How Chocolate Exposes Brexit Trade Risks
Sean Ramsden and his family have been shipping British food abroad since the U.K. joined the European Union more than four decades ago.
For most of that time, delivering to the single market has been simple, at least compared with what Ramsden must do to clear customs from Beijing to Dubai. The paperwork accompanying non-EU orders of classic British items like Malteser chocolate balls and the thousands of other products he distributes can run to over an inch thick. In all, his company needs to know how to complete 49 different kinds of document.
In less than two years, Ramsden may encounter similar bureaucratic demands from the 27 remaining EU states in a post-Brexit landscape.
It all depends on whether Prime Minister Theresa May secures the sweeping free-trade deal with the bloc she aspires to by the March 2019 exit deadline. The EU has been adamant that, after voting to leave last year, Britain won’t simply be able to negotiate an agreement that keeps the status quo. The two sides resumed talks this week with the EU’s chief negotiator expressing mounting frustration at the pace of progress.
“The import tariffs aren’t what impairs trade -- it’s the non-tariff barriers, the complexity,” Ramsden, 46, said at his company’s headquarters in the northern port town of Grimsby as workers nearby loaded pallets with Golden Syrup destined for Denmark . “It’s in everyone’s interest for that to be kept sensible.”
Since 1995, the EU has alerted the World Trade Organization to 1,700 such curbs for goods coming from outside the bloc, according to HSBC Holdings Plc economist Douglas Lippoldt. Without a deal, U.K. firms may face export-licensing requirements, pre-shipment inspections, and limits on how many foreign parts a product can contain.
Non-tariff barriers could end up increasing the cost of trading with the EU by roughly 15 percent or more, three times the average rate of duties companies would face under WTO rules, Lippoldt said.
For exporters like Ramsden and his company, Ramsden International, it could get messy. It’s been shipping overseas since the 1970s, when Britain joined the European Economic Community, the precursor to the EU. It currently sends goods to more than 100 countries.
“Within the EU it’s fairly straightforward to ship products from A to B -- today, I should say,” Ramsden’s operations director Tony Barker said. “When we get to our international territories overseas, the compliance, documentation, certificates of analysis and certificates of origin -- all these different requirements are quite complicated.”
Ramsden packages, labels, and translates product descriptions to comply with a wide array of rules across the globe. Many quintessential British brands, such as Walkers potato chips and Maltesers are now owned by U.S. giants like PepsiCo Inc. and Mars Inc., yet are mostly made in Britain and shipped by distributors like Ramsden.
“The transaction costs will rise, come what may,” said Erik Millstone, a professor of science policy at the University of Sussex. “The paperwork into the EU might become comparable with that to get into China, and Chinese food standards are way below those of the U.K. and Europe.”
Moreover, once outside the EU, the U.K. won’t have a say in the region’s future regulations, meaning it could face further compliance costs down the road or lose access.
May has until March 2019 to secure a deal with EU leaders and speaks of nailing a “deep and special” new relationship based on mutual interest. The government is proposing to keep the U.K. aligned with the tariff-free customs union for some years after the official divorce and then pursue a new way to manage customs focused on avoiding obstacles to trade.
Yet EU chief negotiator Michel Barnier has already made clear it’s “not possible” for Britain to enjoy trade with the bloc as easily as it does now. “I have heard some people in the U.K. argue that one can leave the single market and build a customs union to build frictionless trade,” he said.
Back in Grimsby, once among Europe’s largest fishing ports and now more reliant on cargo and serving off-shore wind farms, Ramsden International is confident it can handle any Brexit-related changes. Barker just hopes the government grasps the scale of the challenge.
“One of my concerns is that people who make decisions don’t understand that level of complexity,” he said.
— With assistance by Simon Kennedy