UK exports of goods to the EU accelerated for the third consecutive month in April, by £1.2bn or 8.1% compared to March, to reach £16.4bn, the highest volumes since the Office for National Statistics (ONS) data series began in 1997.
In the three months to April, UK goods exported to the EU increased by £6.1bn or 15% to £46.6bn. However, while exports between the UK and the EU have surpassed pre-pandemic levels, it is due to non-tariff measures on British exports, as agreed under the Trade and Cooperation Agreement (TCA), rather than representing a thawing in EU–UK trading relations. On the contrary, relations have frayed further.
Increased UK exports in April were attributed to demand for machinery and transport equipment (£0.6bn) and fuels (£0.5bn) – specifically, higher gas and crude oil exports to the Netherlands and Ireland. The uptick in EU demand for machinery goods is despite a study by Aston University, which suggests that EU health and safety standards for technical specifications for machinery (TBT requirements) are among the most detrimental Brexit trade frictions stifling British exports, according to a report by the Financial Times (however, this study relates to the first half of 2021.) Separately, the increase in gas and crude oil exports to EU nations follows EU-wide sanctions on Russian exports due to the invasion of Ukraine.
Trade barriers undermine UK exporters’ competitiveness
In addition to increased trade frictions due to TBT requirements, the academic study found sanitary and phytosanitary (SPS) requirements played a significant role in the decline of UK exports to the EU. The study found that UK exports in the first six months of 2021 fell by £12.4bn, or 15.6%, relative to the first half of 2019. “Evidence suggests that UK products subject to a higher level of SPS [are] being diverted towards the non-EU destinations, while the same cannot be said for products with higher TBT measures,” wrote the paper’s co-authors, Professor Jun Du and Doctor Oleksandr Shepotylo. The authors concluded that the twin barriers of SPS and TBT requirements “represent the UK’s steepest costs of exiting from the EU”.
The EU–UK TCA has had “a strong, negative, and significant impact on UK bilateral trade with the EU countries”, which has reduced UK exports by 22% and imports by 26%, according to the Aston University study. UK trade with non-EU countries has not been significantly affected. EU goods imports to the UK increased by £1.1bn or 4.2% to £26.3bn in April, and by £11.4bn or 18.0%, over the three months to April, ONS data showed.
These effects are broad-based across industries and in all EU countries/export destinations and cannot be dismissed as “teething problems”, say co-authors Du and Shepotylo. In contrast, due to the UK’s absence of border checks, no adverse effects were found concerning UK imports from the EU.
In a related event, the UK introduced a bill on June 13 to fix parts of the Northern Ireland Protocol, including “burdensome customs processes, inflexible regulation, tax and spend discrepancies and democratic governance issues,” the UK government said. The Northern Ireland Protocol was designed to prevent a hard border with the Republic of Ireland and maintain frictionless access to the EU’s single market for goods.
The UK government claims the protocol creates unacceptable trade barriers and proposed changes that the EU rejected in July 2021. In response, the EU published counterproposals three months later, designed to reduce SPS checks by up to 80% on goods entering NI from Great Britain. However, the UK rejected the EU’s counter-offer as not going far enough.
The UK’s new bill proposes four solutions, which can be read here, to which the European Commission (EC) has responded by reviving an earlier legal challenge against the UK government. The EC said the UK’s failure to implement full border checks for goods arriving in Northern Ireland from Great Britain was “illegal”. In a press conference on June 15, Maroš Šefcovič, Vice-President of the European Commission, said: “There is no legal, nor political justification whatsoever for unilaterally changing an international agreement.” The UK has two months to respond to Brussels. The current legal challenge may result in fines on the UK government, but this outcome risks a retaliatory trade war.
Consequences for UK SMEs
Trade barriers represent risks to UK businesses, including underperformance compared to EU peers, particularly for SMEs that lack the expertise to manage SPS and TBT requirements. Companies may have to adapt business models to remain competitive in EU export markets, which could require increased investment in skilled labour, digitalised processes, and material inputs to produce higher quality goods. However, in the context of soaring inflation across energy, commodities and wages and continued supply bottlenecks, the road to business model reinvention to navigate EU trade barriers is paved with pitfalls. Production and supply chain resilience in the coming years remain substantial challenges.
If your company is impacted by the issues discussed in this article and you would like some advice on how your business can adapt your business model and navigate current trade barriers, do not hesitate to get in touch with our team today.