A Week Into Brexit, the Pain for U.K. Businesses Has Arrived
LONDON — Britain started 2021 in a new relationship with its biggest trade partner, and it has immediately brought a litany of headaches and lost business.
Within a week, implications of the Brexit trade deal with the European Union are being felt by businesses up and down the country as food deliveries are delayed for not having the right customs paperwork, logistics companies halt the shipment of goods, and retailers discover their supply chains might be obsolete.
After decades inside the European Union’s customs union and single market, Britain’s businesses have unearthed new challenges and changes every day.
Here’s a sampling from the first week:
MONDAY The first day of financial trading under the new agreement meant the stock of European companies could no longer be traded on the London-based platforms they have historically been exchanged on. The trades have migrated to trading platforms in cities including Amsterdam and Paris.
TUESDAY The British retailer Marks & Spencer had trouble getting its fresh salads and other prepared foods across the English Channel to its stores in France, leaving some shelves bare in Paris. “Due to new UK/EU import legislation, we’re sorry some of your favorites might be missing,” a sign said.
WEDNESDAY The governor of the Bank of England, Britain’s central bank, told a parliamentary committee that the Brexit deal would cost the British economy about 2 percent of gross domestic product over the next few years. Part of that expense, said Andrew Bailey, the governor, would be caused by additional paperwork for customs declarations and other expenses of trade — what he called “the grit in the mechanism.”
THURSDAY Scottish salmon farmers, who take pride in getting their fillets from sea to French markets within 24 hours, reported delays in their sleek process under the new Brexit terms. The deal’s “new, complex” trading rules had caused holdups as seafood companies struggled with the paperwork, the trade group Scotland Food and Drink said. “We have warned for months about the lack of preparation time for everyone involved and these problems sadly come as little surprise,” said the head of the group.
FRIDAY The large European delivery company DPD, which moved more than one billion parcels around the world in 2019, said it would stop sending packages from Britain to the European Union until at least the middle of next week as it tried to figure out new cross-border systems.
For many businesses, this is what Brexit has quickly become: a logistical, regulatory and administrative burden for which they were unprepared. It will only add to the malaise in Britain, where the coronavirus pandemic is raging — last week one in 50 people in England had the virus, and the country is under its third national lockdown. And analysts say the economy is heading for a double-dip recession.
Some businesses had put aside efforts to plan for Brexit last year in favor of trying to keep their companies afloat during the pandemic. But even those that tried to prepare faced a fundamental obstacle: an agreement on the trade deal with the European Union wasn’t reached until Dec. 24, and the text of the 1,246-page pact wasn’t circulated until Dec. 26.
Other documents, providing full details of how Britain’s border would work, with illustrative examples and flow charts, weren’t published until Dec. 31, the day before the new rules took effect.
“No wonder people are struggling,” said Sally Jones, who leads the trade strategy and Brexit team at EY, the consulting and accounting firm. For the first time since 1993, British businesses need to deal with customs checks, additional food safety forms, and myriad other paperwork to trade with the European Union.
“People forget just how difficult things were in the past,” Ms. Jones said.
On Friday, DFDS, a large Danish logistics company that runs ferries from the English port of Dover to France, said a “high volume” of trucks were being refused or delayed for not having the correct paperwork.
DPD, the parcel delivery company, said it paused service to the European Union after up to 20 percent of parcels it handled had incorrect or incomplete data, and so would need to be returned to the sender.
“The things which are proving problematic are the things that we expected to be problematic,” Ms. Jones said. “So for goods, it’s all about the speed and accuracy with which people are preparing the right paperwork.”
Many U.K. businesses — at least 150,000, according to data from Britain’s tax agency — have never traded beyond the European Union, and so have no experience dealing with the customs systems.
The situation in Northern Ireland is an added wrinkle. Northern Ireland will remain partially in the European Union’s single market, an exception that avoids a border with the Republic of Ireland but creates a border in the Irish Sea. Logistics experts say the Trader Support Service, a free government service to help companies complete customs forms to send goods from England, Wales and Scotland to Northern Ireland, has been overwhelmed.
Some businesses anticipated cross-border problems with Europe, and filled warehouses with stockpiled goods — auto parts and pharmaceuticals, for example — before the end of the Brexit transition period. That has kept cross-border shipments at a fraction of their normal level so far. Over the next few weeks, as those stockpiles run down, business activity will pick up, exacerbating delays.
Another new problem faced by large retailers with international locations: “Rules-of-origin requirements,” which determine whether a product leaving Britain is “British enough” to qualify for tariff-free trade with the European Union. International retailers who use sites in Britain as distribution centers are now finding that they can’t automatically re-export their products to their stores in the European Union without facing tariffs — even if the product came from the bloc.
For example, a company could not import jeans from Bangladesh or cheese from France into a hub in England and then send it on to a store in Ireland without facing export tariffs. The British Retail Consortium said at least 50 of its members face such tariffs. Debenhams, a large but now bankrupt chain of department stores, shut down its Irish website because of confusion over trade rules.
As companies scramble to catch up to the rule changes, the question is: What does Britain do with the sovereignty and freedom it has secured from leaving the European Union? The government has to decide how much it wants to diverge from Europe’s rules, where it might want to deregulate, and if it wants to pay the price for that.
“Modern trade and modern regulation does require a level of integration,” especially if a country is not as large as the European Union or the United States, said David Henig, director of the U.K. Trade Policy Project at the European Center for International Political Economy. Smaller countries may find they have to “follow other people’s rules, and that can be uncomfortable.”
“The U.K. is experimenting to try and find if it can maintain our position while not having to do that,” he said.
So far, there are few immediate tangible benefits of Brexit for businesses — beyond the fact that ending years of stormy debate and uncertainty may be counted as a benefit. (For many supporters, Brexit was always about sovereignty, not business, and it has allowed Britain to revise its immigration laws.)
The Treasury has taken one step in the last week that it could not have done under E.U. law: On Jan. 1 it scrapped the collection of V.A.T., a type of sales tax, on tampons and other sanitary products, pleasing campaigners who called it a sexist tax.
But it will be hard to realize any substantial short-term gains from Britain’s new trading arrangement with the European Union, especially since the pandemic continues to take a toll on the economy. Last year, the British economy experienced its deepest recession in more than 300 years, and the lockdowns continue as vaccines are slowly rolled out.
“A lot of the disruption that Brexit brings is going to be hidden by the pandemic,” said Anand Menon, a professor of European politics and foreign affairs at King’s College London.
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