Goods manufactured in the UK or the EU can be traded on a tariff-free basis, according to the Brexit Deal. However, non-tariff barriers are increasing by ten percent, says Euler Hermes. It will force European exports to the UK to fall back to €10 billion in 2021. This loss of exports is only felt in the second half of the year.
Euler Hermes predicted earlier that the Brexit would lead to €18 billion loss in EU exports to the UK in the first year. This is significantly lower due to the agreed six-month transitional period. Euler Hermes now assumes a loss in export value of up to €10 billion. Germany (€2 billion), the Netherlands (€ 1.2 billion), France (€ 0.9 billion), Belgium (€ 0.7 billion) and Italy (€0.6 billion) would remain the worst affected. This is due to a mix of causes: weak demand, partly due to corona and the lockdowns, increased red tape and additional costs for transport and logistics.
Tariff-free: sounds too positive
Johan Geeroms, Risk Director Euler Hermes Netherlands said: “tariff-free sounds nice, but the practice is more resilient. What parts are your products made of and where do they come from? Companies that do business with the UK will have to deal with rules of origin. Then suddenly there are charges at stake. This is particularly affecting sectors that make up many of their base materials and components elsewhere (outside the EU). Think of wood, electrical equipment, metals, chemicals, pharmaceuticals, computer and electronics, transport equipment and machinery.”
According to Geeroms, the impact of the Brexit is somewhat mitigated by the fact that corona provides additional scope for public incentives. Think about investing in infrastructure. “The negative Brexit effect is partially absorbed by the corona-related subsidy policy. There is also less pressure at the border due to corona and the restrictions. This gives UK and EU governments extra time to improve customs handling infrastructure.”
“In COVID times many companies have already started to cross-check their supply chain. They’ve noticed how vulnerable they are when they take products from far away. It may also be desirable for the rules of origin principle to seek suppliers in their own country (particularly in the UK) or within the EU.”
Geeroms adds that 35 percent of UK companies are looking for domestic suppliers (replacing their foreign suppliers). “That is the highest figure in Europe. That is not good news for Europe. This also affects exports to the UK.”
Euler Hermes predicts that British exporters are facing a blow of € 27.3 billion in 2021.