Multi-faceted impacts of Brexit are beginning to emerge

The British Chambers of Commerce after one year of Brexit tends to agree that the reality of one year of trading outside the Single Market and Customs Union has become very challenging. There is also some consensus that there has been a huge drop in sales of British products and that in many cases they appear to have become relatively uncompetitive in Europe.

Faisal Islam of the BBC has also reported that there have also been assertions by some manufacturers that it is cheaper to supply their products now to the USA and Australia rather than Europe. It has also surfaced that in the meantime some of them have started expanding their industrial units in different countries within the European Union.

A year after the signing of the UK-EU Trade and Cooperation Agreement - the real economic start of Brexit - has drawn attention to some interesting facets- (a) Great Britain has managed to avoid the worst case scenario of a stop to cross channel trade with its denotations of massive social and economic challenges; (b) UK exports have slightly recovered in recent months, but not fully and some sectors such as clothing and food are still struggling; (c) Total UK-EU trade (both ways) has missed out on a global rebound in trade in 2021, and remained at the very low levels of the 2020 pandemic and (d) Trade with the Republic of Ireland has slumped from Great Britain but has increased from Northern Ireland.

Economists in addition have indicated that the UK's key export markets are now less reliant on UK goods, and that the UK is less reliant on foreign goods.

This is at a time when trade elsewhere in the world has boomed, recovering most of the losses incurred during the pandemic slump. In this regard BBC has reported that from January to October 2021 there was US Dollar 627 billion in two-way trade between the US and the European Union, up from $532bn in the same months in 2020, a bounce back of 18 per cent. Interestingly, China-EU two-way trade in the first 10 months of 2021 was also Euro 558 billion compared to Euro 479 billion in 2020, an increase of 17 per cent. In comparison, the equivalent figure for the UK's two way trade with the EU saw a 2 per cent growth- Pound Sterling 308 billion as opposed to Pound Sterling 302 billion.

In other words, UK-EU trade has in this first year of the post Brexit trade deal, failed to rebound unlike most of the rest of world trade. Trade with the rest of the world - the "non-EU" countries - has also gone down both ways since 2019, though by less. UK exports to the rest of the world are down by 7 per cent or nearly Pound Sterling 12 billion from January-to-October 2021 versus the same in 2019. UK imports in the same time period have also fallen by 3 per cent to Pound Sterling 227 billion. This was surprising, because the new checks instigated were mainly enforced on exports going to the EU, and not on imports coming into the UK.

Some British trade specialists have blamed the lack of desired growth on frustrating red tape obligations, but there is also optimism that things will improve by the end of 2022. This has been reflected in the context of the UK car industry. The long delayed wave of investment into electric vehicles has started, beginning with Nissan recommitting to its Sunderland site. This follows not just the zero tariff deal, but also the last minute commitments negotiated by the British Prime Minister with the EU to allow the deal to apply for a few years to cars with lots of imported technology from Japan, Korea and the US.

Andrew Duff, in the recent past has made an interesting analysis of the current post-Brexit situation for Britain.

He has pointed out that Brexit is proving to be even more troublesome than expected, giving rise to a gradual softening of British public opinion towards the EU. Apparently, there is also an evolving feeling that any future UK government might seek to renegotiate parts of the separation deal that Boris Johnson struck with the EU. It has however been noted that this is likely to take time and will need careful calibration.

Strategists feel that all the connotations of Brexit are not yet over. The deal struck in the weighed down circumstances of 2019-20 are in reality not immutable. For the first time since the 2016 referendum, opinion polls are now showing that a small but steady majority now regrets Brexit. Alleged misgovernance in the top ranks of the Conservative party, the patchy performance of Brexit ministers over the Covid pandemic, continuing rows with Europe over fisheries and Northern Ireland, and a failure to make good the promises of the Brexiteers- have all contributed to this shift in the public mood. There is also another significant factor of uncontrolled immigration, especially by irregulars being trafficked across the Channel from France.

One must not forget that the issue of governance was central to the negotiation of the Withdrawal Agreement and Political Declaration by dint of which the UK eventually left the EU on 31 January 2020. Equally, governance dominated the negotiation of the Trade and Cooperation Agreement (TCA) which was concluded on 24 December 2020.

As the country struggles to come to terms with the economic shock of the pandemic, the adverse long-term consequences of Brexit are beginning to surface. The economy has been shrinking while interest rates are rising. People have also noticed that rising demand is having difficulty due to falling supply of goods and labour. Important service industries, notably travel, tourism and universities, have also already emerged as strong opponents of Brexit. Farming and fisheries are no longer the only sectors to complain about broken promises.

All the above elements and factors have since the beginning of 2022 persuaded many EU analysts to raise the need for the EU to re-think about a new category of affiliate membership within the framework of the EU treaties. It is felt that such affiliation should allow the EU to develop close economic and cultural partnerships with its neighbours in a democratic fashion.

It is being suggested that affiliate states would enjoy greater access to the EU institutions than is currently permitted under any of the present association agreements. Affiliate membership would also be available as an option for any current EU member state which, like the UK, chose not to adhere to the goal of ever closer union.

Affiliate states will gain an automatic right to be consulted in the Union's constitutional negotiations - including membership of a future Convention. It is estimated that a European Security Council involving all full and affiliate member states will inevitably have an impact on positions struck at the United Nations, in G20 and in other international treaty negotiations. A European Union more confident in its own region will also be in a better position than hitherto to project its values and protect its interests across the globe.

It is however also being indicated by Andrew Duff that "such differentiated integration of the wider Europe will require the EU to build a stronger federal government at the center. The new structure should also be underpinned by the establishment of a European Security Council combining EU member and affiliate states with NATO - including Canada and the US - in regular strategic and operational decisions to protect Western security". He has also suggested that the French Presidency in the first half of 2022 should take the necessary first steps and this should receive due consideration by the Conference on the Future of Europe which can judge these proposals. The Partnership Council could instigate a review of the balance of rights and obligations in trade from 2025 onwards. A joint review of the whole TCA will commence in 2026. The Northern Ireland Protocol to the Withdrawal Agreement faces a decisive vote about its continuation in the Stormont assembly already in 2024.

Elections in May 2022 for the Northern Irish and Scottish assemblies will also remind everyone how Brexit has destabilized the constitutional settlement and integrity of the United Kingdom. Populist politicians and press have continued to create bitter divisions over the future of the country. Consequently, bitter division of opinions and interpretations are transforming disagreements into litigious affairs.

It needs to be also understood that the Brexit diagram was complex and has since the past year grown more multifaceted. In this context it needs to be noted that the Northern Ireland Brexit has not been a clean break with the EU legal order but a novel kind of differentiated disintegration which treats different parts of the UK separately. Northern Ireland has been kept within the EU internal market for goods while Great Britain has been kept out. Brexit has turned out to be not a clean break with the EU legal order but a new kind of differentiated disintegration which treats different parts of the United Kingdom separately.

As expected, the Northern Ireland Protocol has proved to be controversial. The root of the problem lies in the governance of the economic and legal arrangements for Northern Ireland. The sectarian politics of the province has further exacerbated matters. Although a majority of the Northern Irish electorate voted at the 2016 referendum to remain in the EU, the so-called Loyalists (to the British Crown) were bitterly anti-European and claimed that the Protocol had jeopardized the integrity of the UK as a sovereign state.

Nevertheless, the Protocol, in broad terms, has not been a bad deal in general for Northern Irish consumers and businesses. It allows them access to the internal markets of both the EU and the UK. Recent studies have indicated that such a dual market paradigm is working well for Northern Irish producers. Economic strategists have however drawn attention to the fact that the difficulties that the Protocol causes does not lie with the internal regime in Northern Ireland but in the creation of a new regulatory border between Great Britain and Northern Ireland designed to prevent goods from flooding uncontrollably into the EU. The European Commission has been trying to overcome this challenge for the past year. It has already proposed, within the terms of the Protocol, a lightening of the checks on certain goods transported from Britain to Northern Ireland.

 

Muhammad Zamir, a former Ambassador, is an analyst specialised in foreign affairs, right to information and good governance, can be reached at:

[email protected]