Post-Brexit frictions for businesses

Businesses are being urged to prepare for certain post-Brexit challenges when trading.

Following the UK-EU Trade and Cooperation Agreement (TCA), many businesses trading with the EU are facing new frictions and restrictions that could increase their costs.

Although under the TCA there are no tariffs or quotas on the movement of goods produced between the UK and the EU (where goods meet the relevant rules of origin), businesses will have to manage new requirements and processes in trading with the EU and Northern Ireland.

As a result, businesses are being urged to prepare as much as they can for these post-Brexit challenges when trading.

New considerations for businesses trading with the EU +

(Note: This is not an exhaustive list.)

  • Rules of origin will apply to goods in order to qualify for preferential trade terms under the agreement
  • All imports will be subject to customs formalities (checks and procedures) and will need to comply with the rules of the importing party
  • All imports into the EU must meet all EU standards and will be subject to regulatory checks and controls for safety, health and other public policy purposes

In addition, the Northern Ireland Protocol to the Withdrawal AgreementLink opens in a new window introduces these regulations for trade between Great Britain and Northern Ireland.

As British business will have to adapt to meet these challenges – and others – it’s important to understand them. Read on to learn more.

Rules of origin +

The UK-EU Trade and Cooperation Agreement (TCA) means that in order to qualify for tariff-free access to the EU, goods from Great Britain may need to meet rules of origin requirements.

Rules of origin relate to the products/materials used to manufacture the goods and where they originate from. The rules ensure that preferential tariffs are only given to goods that originate in the UK or EU and not from third countries.

Under the TCA, some exports will be subject to rules of origin, which will depend on the percentage of local content that goes into them. This is set out in detailed annexes to the TCALink opens in a new window.

The UK Government has provided guidance on rules of origin requirementsLink opens in a new window. These rules are quite complex and the percentage of local content required will differ depending on the industry and sector.

In addition, manufacturers will be able to ‘cumulate’ – that is, count both UK and EU parts towards the content threshold of a good. For example, if a UK manufacturer of marmalade were using oranges from Seville, the oranges could be added to the UK content.

While some businesses may find their goods are totally exempt, others may have to examine their supply chains to check that they meet the percentage thresholds for content. They will need to complete the rules of origin certification process to prove that their goods are eligible for tariff reductions. For example, cars must contain no more than 45% of materials coming from either the UK or the EU.

In some cases, rules of origin requirements may be loosened for transitional periods or for limited quantities of goods.

Given the complexity of the rules of origin requirements, it’s crucial that you check if the rules affect your business. The UK Government has issued guidance on the rules of origin Link opens in a new windowto help with this.

Customs formalities +

If you’re moving goods between the UK and EU, new requirements now apply. There are new terms, new forms, new declarations, and possibly new licenses that importers and exporters will need. This is likely to increase costs.

The agreement makes no provision for phasing in on the part of the EU, so from 1 January 2021 customs formalities apply to goods moving from Great Britain into the EU and Northern Ireland. The UK has already announced it will phase in these processes for EU goods over a six-month period.

For businesses eligible to use a long-standing trusted trader scheme, there is an allowance for simplified forms to limit possible costs and delays. It is officially called an Authorised Economic Operator (AEO) schemeLink opens in a new window. If a business registers with HM Revenue & Customs (HMRC) for this status, HMRC grants expedited treatment at customs.

However, not all businesses will be able, or will choose, to make use of these schemes. Moreover, according to the Federation of Small Businesses the application process is quite lengthy and involves putting up collateral to cover any potential liability. Thus, it has traditionally been viable only for large businesses that do a lot of importing and exporting.

The Road Haulage Association (RHA) has pointed out that most businesses were unprepared for these new processes and have had little time to learn how the systems work or to train staff on how to use them. This has resulted in a number of businesses turning to customs intermediaries (agents) to help deal with the new customs formalities, at a cost.

For others, it has led to lorries being taken off the road, according to the RHA, resulting in extra freight costs and inefficiencies.

It is important that your business understands how trusted trader schemes may alleviate some of these issues. In addition, you can check with your freight forwarder to see if you may be able to piggyback on their status, as some are already ‘AEO-certified’.

EU/UK standards +

The UK has transferred all EU regulations that applied to it before Brexit into UK law. Henceforth, the UK (or in some cases the devolved governments) will be able to decide how it wants to change these.

The Government has outlined what businesses need to do to comply with regulations on manufactured goods that are placed on the EU market. Learn more at the GOV.UK websiteLink opens in a new window.

Separately, the UK now has new laws that regulate the safety and performance of certain products. As a result, CE marking is moving to UKCA marking in Great Britain. From medical devices to machinery, electrical equipment to construction products, anyone looking to sell one of these products on the market in the UK will need to be aware of these changes.

Any product that has been sold in the UK with a CE marking on it, and anyone in the supply chain for those products, may be affected.

There will be different regulatory models for Great Britain (England, Scotland and Wales) and for Northern Ireland. Learn more on the GOV.UK websiteLink opens in a new window about how this will affect the placing of manufactured goods on the market in Great Britain.

What this means for businesses trading with Northern Ireland +

Customs declarations are now required for most commercial goods moving from Great Britain to Northern Ireland. However, the UK and the EU have agreed certain mitigations and ‘grace periods’ through a previous agreement in the UK-EU Joint CommitteeLink opens in a new window.

The UK Government has launched the Movement Assistance SchemeLink opens in a new window to support businesses moving live animals and other animal or plant products between Great Britain and Northern Ireland. Run by the Department for Environment, Food & Rural Affairs (DEFRA), it aims to cover “reasonable” costs incurred by agri-food traders who are facing sanitary and phytosanitary (SPS) checks for the first time as a result of the Northern Ireland Protocol.

The Government has also established:

Are these challenges here to stay? +

The UK-EU Trade and Cooperation Agreement (TCA) goes some way to preserving the flow of trade in goods between the EU and Great Britain.

However, in the short term, cross-border traders will notice more friction and more restrictions than they have been accustomed to. It is hoped that, if economic growth improves and the UK maintains a good trading relationship with the EU, over time most of these challenges may become less of an issue.

What your business can do to try and limit the impact of these challenges +

There are a number of measures you can take, including the following:

Additional support +

The Institute for Government – Border formalities Link opens in a new window

Now the UK left the single market and customs union, EU customs rules, regulatory standards or enforcement mechanisms no longer apply. Goods crossing the border between Great Britain and the EU are now subject to customs formalities.

The Institute for Government – Trading with EU/Northern Ireland Link opens in a new window

Information for businesses trading goods with the EU and Northern Ireland.

Report: UK in a Changing Europe Link opens in a new window

Rigorous, high-quality and independent research into the complex and ever-changing relationship between the UK and the European Union (EU).

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Reference to any organisation, business and event on this page does not constitute an endorsement or recommendation from the British Business Bank or the UK Government. Whilst we make reasonable efforts to keep the information on this page up to date, we do not guarantee or warrant (implied or otherwise) that it is current, accurate or complete. The information is intended for general information purposes only and does not take into account your personal situation, nor does it constitute legal, financial, tax or other professional advice. You should always consider whether the information is applicable to your particular circumstances and, where appropriate, seek professional or specialist advice or support.