This topic may seem a long way from the usual issues that I deal with in my blogs. However there are convincing reasons to believe that the approach adopted by Theresa May and the UK Government will be a disaster of mammoth proportions. Although it is impossible to predict exactly how things will work out at this stage, there will certainly be massive changes in trading arrangements, which disrupt many sectors of the economy. In this blog I am indebted to Richard North. He is one of the few individuals in this country, who has an intimate knowledge of global regulations for trade including those of the EU detailed workings of the EU. Consequently he is able to make accurate assessments of the impact of Brexit based on the current government strategy. He posts a blog every day on www.eureferendum.com (1).
Richard has spelled out that the obvious option for the UK is to apply to join EFTA so that the country can remain in the Single Market indefinitely. This would be in compliance with the result of the referendum but enable the current trading arrangements to be maintained. Because the politicians have decided that the EFTA option should be ruled out the consequences for the UK economy will be disastrous. This is because once the UK is no longer in the EU (or the Single Market) it automatically becomes a “third country” in terms of trading relationships with EU countries.
Single Market facilitates the movement of goods between countries
As members of the EU/Single Market it is as easy to transport goods from a base in the UK to Barcelona as it is to Birmingham or Exeter. As soon as the UK is no longer in the EU, as a “third country” a whole raft of regulations and conditions will come into operation. This is simply the way the system works. It is not an issue that is dependent on negotiation.
Special problems for animals and animal products
With respect to “animals, germinal products and products of animal origin from third countries”, the recent legislation specifies five requirements that must be satisfied before animals and animal products can be allowed entry into EU. These will, of course, apply to the UK, post-Brexit. Firstly, goods must come from a country officially listed as permitted to export the relevant categories; secondly they must come from establishments which are approved and listed; thirdly, they must comply with all relevant animal health requirements laid down by the Union; and fourthly they must be accompanied by animal health certificates and by other declarations and documents as required.
Border posts will be overwhelmed
Finally, the consignments must be presented to a Border Inspection Post (BIP) – soon to be called Border Control Post (BCP) – where they must pass inspection. Only when the fees due are paid are the “Common Health Entry Documents” endorsed and the goods can be presented for customs clearance (2).
The custom checks present a very serious threat to all trade which depends on transporting goods between the EU and non-EU countries. In a leaked document marked “sensitive” written by two senior officers at HMRC it is stated that if Britain leaves the European customs area:
“The UK would face a full regime of customs controls when importing and exporting goods between the UK and EU.”(3)
Furthermore bureaucracy and delays:
“can increase transaction costs by an estimated 2% to 24% of the value of traded goods”.
The situation would be particularly onerous for those exporting food and other agricultural products into the EU with delays of up to a week for meat tested at official laboratories.
The problems will be magnified because the capacity of the BIPs is far too small to cope with the increased demand. As Richard explains: “This means that UK food exports, involving any fresh meat, products of animal origin (including cheese and other dairy products) or vegetable product, will effectively cease from Brexit day onwards”(4). This issue has been addressed in a joint statement from the British Retail Consortium, the National Farmers’ Union and the Food and Drink Federation. These bodies represent the relevant sectors of the agro-food and drink businesses. They specifically recommend that the Government should ensure:
“a smooth and orderly Brexit by agreeing transitional arrangements that maintain frictionless trade in goods between the UK and the EU, avoiding costly and disruptive customs checks, processes and procedures.”
The reality is that this just will not happen if the Government maintains it current approach. The UK will become a “third country” and will have to comply with all the requirements that are now in place. To expect that the UK can successfully achieve the above objective is simply “cloud cuckoo land”.
The same comment can be made about another objective of the statement which is to avoid
“customs duties on trade by securing an ambitious bilateral free trade agreement with the EU that delivers two-way tariff-free trade”.
It does not take a genius to work out that we are heading for a major disaster. Many of the mainstream food businesses will not be able to survive. We had a taste of this recently when the floods in Spain wiped out many lettuce crops. As a consequence, a business specialising in prepared salads ground to a halt and was unable to maintain supplies to customers. Much of the fruit and vegetables in UK supermarkets is produced in Spain and other EU countries. We have to accept that virtually all of this will cease probably within a very short time span. This means everyone will be faced with a very different choice of foods. There is a real possibility of food shortages. Most businesses involved will be affected. This is an enormous industry consisting of farming, processing, food service, restaurants and retailing. Many of these will not be able to survive and so there will be associated job losses. The upheaval will be extremely costly in social and economic terms. The tragedy is that few people, especially the politicians, have any appreciation of these disastrous consequences. It is about time everyone woke up to reality.