Great Britain: collapse of trade with the European Union.
The time of the pandemic and Brexit is a period of changes in the strategy of many British companies. Existing exporters are aware that the time of free movement of goods to EU markets is over, and that non-tariff barriers will reduce the competitiveness of many products.
The UK's foreign trade data, published by the British Office for National Statistics (ONS) on 11 March 2021, is the first since the end of the transition period after leaving the EU. They show that the value of the UK's foreign trade fell sharply in January 2021 compared to December 2020.
It should be noted that, starting from January 2021, the ONS changed the method of collecting and compiling data on exports from the United Kingdom to the EU. It uses the forms of customs declarations instead of Intrastat - the system of statistics of trade in goods between the EU Member States operating in the European Union since 1993. In the absence of a declaration, the new methodology assumes that the goods have reached the country of destination after five days. This means that some exports of goods are recorded in the month following their actual movement. Data for January 2021 are so far the last official data on Great Britain's foreign trade.
Total exports of goods decreased by £5.3bn (19.3%), mainly due to a decline in exports to EU countries by £5.6bn (40.7%); this is the largest drop in exports to the EU in 11 years. By comparison, exports to non-EU countries increased by £0.2bn (1.7%) over the same period.
Total imports of goods decreased by £8.9bn (21.6%), due to a decline in imports mainly from EU countries by £6.6bn (28.8%), but also a decline in imports from non-EU countries by £2.4bn (12.7%).
The decrease in the import of goods to the United Kingdom in January 2021 concerned mainly machinery, transport equipment and chemicals. Total imports of machinery and transport equipment decreased by £3.3bn (21.9%), including £2.6bn (30.0%) from the European Union. Car production in Great Britain fell by 29.1% in January 2021 compared to January 2020, which in turn translated into a reduction in exports (over 80% of cars manufactured in Great Britain are sold on foreign markets) - it fell by £0.2bn in January 2021 compared to December 2020. The decrease in car exports to EU countries was most influenced by the decrease in exports to Germany, Belgium and the Netherlands.
Imports and exports of chemicals fell in January 2021 by £1.7bn (30.1%) and £1.2bn (25.2%) respectively. The largest decrease in imports and exports was recorded in the case of medicinal and pharmaceutical products. Imports from the Netherlands, Germany and Belgium accounted for 76.2% total decline in imports of chemicals to Great Britain. Data exclude exports of AstraZeneca, manufactured in the UK (the European Medicines Agency issued a conditional marketing authorization on 29.01.2021).
Contrary to the declining exports of medicines and pharmaceuticals to the EU (with the exception of Ireland, UK exports of these products to the Irish market increased by 224% in the last quarter of 2020, an increase of 283% compared to the same period in 2019), their exports to non-EU countries increased by £0.3bn in January 2021, especially to China and Japan, the UK's largest trading partners in the region. This increase is potentially an early consequence of the UK's Free Trade Agreements with Japan and Singapore effective on 1.01.2021. They ensure almost duty-free access to the markets of these countries and lower non-tariff barriers, including trade in drugs and medical devices. They also indirectly facilitate access to the large ASEAN market (Association of South-East Asian Nations).
Imports of other products, including clothing, fell by £ 1.9 billion (28.3%) in January 2021. Clothing imports from non-EU countries fell by £ 0.2 billion (34.8%) to 0. £ 8bn (the same value as at the start of the coronavirus pandemic in April 2020) EU food and live animal exports, including seafood and fish, decreased by £ 0.7bn (63.6%) in January 2021
The reasons for the collapse of trade with the EU
The difficulty in determining one main reason for the collapse of the UK's trade with the EU (decline in exports and imports) are various factors overlapping at the same time.
In the opinion of the ONS, the restrictions introduced in connection with the COVID-19 pandemic, including the national blockade in the UK and its major European trading partners and the related decline in demand, as well as the decline in production and disruptions in global supply chains and disruptions caused by the end of the transition period, were the main cause of the deterioration in the UK's foreign trade performance. The largest sales markets for companies from Great Britain, apart from the American one, are in Europe: German, Irish, Dutch and French; in import, the main partners of Great Britain are: Germany, China, the United States, the Netherlands and France.
For example, the decline in UK car exports due to reduced demand and reduced production is linked to the tightening of lockdown measures in the economies of major trading partners at the end of December 2020 in response to the risk of the spread of new COVID-19 variants. Perturbations in the period preceding the end of the UK-EU transition period, the COVID-19 pandemic and the UK national blockade aimed at preventing the spread of the virus, disruptions in the global supply chain are identified as the main reasons for the decline in imports of machinery and transport equipment to the UK.
The reason for the decline in clothing imports to the UK market (primarily from China) in January 2021 was a reduction in retail sales of clothing in the UK due to the national blockade introduced in response to the increase in COVID-19 incidence, combined with the accumulation of clothing inventories from the end of 2020 at the beginning of October 2020, 14.4% wholesalers and retailers had higher than normal inventories, which rose to 22.1% by mid-December 2020
The decline in pharmaceutical exports to EU countries was mainly a consequence of stockpiling by the largest British partners in preparation for the end of the transition period between the UK and the EU. Thus, part of the decline in both imports and exports can be attributed to the stockpiling before the end of the Brexit transition period by companies on both sides of the English Channel that did not have to transport as many goods in January 2021.
Part of the decline in both imports and exports can be attributed to the stockpiling of stocks ahead of the end of the Brexit transition period by companies on both sides of the Channel.
On 1.01.2021, new border rules came into force based on the provisions of the EU-UK Trade and Cooperation Agreement, agreed by negotiators on 24.12.2020. The new agreement ensures full mutual market access for goods and services, public procurement and investment . The goods may be traded duty-free, provided that the rules of origin specified in the contract are met. However, this agreement did not remove non-tariff barriers to trade. The European Union has been implementing full controls of goods shipped from Great Britain since the beginning of 2021.
For example, the decline in exports of food and live animals to the EU, including seafood and fish, is mainly explained by stringent border controls and the necessary certificates put in place by the EU at the end of the transition period. The Scottish Seafood Association pointed out that the bureaucratic difficulties in exporting from Scotland to France have clearly increased, which explains the extension of delivery times (up to six times) and delays. The end of the UK-EU provisional trade deal coincided with the discovery of a new strain of SARS-CoV-2 in the UK, which affected delivery delays in December 2020 after truck drivers were required to undergo testing before crossing the border on the English Channel.
Post-Brexit checks on certain EU goods arriving in the UK have been postponed to improve the state of border infrastructure and information systems, and to give companies more time to prepare for change. For example, the need for health certificates for meat and milk imports has been postponed from April to October 2021. Animal product safety checks, which were due to start in July 2021, were postponed to January 2022. These changes were well received by the British Retail Consortium representing retailers - from large supermarkets to fast food chains and internet companies.
Post-Brexit checks on certain EU goods arriving in the UK have been postponed to improve the state of border infrastructure and information systems, and to give companies more time to prepare for change. For example, the need for health certificates for meat and milk imports has been postponed from April to October 2021. Animal product safety checks, which were due to start in July 2021, were postponed to January 2022. These changes were well received by the British Retail Consortium representing retailers - from large supermarkets to fast food chains and internet companies.
A question that needs to be asked is if these temporary shocks will be permanent trends. The observed friction in cross-border trade is, according to the UK Prime Minister Boris Johnson, only "initial problems". It is mainly the COVID-19 pandemic that is disrupting trade. UK government spokesman Jamie Davis estimated that a combination of factors including 2020 stockpiling, national blockades due to COVID-19 across Europe and companies adapting to new trade relations with the EU led to exports in January 2021 to the EU was lower than in 2020. These figures do not reflect the overall trade relationship between the EU and the UK after Brexit, and it is expected that the total volume of freight between the UK and the EU may return to normal levels.
Meanwhile, Suren Thiru, an economist at the British Chamber of Commerce, says the sharp decline in UK exports of goods to the EU, particularly when compared with non-EU trade, is 'an ominous indicator of the damage done to EU trade after Brexit' by continuing border disruptions , and the practical difficulties faced by companies go far beyond the "initial problems" referred to by the prime minister.
With the continuing disruptions in trade flows between the UK and the EU, trade will hamper UK economic growth. The decline in GDP in January 2021 by 2.8% reflects a difficult period for the British economy. According to KPMG forecasts, after easing the restrictions related to the fight against COVID-19 (in the UK and its main trading partners) and with government support, there was a chance that the economic growth in the UK would be 4.6% in 2021. In turn, Capital Economics, a consulting company from London, estimated that after meeting the above conditions, 2022 will be the beginning of stabilisation of the situation and acceleration of economic growth in the United Kingdom.
The time of the pandemic and Brexit is also the time of the necessary redefinition of the operating strategies of many companies. Existing exporters to EU markets are aware that the time of free movement of goods is over, and the non-tariff barriers applied by the EU, including for food exporters (for example, veterinary controls of meat and poultry) will significantly increase their costs. These costs will translate into higher prices, and these will reduce the competitiveness of exporters. It takes time for trade to shift, for example from EU to Asian countries, but more and more British companies are leaning towards starting or intensifying sales in Asian countries.
21/09/2021