EU exit watch — Brexit is finally done

In our latest look at the post-Brexit relationship between the UK and the EU we note that the deal is finally done.

This may seem like old news — wasn’t the deal signed on Christmas Eve? Yes it was but, with two Parliaments involved, only Westminster rushed through confirmation of the trade deal before the 31 December deadline; the European Parliament has only just completed its deliberations. Originally, the UK-EU Trade and Cooperation Agreement (TCA) was to be provisionally applied until the end of February. The EU then requested an extension to allow for translation into all 24 languages recognised by the Union, and for scrutiny by the European Parliament and the Council. All this finally concluded on 30 April and, for anyone who wants to see the legal results, a huge 2500-page edition of the EU’s Official Journal was published on that date. Including the full text of the TCA and the Council Decision approving the Agreement, it can be found at https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ:L:2021:149:TOC.

Welcome news

There was little official reaction in the UK to the completion of legalities by the EU but, for the CBI, Director General Tony Danker described it as a decisive step forward, although he went on to say that it was far from the end of the process for business. “The next phase is normalising relations between the UK and EU, in order to smooth trade and maximise the benefits of the new economic partnership,” he suggested.

Logistics UK was also pleased to see the final adoption of the Agreement, arguing that ratification would give certainty to businesses on both sides of the Channel. European Policy Manager Sarah Laouadi said that the priority was now to focus on effective implementation of the deal in order to keep goods and services flowing freely across the UK’s borders. It is important to remember, she went on, that there are still changes to come in import conditions: the UK is yet to introduce checks and other requirements on inbound goods, which are expected to be phased in gradually over the next year.

Coming soon

The UK currently does not make checks on goods arriving in the UK, Ms Laouadi explained, but the situation at the border will change from 1 October 2021, when requirements on products of animal origin and other high-risk foods will be implemented. The option to defer the submission of the full customs declaration up to six months from the point of import will be phased out on 1 January 2022. Safety and Security Declarations for imports, as well as physical checks on products of animal origin (also known as Sanitary and Phytosanitary checks or SPS) will be required from 1 January 2022.

All the preparations that have been made for Great Britain-to-EU trade ahead of 1 January, in terms of customs formalities, safety and security declarations and sanitary and phytosanitary documentation for animals and agri-food products must now be replicated for EU-to-GB trade. “Our advice to (companies which) import goods from the EU is to familiarise themselves with what will be required in plenty of time,” Ms Laouadi concluded, “and review their contracts, Incoterms and processes with suppliers and partners on the other side of the Channel”.

Waiting game

It is clear from these recent warnings that there is still a degree of uncertainty in the business community and small firms are being particularly cautious as a result. According to the Federation of Small Businesses (FSB), a survey of more than 1400 small exporters has found that a quarter (23%) have temporarily halted sales to EU customers while a further 4% have already decided to stop selling into the bloc permanently. Those exporting to the EU are suffering more as a result of new paperwork than importers, the FSB discovered, while the great majority of those doing business in Europe have been hit by shipment delays or loss of goods.

The survey also showed that 11% of small exporters have established, or are considering establishing, a presence within an EU country to ease their exporting processes. A similar number (9%) are thinking about securing, or are already using, warehousing space in the EU or Northern Ireland for the same purpose. What have been described by the Government as teething problems are in danger of becoming permanent, systemic ones, FSB Chairman Mike Cherry warned. “While larger firms have the resources and bandwidth to overcome them,” he pointed out, “smaller traders are struggling, and considering whether exports are worth the effort anymore.”

Going Dutch

The pain is being felt on both sides of the North Sea, according to the Netherlands British Chamber of Commerce (NBCC) which has reported that 63% of businesses have higher costs and lower turnover as a result of increased bureaucracy since 1 January 2021. Companies are also suffering from delayed shipments with 59% of UK firms reporting this as a problem and 67% of Dutch respondents. Asked for suggestions for how the burden can be eased within the new framework, nearly half (48%) of the businesses surveyed said that more digitalisation of customs procedures and the reduction of paperwork for border formalities would be important steps forward.

Once again, the survey highlighted the number of British businesses actively looking into establishing a presence in the EU. Of companies headquartered in the UK, in the group surveyed, 45% will open an office in Europe or have already done so in response to Brexit. Reduction of bureaucracy (61%) and increased speed to market (33%) have been important factors in the decision-making processes of these companies. Meanwhile, just over a quarter of Dutch businesses (26%) have opened or have investigated opening an office in the UK in response to Brexit.

Global Britain

International Trade Secretary Liz Truss has had little to say about the problems of trading with the EU under new arrangements since the New Year, preferring instead to focus on re-establishing the UK as a world trading force in its own right. In the last month, she has announced that the UK and Australia are near agreement on a comprehensive trade agreement after what she described as major breakthroughs in the ongoing talks. The next few weeks will be spent ironing out details and resolving outstanding issues, Ms Truss said. It is estimated that the deal could add £500 million to UK GDP over the long-term. It will be one of the first post-Brexit trade deals negotiated by the UK that is not a replica of a trading arrangement earlier negotiated on the UK's behalf by the European Union.

Those deals have had to put in place, however, and Serbia has become the latest country to agree a deal with the UK which copies the trade benefits this country enjoyed under the agreement that the EU had negotiated with the Balkan country. According to the UK’s Minister for the European Neighbourhood, Wendy Morton, the Agreement secures continued preferential trade access between the UK and Serbia with significant savings for business to support jobs and the wider economy. The preferential trading terms secured will enable British businesses to trade as they did before 1 January 2021, she confirmed.

The Irish question

The media focus on the cost of decorating his flat may have driven the Prime Minister to distraction this month but at least it has drawn attention away from the problems developing across the Irish Sea. With film available online of him reassuring the Democratic Unionist Party (DUP) that he would never agree to a border between Northern Ireland and the rest of the UK — and of him telling businesses that, if they are given any forms to fill in to pass that non-existent border, they should bin them — Mr Johnson clearly has questions to answer about the worsening economic and political situation in Northern Ireland.

So far, the growing problems have cost Arlene Foster her leadership of the DUP as her party thought that she had not done enough to challenge the Northern Ireland Protocol agreed between the British Prime Minister and the EU. Her successor is likely to take a much harder line on the Protocol which can only mean further problems ahead for Mr Johnson. The European Commission has already started legal action against the UK after the Government decided to try to alleviate the situation with regard to trade with Northern Ireland by unilaterally amending the Protocol.

Trouble ahead?

To return to the EU’s approval of the TCA, it was not given without several warnings. One of the MEPs charged with presenting the Agreement to the European Parliament said it “should not be seen as a blank cheque for the UK Government, but rather as an insurance policy for us”. And Commission President, Ursula von der Leyen, reminded MEPs that the TCA “comes with real teeth, with a binding dispute settlement mechanism” (under which it is already taking action, see above).

The four months since the deal was signed have seen little evidence of the spirit of co-operation and pragmatism that businesses have been seeking. As the British Chambers of Commerce (BCC) said: “It is now vital that both the UK and EU work together to alleviate the significant disruption and difficulty which many firms continue to report, especially with further changes still to come.”