UK's exports to EU swell as Brexit talks enter next stage

AP

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LONDON (AP) As Brexit gets nearer, British firms are exporting more to the other 27 countries in the European Union, a development that's likely to focus minds as discussions over the country's future relationship with the bloc start up again.

Official figures released Friday show that seven of the top 10 destinations for British exports in 2017 were EU countries. Selling everything from cars to pharmaceuticals and gin, British firms exported some 37.7 billion pounds ($53 billion) worth of goods to Germany in 2017, around 13 percent more than the year before. Germany accounted for 11 percent of British exports, up a tad on the year before, and second overall behind the United States.

Other EU countries in the top 10 export destinations included France, the Netherlands and Ireland, the latter being the only EU country to share a land border with the United Kingdom and the source of much debate surrounding post-Brexit scenarios. All witnessed annual increases akin to Germany's. Overall, EU countries accounted for 48.8 percent of British goods exports to the EU in 2017, up from 48.2 percent the year before.

The increasing importance of the EU as a destination for British goods is largely due to the fact that Britain remains a member of the EU until March next year, with exporters also enjoying a boon from the sharp fall in the value of the pound in the wake of the country's vote to leave the bloc in June 2016.

Bank of England Governor Mark Carney has called it a "sweet spot," with exporters benefiting from the near 20 percent fall in the pound's value against the euro "in anticipation of a Brexit that has not yet happened." The euro, which is used by 19 EU countries, is now worth 0.89 pound, compared with around 0.75 pound before the referendum.

But Brexit is happening and no one, it seems, quite knows what it will mean. That's a particular problem for businesses that have enjoyed tariff-free trade with the EU for decades thanks to the bloc's single market and its customs union, a looser trading bloc that mainly covers goods.

The minority Conservative British government has made clear that Brexit means leaving both the single market and the customs union. However, it hopes to negotiate a new free trade agreement that will prevent the return of costly customs checks and tariffs. No one is sure how that can happen and discussions this week within the government failed to clarify what its vision is for the post-Brexit relationship.

In recent months, a deep split within the governing party has become clear. Some lawmakers in Prime Minister Theresa May's party want close ties with the remaining 27 EU nations and a period of transition after Brexit day. Others want a more fundamental break and are comfortable with the idea of tariffs on trade with the EU if it gives Britain more leeway to carve out trade deals with fast-growing economies around the world, particularly in Asia.

May hopes to agree soon on the terms of a transition deal that would see Britain remain in the single market and customs union for a period after Brexit day. That would give firms and households time to adjust.

Carney has argued repeatedly that the outlines of a transition deal need should be in place by the end of the first quarter this year so businesses can plan ahead. Many firms have held back investment amid the uncertainty and some, particularly in finance, have warned they could relocate some activities into the EU if the situation doesn't become clearer.

"As we move through the Brexit process, more needs to be done to provide clarity on what the future trading relationship with the EU will look like," said Suren Thiru, head of economics at the British Chambers of Commerce.

For its part, the EU has been relatively clear. Brussels has said a transition deal is not a given and that any transition must finish at the end of 2020. The EU's chief Brexit negotiator has also said that barriers to trade would be inevitable if Britain opts out of the single market and the customs union. Such barriers can take a number of forms, from tariffs to legal red tape.

"Without the customs union, outside the single market, barriers to trade and goods and services are unavoidable," Michel Barnier said this week as discussions with Britain resumed following last December's agreement on some of Britain's exit terms.

Proponents of Brexit say Britain would be able to thrive even in that environment as the country could have more freedom in trade discussions with countries like China, India and even the United States. There's clearly room for growth in British exports to China, for example: in 2017, Britain sold 18.2 billion pounds worth of goods there, representing only 5.3 percent of its total exports, according to the Office for National Statistics. By comparison, Britain imported 43.7 billion pounds from China, or 9.1 percent of its total.

Even though the relative importance of EU trade is greater for Britain, Brexit proponents argue that EU countries have a lot to lose, too, if free trade is interrupted. Germany, which is Europe's biggest economy, is the number one seller of goods to Britain it sold 69.5 billion pounds worth of goods to Britain in 2017, or around 14.5 percent of Britain's total imports. That's a lot of BMWs and Volkswagen Golfs.

Brexit-backers also say the EU is a major consumer of British services, particularly in finance, and that will help the sides reach a deal.

However the Brexit process pans out and Carney has said he expects more "twists and turns" the British economy and the EU are inextricably linked.

So both sides will be treading carefully in the months ahead.

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