The UK’s post-Brexit trade agreement with the EU has caused a “sharp drop” in Britain’s trade relations with the bloc, as border bureaucracy limits the ability of smaller companies to export, a new study has found.
Although UK exports to the EU have already recovered to pre-pandemic levels, analysis of trade data shows that the number of buyer-seller relationships has fallen by a third since the EU-UK trade agreement was introduced in January 2021. .
The findings of the LSE’s Economic Performance Center coincide with warnings from business groups that smaller companies are struggling to take over customs control, VAT and regulatory bureaucracy, many of which are abandoning exports altogether.
The LSE team is analyzing changes in trade patterns for 1,200 individual product lines traded with the EU in what they say is the most comprehensive study to date on the effects of Brexit on trade between the UK and the EU.
Inevitably, smaller companies that do not have the money, time or logistical capacity to set up within the EU are most affected.
The document states that the return to EU levels of pre-Brexit exports “masks a sharp decline in the number of varieties [of goods] are exported, driven by the abandonment of “small” varieties, which represent a low share of total exports “.
Thomas Sampson, co-author and associate professor of economics at the LSE, said the analysis revealed the hidden effects of increasing the burden of bureaucracy on smaller exporters from the UK.
“The study found that since the entry into force of the trade agreement, the number of buyer-seller relations between the UK and the EU has fallen by almost a third, with most falling in the first quarter,” Sampson said.
The study also found that the sudden drop in the number of products sold was most pronounced in trade between British companies and their partners in smaller EU countries.
Thomas Pryor, co-author of the paper, who is a PhD student at the University of Cambridge, said the decline was “remarkable”. He added: “It seems that the United Kingdom has simply stopped selling many products to smaller EU countries.
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The findings are another worrying sign of the negative impact that the UK-EU Trade and Cooperation Agreement has on UK exporters.
Last month, the Office of Budget Accountability, the government’s spending oversight body, warned that trade in the UK had “missed” much of the recovery in world trade and was lagging behind all other G7 economies.
OBR, which estimates that total imports and exports from the UK will be 15% lower in the medium term than if Britain had remained part of the EU, said Brexit “may have been a factor” in the relatively low performance.
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Sampson said the LSE’s findings raised concerns about the long-term impact of Brexit on future trade in the EU. “There is a lot of evidence that the future growth of trade comes from small businesses today,” he added. “If you destroy these export links, this could lead to lower future export growth.
William Bain, head of trade policy at the British Chambers of Commerce, said the findings confirmed business complaints for more than a year that the TCA was making them less competitive.
“Inevitably, smaller companies, which do not have the money, time or logistical capacity to set up within the EU, are most affected. That is the message of this important new study, “he said, urging the government to work with the EU to reduce trade friction.
Martin McTaig, chairman of the Small Business Federation, said exporters face “countless challenges”, including increased documentation, and called on the government to launch a new “SME Trade Support Fund” to help companies trade in international plan. “Small business must be at the heart of free trade agreements,” he added.
The Ministry of International Trade said the TCA allows companies in the UK to trade freely with the EU and works to support exporters through its Export Support Service.
“We ensure that companies of all sizes have the support they need to trade effectively with Europe and take advantage of new opportunities as we trade around the world,” he said.
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