretary, says the benefits of Brexit will not emerge for ten years. He should recall the case of Switzerland, which after a narrow referendum loss turned its back on the single market in 1992. Over the following decade the Swiss economy grew more slowly than any EU members.

Yet Switzerland also offers Brexiteers some comfort. Three decades of ill-tempered negotiations with Brussels have not persuaded Swiss voters to change their minds. Indeed support for joining the EU has fallen: no political party backs the idea. Remainers hoping to use the TCA as a base for a closer relationship or even to revive the idea of membership may well be disappointed.

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Counting the cost of Brexits impact on trade - The Economist