Six months EU trade agreement: Brexit drives up costs

Companies on both sides of the English Channel expected little good from Brexit.

The trade agreement agreed at the last second gave many a sigh of relief.

A first conclusion.

London - New customs hurdles and impending shortage of skilled workers: six months after separating from the EU internal market, the economy draws a critical Brexit conclusion.

The first few months did not show a positive trend, said York-Alexander von Massenbach from the British Chamber of Commerce in Germany (BCCG) of the German press agency.

On the contrary: "I would have expected more pragmatism here, but both sides seem unwilling to compromise."

The British government often speaks of “teething problems” that would be a problem.

But after only six months it is foreseeable that there will be permanent problems.

Subdued economic growth

Because of new customs requirements, effort and costs are higher, as Ulrich Hoppe, head of the German-British Chamber of Commerce AHK in London, told the dpa.

“It is unclear when supply chains will operate as smoothly again as they did before December 31, 2020.

That is why many companies have invested in longer-term storage capacities, among other things, ”said Hoppe.

That drives up costs - and dampens economic growth in the first quarter by one percentage point, as Michal Stelmach from the consulting firm KPMG estimates.

After difficult negotiations, Great Britain had also left the EU customs union and the internal market on January 1, 2021.

This led to delivery problems due to new regulations and formalities.

Despite the agreement, tariffs now apply in some industries.

A deluge of regulations

Half a year later, companies are slowly adjusting to the new requirements. "The cuts were recently so drastic because the agreement came very late and companies were confronted with a flood of new regulations practically overnight," said von Massenbach. But especially small and medium-sized companies will find it difficult to assert themselves in the market, especially since many do not have the necessary staff to cope with the bureaucracy.

British companies in particular are also lacking a connection to the EU. Von Massenbach identified an increased interest in an own location in Germany. Because every delivery from Great Britain via the English Channel now has to be declared at great expense. This is particularly noticeable in sectors that are heavily dependent on smoothly functioning international retail chains, such as the car industry, which alone accounts for around a quarter of German-British trade.

The British newspaper “Independent” commented that the consequences of leaving the EU would be detrimental to the economy. "They have already led to trauma in parts of agriculture and fisheries and have resulted in a loss of investment in the manufacturing industry and in the economy as a whole." The British gross domestic product will be 2.5 percent lower due to the long-term consequences of Brexit, appreciates KPMG expert Stelmach.

For the first time since records began in 1997, the UK traded more with non-EU countries than the Community in the first quarter.

British food exports to the EU collapsed by almost half (47 percent) to around 1.7 billion pounds (2 billion euros).

The industry association Food and Drink Federation spoke of a "disaster" and warned that this was a clear indication of what the future would bring.

But it is still too early to speak of a trend reversal, said Stelmach.

The British economy found itself in a “perfect storm” at the beginning of the year with Brexit and the pandemic.

Much is still unclear even after six months - especially since the contract left some questions unanswered, such as the role of the financial sector, which is particularly important for Great Britain.

Many smaller British financial services companies were only now concerned about whether they needed a license or approval from the German financial regulator Bafin to advise German customers, said von Massenbach, who heads the London office of the corporate law firm Luther.

There is a lack of skilled workers from the EU

A problem that has not yet had an impact in its entire dimension are the new hurdles for labor and residence rights as well as for services. "Some companies will find it more difficult to find suitable workers - the first voices are already clear here," warned AHK boss Hoppe. The hospitality industry is affected, for example, which lost a number of EU staff due to the corona crisis, of which only a part will probably return after the pandemic. The local employees cannot make up for the deficit. Agriculture and care are other areas where skilled workers from the EU are lacking.

BCCG representative von Massenbach warns of a further danger in this context. Academic exchange, for example in the form of internships, is "made virtually impossible," he said. "For me, the new migration regulations are therefore one of the most serious consequences of Brexit, the effects of which will still be fully apparent." Dpa