UK-EU trade falls sharply as Brexit disruption starts to bite

Brexit disruption took its toll on Anglo-French trade volumes at the start of this year, mirroring declines in commercial activity between the UK and other large EU countries.

French exports to the UK were down 13 per cent in January compared with the average of the previous six months, while French imports from the UK fell 20 per cent, according to the French customs office. “Trade with Britain is disrupted due to Brexit,” it said.

The volume of French exports and imports from other countries rose in January compared with the previous month. Anglo-French trade had recovered from the impact of the coronavirus pandemic last year, rising for the second consecutive year, boosted by companies stockpiling before the UK left the EU single market at the end of December.

But the new French figures indicate that the frictional barriers and uncertainty created by Brexit have dealt a heavy blow to commercial activity between the UK and the EU, its biggest trading partner.

Even though the UK and EU agreed a last-ditch trade deal to avoid tariffs on most goods which came into force on January 1, trade was still disrupted by higher shipping costs, transportation delays, health certificate requirements and more complex customs requirements at the border. 

Some tariffs are still levied on goods that are imported into the UK and then re-exported to EU markets with little or no further processing.

German exports to Britain in January were down about 30 per cent year on year, continuing a trend of declining trade between the two countries since the Brexit referendum in 2016, according to figures released by the federal statistical agency this week.

Separately, Italy last month reported a 38 per cent year-on-year drop in exports to the UK and a 70 per cent drop in British imports in January — both much steeper declines than those with other countries.

However, economists said it was still unclear how much of the declines in UK-EU trade were the result of Brexit and how much were caused by the fallout from the pandemic, which dealt a heavy blow to global trade in the first half of last year.

“I have a hard time deciding what is the impact of Brexit and what is simply down to the impact of coronavirus,” said Gilles Moec, chief economist at French insurer Axa.

Before the UK left the EU single market at the end of last year, many UK and EU companies had built up their inventories in preparation for higher costs and disruption from Brexit, which may have contributed to the fall in January as they drew down their stocks, Moec added.

“There were so many stories about companies that had trouble exporting or importing after Brexit and a lot of hauliers were reluctant to deal with the customs issues, so there must have been an impact,” he said, adding that it was “still too early” to say how much of the drop in trade with the UK would be permanent.

The UK has been steadily declining as a trading partner for the rest of the EU. Its share of overall exports from the 27-country bloc has fallen from 17 per cent to 14 per cent since the 2016 Brexit referendum, according to Eurostat.

Overall figures for EU trade in January are due to be published later this month. But last year exports from the bloc to the UK fell 13.2 per cent, while EU imports from the UK were down 13.9 per cent.

While the pandemic caused overall EU trade to fall, the UK had a steeper decline than the EU’s three other main trading partners — the US, China and Switzerland. 

Gabriel Felbermayr, president of the Kiel Institute for the World Economy, said research it did for the German government found the country’s exports to the UK were likely to remain 12-15 per cent below pre-Brexit levels.

“Some of the recent collapse is due to teething problems,” said Felbermayr. “The major new trade barrier in goods trade are rules of origin that are costly to document and to abide by; however, traders will learn how to deal with them.”

He said there was evidence that “many of the bigger [German] firms have planned for Brexit and have reorganised their operations” to adapt to the likely disruption, while smaller companies have done less. 

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