EU economy: fear of no-deal Brexit stalks the fields of Flanders

Striding between crates of conference pears stacked in a cavernous warehouse, Marc Evrard says business with Britain has actually been very stable since the 2016 Brexit referendum.

There were some abrupt movements in the exchange rate between the pound and euro after the vote but, other than that, Belgium’s biggest fruit-growing co-operative has seen few disruptions in its trade with the UK.

That beguiling period of continuity is soon to end.

Mr Evrard, the commercial director of Belgian Fruit Valley (BFV), which encompasses over 1,000 fruit growers, reels off a long list of unknowns he now confronts in trading with the UK, one of its key export markets. They range from the possible imposition of tariffs on exports to new customs requirements, food inspections and potential border delays.

“There are a lot of uncertainties there, and each specific one might have a considerable impact,” says Mr Evrard. “If there were some clarity it would make preparations easier.”

The Belgian Fruit Valley co-operative has seen little Brexit disruption so far but now faces a long list of unknowns as the transition period draws to an end © Sam Fleming/FT

The prospect that the UK could leave the single market on December 31 without a trade deal in place would be hugely disruptive for British business, which counts the EU as its largest trading partner. But Belgium’s fruit growers, who produce a third of the world’s conference pears, are just one example of how failure to strike a tariff-free, quota-free agreement would also be a blow to businesses in a host of EU members.

In Belgium, a country that is one of the most economically exposed EU member states to Brexit, a no-deal outcome could cost tens of thousands of jobs. Most of those losses would be in the country’s Dutch-speaking north, as Flanders is one of the EU regions most closely integrated with the UK economy.

With only 10 weeks remaining under the end of Britain’s post-Brexit transition period, and with it the country’s 40-year membership of the single market and customs union, businesses across Flanders are holding their breath.

Loss in added value from Brexit, estimated loss of economic value added as a % of GDP, 2019

“The numbers are clear. A no-deal would have a very negative impact on Flanders,” says Hilde Crevits, economy minister for the government of Flanders, one of Belgium’s three regional governments. “It is precisely these economic consequences that we are trying to avoid.”

It is a feeling shared across the continent as businesses and governments await what Michel Barnier, the EU’s chief negotiator with the UK, has described as “economic Brexit”, which looms at the end of the year following the legal divorce on January 31.

That anxiety only increased on Friday after Boris Johnson warned that the UK will leave its post-Brexit transition period without a trade deal unless there is a “fundamental change of approach” by the EU. Both sides are stepping up contingency planning for a no-deal outcome, even while contacts continue.

Flanders’ economy has been deeply wired into the UK’s for centuries. It is a trading relationship ranging from fruit to cutting-edge industrial machinery and chemicals, making it a microcosm of the stresses that will hit the EU once one of the single market’s biggest members departs.

Some 8 per cent of Flanders’ goods exports go to the UK, making it only marginally less reliant on the UK market than Ireland, at just over 10 per cent.

Pallets of bananas at Belgian New Fruit Wharf in Antwerp. The port city is one of the principal trade links between the UK and continental Europe © Jack Taylor/Getty

But that figure downplays the deep integration of the Flanders region with the UK, which includes supply chains for complex goods such as machinery and cars. The country’s ports of Antwerp and Zeebrugge are among the principal trade links between the UK and continental Europe.

The Antwerp region has also thrived as a petrochemicals cluster in part thanks to close co-operation with the UK, while the British predilection for fitted carpets has sustained the modern descendants of Flemish weavers for generations.

According to research from Hylke Vandenbussche, a professor at KU Leuven, a hard Brexit without a trade deal would lead to 42,000 job losses in Belgium, two-thirds of which would fall in Flanders.

The region accounts for 85 per cent of total Belgian exports to the UK. According to studies cited by the Flemish government, it would still face a 1.8 per cent hit to GDP even if Britain and Brussels manage to agree a basic trade deal.

It is a reminder that much is at stake, especially the threat of duties that will hit the competitiveness of agricultural products. UK tariffs on different types of pears, for example, would range from 0 per cent to 25 per cent depending on whether and how they are processed and the time of year they were imported.

A new lorry park takes shape near the M20 motorway in Kent © Ben Stansall/AFP via Getty

The potential risks from a no-deal Brexit extend beyond tariffs to everything from lost opportunities for cross-border scientific research to a lack of co-operation between UK and EU authorities to ease the burden of customs procedures.

With the UK rejecting EU proposals to resume talks on Monday, the fate of the negotiations now hangs in the balance. EU leaders such as Germany’s Angela Merkel insist that a deal remains possible, and would be “good for both sides” — but that Britain must show real willingness to compromise.

The EU side blames Britain’s intransigence in failing to offer sufficient guarantees of fair competition for European companies, notably in the area of state aid. The UK, for its part, has lashed out against Europe’s determination to hang on to fishing rights in Britain’s sovereign waters.

Belgium is at the heart of that Brexit dilemma over fish. Its economy, particularly that of Flanders, yearns for the reassurance of an EU-UK trade deal, but the country is also one of eight coastal nations fighting to safeguard rights for its fishermen in Britain’s waters — an issue that is one of the biggest barriers to the talks succeeding.

Flemish politicians have referred back to fishing dispensations granted by 17th century English King Charles II to show the deep historical roots of their demands for continued access — another example of the interlinkages affected by Brexit.

Flanders’ export dependence on the UK, share of country’s goods exports going to the UK, 2019 (%)

The “Fisheries Privilege Charter” issued by the Restoration monarch in 1666 grants 50 boats from Bruges in western Flanders the perpetual right to fish in British territorial waters.

“A first legal analysis indicates that — should no agreement be found between the EU and the United Kingdom on access to the 12-mile zone — this Privilege Charter still applies,” says Ms Crevits. Should this by borne out by a more in-depth legal assessment currently under way, “Belgium will not fail to invoke the privilege,” she says, noting that more than 50 per cent of the revenue made by Flemish fishermen, equivalent to around €40m per year, comes from fish caught in British waters.

“In the event of a hard Brexit, this existence of this entire industry is threatened,” she says.

Luisa Santos, chair of BusinessEurope’s EU-UK Task Force, says a no-deal outcome would mean UK-EU trade would not even benefit from the kinds of basic co-operation arrangements in place with other countries. The EU and China, for example, have agreements in place to streamline customs procedures for recognised, trusted traders, even though the two economies do not have a preferential trade deal.

Hilde Crevits, Flanders’ economy minister: ‘In the event of a no-deal Brexit, 28,000 Flemish jobs are at stake’ © Dirk Waem/BELGA MAG/AFP via Getty

“Trading between the EU and UK will become substantially more complicated, and then of course you have the duties that in some cases are extremely high. This will have an impact on supply chains that are very, very integrated,” she says.

A trade deal would also be more than the sum of its parts, she says, providing a platform for future co-operation: “Even if the deal is very basic and doesn’t have everything we want to have, in the future maybe we will be able to continue to talk and improve [it],” she says.

Many businesses in Belgium hold the same view: uncertainty is blighting the private sector’s attempts to prepare for a deadline that is moving ever closer. Some of the country’s exports to Britain face potentially eye-watering tariffs in the event of a collapse in the talks.

Job losses in the food and drink processing sector — covering such Belgian staples as chocolate, beer and frozen potatoes — would be steeper than any other sector of the country’s economy, according to the KU Leuven study. The biggest loser in terms of lost output would be in textiles.

This would be on top of disruption to the trading environment that is the unavoidable consequence of Britain leaving the single market. The EU and UK will pass from an era of seamless cross-border trade to one of customs checks, veterinary assessments for meat and live animals, and VAT formalities.

Wim Dillen, International Development Manager at the port of Antwerp, says that it is a “fundamental change — deal or no deal. That administrative burden was zero, it will become 100 per cent.”

Michel Barnier, the EU’s chief negotiator with the UK, has said ‘economic Brexit’ will have ‘many negative consequences’ © Kenzo Tribouillard/AP

The changes that will be introduced range from the relatively simple — exporting companies having to apply for an authorisation number from the UK authorities to move goods to the country — to the complexity of completing customs paperwork and safety and security declarations.

While the British government creates new lorry parks in Kent, and plans to temporarily defer some border requirements, as it works to ward off the threat of endless bottlenecks on the country’s motorways, Belgium has also been preparing — hiring hundreds of new customs officers while ports expand their capacity.

Glenn Coolsaet, the sales director of Belgian Pork Group, the country’s largest pork producer, which slaughters 40 per cent of the pigs in Belgium, says his “super-fresh” products are among the most sensitive to this new trading environment, given they count on only a five-day shelf life.

Around 15 per cent of his fresh exports go to the UK — delivered via 20 and 30 trucks a week, all through the Channel Tunnel. “If you work with super-fresh products, every hour you lose is a bad thing,” he explains.

As things stand, UK producers including sausage manufacturers and facilities that cook hams for the supermarkets can, if they are in the south east, order a shipment from one of his facilities in Flanders and count on its arriving, via the Channel Tunnel, that same evening.

“If you lose one day by a delay at the borders, it is 20 per cent less shelf life — that might change the way our customers deal with the product,” he says. “If there are real border controls we could have big, big delays.”

Belgian Pork Group has its own import operation based in the UK, which will reduce inconvenience for customers there. However, smaller firms may decide it’s simply no longer worth selling to Britain given the added complexity and razor-thin margins the food industry operates under.

Public authorities including the Flemish regional government say one of the most stubbornly difficult tasks they are facing is the ostensibly simple one of raising awareness about changes within the business environment as a result of Brexit.

It is a job made all the more difficult by the climate of uncertainty surrounding the talks, as well as the lack of information from the UK about new regulatory norms, notably for food.

UK prime minister Boris Johnson had initially set a mid-October deadline for a trade deal © Alex Kraus/Bloomberg

A meeting this month of Flanders’ Brexit taskforce highlighted the problem that small businesses, many never before confronted with trading outside of the EU single market, were still not grasping the fact they would need an authorisation code — known as a “GB EORI number” — to trade with the UK.

“We are going from a completely open market with no tariffs and no non-tariff barriers, to a situation where there will be — let’s hope — no tariffs, but a lot of non-tariff barriers,” says Tine Vandervelden, international business manager at the Federation of the Belgian Food Industry, or Fevia. “Our main concern is smaller companies, SMEs, that have not been exporting outside of Europe.”

The European Commission has also been raising the alarm. In July it warned EU companies that the “increased administrative obligations” for trade with the UK “might entail significant changes to the organisation of existing supply chains”. Failing to reach an agreement would lead to “disruptions that would be more far-reaching,” the commission added.

In Sint-Truiden, at the heart of eastern Belgium’s fruit-growing district, BFV’s Mr Evrard watches the stately procession of thousands of gleaming wet conference pears along a 100-metre conveyor belt and expresses optimism that “common sense will prevail” in the EU-UK talks.

His co-operative opened a new trade route for Belgian pears into China 10 years ago, so he is confident that producers can adapt to a changed relationship with the far-more-familiar market across the Channel. Nevertheless, the “troublesome element for the moment is we don’t know what changes there will be,” he says.

Anything that hampers fluid trade flows between companies and countries is a concern, he says. “Is it going to make it impossible? No. But it is not going to make it easier.”

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