The painful Percy Pig experience is just the start of Brexit border frictions

It is two weeks since the end of the Brexit transition period, when new customs and regulatory checks were introduced on goods moving from Great Britain to Northern Ireland and the EU. Widespread disruption at the ports has – so far – been avoided, but businesses and consumers are fast realising that a free trade agreement does not equal frictionless trade – regardless of what the prime minister has said.

The government’s choice to pursue a more distant relationship with the EU, despite its close geographic proximity and integrated supply chains, meant leaving the single market and customs union was always going to be disruptive. Firms are having to adapt to not one but two new borders – between Great Britain and the EU and between Great Britain and Northern Ireland. More paperwork, more checks and more cost are all an inevitable part of the new trading terms that businesses must navigate.

The government should do all it can to minimise disruption but, ultimately, the terms of the new relationship with the EU mean that businesses will need to get used to significant new barriers when trading between Great Britain and the EU and Northern Ireland. But as the government has warned, things will get worse at both borders before they get better.

Neither business nor government were fully prepared for such drastic changes

The prime minister boasted to MPs on Wednesday that the end of the Brexit transition period had not resulted in miles of unprepared lorries at the ports. He was right, with a combination of pre-Brexit stockpiling, firms taking time to digest new rules and the traditional lull in trade flows after Christmas meaning a relatively quiet start to 2021.

Even so, the prime minister is wrong to say trade has flowed smoothly. Many businesses are clearly unprepared for the new red tape – hardly surprising given that the government only published its revised Border Operating Model, outlining how the GB-EU border works, five hours before many changes came into effect, and still hasn’t produced equivalent overarching guidance for GB-NI trade.

Last week, more than a quarter of lorries arriving at Scottish ports bound for Northern Ireland did not have the right paperwork, which held up the flow of trade, while confusion over IT systems created a backlog on British-French agri-food trade.

There have been bigger issues away from the border. A long-predicted shortage of customs agents and vets has made it difficult for some GB firms to complete the necessary paperwork to move goods into the EU. Hauliers have refused to pick up loads from unprepared businesses to avoid getting caught up in delays at ports.

Reports of the impact are already starting to emerge. For example, some firms (including DPD and the massive German logistics firms DB Schenker) have temporarily suspended shipments to the EU; the Scottish Seafood Association has warned its members to catch less fish while teething problems are worked out; and there have already been pictures of empty shelves in Northern Ireland supermarkets.

Disruption at the border will only get worse

These issues can quickly escalate. The circular flow of lorries between Great Britain and Northern Ireland has already been disrupted: one Northern Irish logistics firm reported that of 285 lorries sent to Great Britain in the first few days of 2021, only 100 had returned. As stockpiles are depleted, more businesses attempt to trade without the right paperwork and the French intensify border checks, it might not be long before similar issues arise at the GB-EU border.

And there are still more changes to the border controls coming down the track. While the EU is currently applying full import controls on GB goods, GB controls on EU goods will be phased in from April and only fully operational in July – which could mean more disruption as traders adjust to yet another set of new rules and government IT systems come under increased pressure.

There are also upcoming changes to the GB-NI border. The three-month ‘grace period’ for the checks and paperwork on agri-food moved by supermarkets GB-NI will end in April – meaning extensive checks and physical inspections will be required on everything from milk, cheese to ready meal lasagnes.

Businesses must adapt to the new normal

Delays and IT glitches should only be short term, but there will be other, more fundamental, impacts. New costs and red tape risk making pre-Brexit business models unsustainable, but unless the UK and EU modify the terms of their agreement, firms have little choice but to adjust. The food and drinks federation has said the next few months would require “the re-engineering of almost all the EU-UK and NI-GB supply chains”.

This has been perfectly illustrated by the M&S Percy Pig which it has been suggested could be withdrawn from stores in the Republic of Ireland. Goods shipped between the UK and the EU must meet ‘rules of origin’ requirements (which determine where a good is deemed to come from) in order to benefit from zero tariffs. But those imported from the EU (as Percy is from Germany) to a British distribution centre and then reshipped to another part of the EU often do not meet these requirements. They will ‘lose’ their EU origin by making a stop in the UK, but don’t undergo sufficient processing in the UK to count as originating in the UK. This means they face tariffs when sent back to Europe – adding significant new costs that make Percy unviable. This issue was foreseen by trade experts (and likely by government too) – but clearly came as a surprise to many – even large – businesses. Percy will need to find a new route to the Republic or another way around the rules. If not, the people of Ireland will lose out on this particular sweet treat.

The complexity of new customs and regulatory rules also means hauliers are now reluctant to accept ‘groupage’ or mixed loads of goods, so they can minimise the amount of paperwork each lorry faces. The government hopes new guidance will mitigate this issue, but if not, smaller firms will struggle to ship their goods or have to pay more to do so. Supermarkets supplying Northern Ireland have streamlined their product lines as a result of this problem – with Percy’s cousin, Walter the Sausage dog, a victim of the M&S cull.

Other trade may simply not be allowed. EU rules mean that some products – such as chilled meats – can no longer be shipped from Great Britain to Northern Ireland or the EU at all. In December, the UK and EU agreed a grace period allowing these products to be shipped from GB-NI for another six months – in order to maintain supermarket supply chains while firms adjusted. Shipments of affected products across the GB-EU border have already come to an end. The prime minister told MPs this week that he was confident a longer term solution could be found for Northern Ireland but if not, the trade in sausages across the Irish Sea may also cease altogether.

The government must do more to explain trading changes and to devise solutions

The upshot of these issues is that GB businesses may exit the Northern Irish and EU markets, or move some of their operations to the EU. Similarly, GB firms may lose business as their Northern Irish or European customers seek alternative suppliers that do not face the same red tape and are less vulnerable to disruption. Consumers in the UK and the EU will be the losers facing higher costs or less choice.

To limit further disruption, the government must do a better job of communicating with businesses about the changes affecting how they trade with the EU and Northern Ireland, and devise solutions to ensure that essential supplies are not caught up in the chaos.

Its proposal to allow empty supermarket lorries returning to Europe to bypass queues in Kent is a welcome start. ^[1] But vague promises to compensate affected industries for temporary delays – as Boris Johnson seemingly made to the Scottish fishing industry this week – do not help. In any case, these ideas would only address short term disruption and can’t remove the need for businesses to adapt to new trading rules.

Only once the government has helped businesses deal with the new difficulties in doing business with the EU and Northern Ireland it can focus on helping them take advantage of the opportunities to trade elsewhere.

Until then ministers will be relieved that the end of the transition period has not – yet at least – led to a repeat of the dramatic queues at the border seen before Christmas. But there has been disruption, and across the country businesses and consumers are slowly waking up to the reality of Brexit.