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Trade in goods significantly harder under Brexit deal

Thursday 25 March 2021

The Trade and Cooperation Agreement (TCA) agreed with the EU on Christmas Eve is far better than a ‘no deal’ scenario, but has not rectified the significant regulatory, logistical and administrative barriers to trade arising from the UK’s status as a third country. The report concludes, “While most trade is tariff-free, it is not simple.”

These barriers particularly affect smaller businesses and those who are not used to filling out trading paperwork. While some are short-term teething problems, others create long-term structural barriers to trade with the EU.

These are the main conclusions of a new report, ‘Beyond Brexit: trade in goods’, published today by the House of Lords EU Goods Sub-Committee.

Commenting on the report, the Committee’s Chair, Baroness Verma, said:

“The Brexit trade deal struck with the EU may have prevented the nightmare of a ‘no deal’ exit for the UK, but a lot of unfinished business remains between the two sides. Businesses, particularly SMEs, are feeling the squeeze of the non-tariff barriers resulting from the end of the transition period.

“The Government must take an ambitious approach to trade ties with the EU. Swift action and further funding is needed to minimise future disruption.

“Ongoing dialogue will be crucial to achieving smoother trade. The TCA should be treated as the start, not the end of the UK’s new relationship with the EU.”

Other findings and conclusions from the report include:

Level playing field
The rebalancing mechanism in the TCA’s level playing field section could allow either Party to impose tariffs or other countervailing measures in the future. Businesses were unequivocal in emphasising the importance of stability and transparency on subsidies and labour protections. The Government should move swiftly to introduce a transparent subsidy control regime, with particular support to smaller firms navigating the new requirements for cross-border trade.

Rules of origin
Only goods originating—or mostly originating—in the UK or EU will qualify for zero tariffs. These requirements have hit smaller businesses hardest, but clarifications and mitigations, particularly on the re-export of non-processed goods, are urgently needed for all. The Committee is also deeply concerned by the impact of the TCA on exporters in developing countries, who risk being cut out of UK and EU supply chains by tariffs.

Technical barriers to trade
The lack of a mutual recognition agreement on conformity assessments has been a significant blow. Multiple testing requirements add time and cost, and the Committee has emphasised the importance of careful consultation and transparency before any future regulatory divergence.

Sanitary and phytosanitary measures
Without action, physical checks may become a permanent barrier to trade in animal and plant products. We urge the Government to identify and pursue realistic priorities within the relevant Trade Specialised Committee.

Customs
Increased investment is needed in the customs intermediary sector: staff numbers are simply too low to deal with the increased checks. The Committee also recommends a trusted trader scheme to enable more businesses to benefit from simplified customs procedures. This would sit alongside the UK’s Authorised Economic Operator scheme which, if made more accessible, would have a greater reach. Some import restrictions are due to be phased in over the next year. Preparedness therefore remains critical, and much work is still needed on physical infrastructure and trader awareness.

VAT
Complicated and varied VAT rules in different EU jurisdictions have so far been among the most problematic non-tariff barriers to trade. The Government’s postponed accounting scheme is welcome, but helps only businesses which are VAT-registered. The Committee calls for the Government to support traders in accessing this scheme and to strengthen the guidance to increase understanding of new VAT implications among traders.

Transporting goods
Problems with the transportation of goods, particularly with increased costs and groupage, are affecting all businesses, hitting smaller firms hardest. The Committee calls for increased engagement with industry, and an extension of the Groupage Export Facilitation Scheme to a wider variety of goods. The Committee also urges the Government to seek full fifth freedom of the air rights and, failing that, to conclude bilateral aviation agreements with as many EU countries as possible.

Guidance, advice and support
The Committee’s inquiry has identified the need, given the substantial increase in administrative complexities, to translate generic guidance into tailored advice and support. Businesses, particularly smaller ones, need accurate, easily understood and specific advice.

The report will be available on the Committee’s website shortly after publication.

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