SMEs suffering most one year on from signing of Trade and Cooperation Agreement
16 Dec 2021 02:26 PM
The House of Lords European Affairs Committee yesterday published a report on trade in goods between Great Britain and the European Union one year after the United Kingdom’s exit from the European Union.
Background
The UK-EU Trade and Cooperation (TCA) was agreed on 24 December and entered into force on 1 January 2021. Among other matters, the TCA established the foundation of a trading relationship between the UK and EU reflecting the UK’s status as a third country following the UK’s exit from the European Union.
The UK Government has adopted a phased approach to the introduction of checks and controls on goods imported into Great Britain (GB) from the EU, whereas the EU introduced full controls on 1 January 2021. The Government has further delayed the introduction of these checks and controls on several occasions, most recently on 14 September 2021.
At the time of writing, from 1 January 2022 importers of goods from the EU into GB will need to submit full customs declarations; a separate grace period, which waived the requirement for traders to submit a Supplier’s Declaration when seeking to claim zero-tariff treatment under the TCA’s rules of Origin, will also expire on this date. From 1 July 2022, a number of new requirements for products subject to Sanitary and Phytosanitary controls will be introduced.
On 15 December 2021, the Government announced that the requirements due to be introduced from 1 January 2022 would not apply, for now, with respect to goods imported into Great Britain from the island of Ireland.
Please note that this inquiry, and the report, did not cover trade between the EU and Northern Ireland, or between Great Britain and Northern Ireland. These matters are within the remit of the Sub-Committee on the Protocol on Ireland/Northern Ireland, and were beyond the scope of this inquiry.
The report
The main findings from the report are that:
- Since the agreement of the TCA and the end of the transition period nearly one year ago, businesses trading goods between Great Britain and the EU have faced additional administrative burdens, making it more complicated and expensive to trade with the EU. These burdens have fallen particularly heavily on smaller and medium sized businesses (SMEs), who have fewer resources to draw upon to help them adapt. This has affected SMEs both in the UK and the EU.
- The challenges facing businesses include compliance with rules of origin, complex Sanitary and Phytosanitary (SPS) and customs requirements, new VAT requirements, and haulage restrictions. The Committee also heard that British exporters are concerned about the inconsistent application of the new rules by different EU Member States; navigating this requires significant extra time and resource, the burden of which again falls disproportionately on SMEs.
- The Committee calls on the Government to seek an agreement on SPS with the EU as an urgent priority and to do more to provide access to professional support for small businesses.
- The Committee recommends that the Government restore a version of its SME Brexit Support Fund, but with wider eligibility criteria; businesses were only eligible for support from the original fund if they traded exclusively with the EU.
- The Committee’s report also investigates the Government’s decision on 14 September 2021 to delay the introduction of certain UK import controls. It concludes that the arguments for and against this decision are finely balanced, with some businesses welcoming the extra time but others arguing that the delay has undermined business planning and puts UK exporters at a competitive disadvantage to their counterparts in the EU.
- The Committee also expresses significant concern about the imminent expiry of the grace period for suppliers’ declarations on rules of origin, and the introduction of the requirement for full customs declarations, on 1 January 2022.
- The Committee warns that there is likely to be some further short-term disruption in the New Year as these new requirements are phased in, though how extensive this turns out to be will depend on the Government’s attitude to enforcement of the new rules.
- The Committee also urges the Government to do all it can to communicate the new requirements, particularly to small businesses, ahead of the deadline.
- The Committee finds early evidence in the available trade data of an initial reduction in trade with the EU following the implementation of the TCA on 1 January 2021, although there have been signs of some recovery in recent months.
- Overall, the Committee concludes that it is difficult at this time to disentangle the impact of the end of the transition period from that of the COVID-19 pandemic at a macroeconomic level, but that the new challenges individual traders have faced on the ground cannot be attributed solely to the pandemic.
- The Committee welcomes the Government’s intention to implement a lighter-touch border regime, as well as its wider drive to operate the “best border in the world” under its 2025 UK Border Strategy.
Chair's comments
Lord Kinnoull, Chair of the Committee, yesterday said:
“The impact of the new trade barriers on business since the implementation of the TCA on 1 January 2021 has been uneven. Smaller businesses, which often lack the resources to adjust to new costs, and the agri-food sector, which faces an additional set of trade barriers in the form of Sanitary and Phytosanitary requirements (SPS) requirements, have been particularly hard hit.”
“With further customs and rules of origin requirements for importers coming down the track in a matter of weeks, it is vital that the Government communicates these deadlines to businesses and enforces them in a pragmatic manner that seeks to educate traders, rather than punish them.”
“It is important that these current challenges do not disincentivise GB-EU trade in either direction. We urge the Government to engage the EU in further dialogue and utilise platforms such as the TCA Specialised Committees to reach a more flexible and more comprehensive agreement to develop a mutually beneficial and efficient trading relationships with its neighbours in the EU.”
Further information