The new UK/EU trade agreement provides a much-needed resolution to the future trading relationship of each party and establishes a level of certainty for UK retailers sourcing from the EU and for retailers selling directly to consumers in the EU via e-commerce. The new relationship, however, does require significant changes to previous systems and processes.
Our latest UK Retail Brexit Trade Review, in partnership with Retail Economics, summarises and provides a deep dive of the key points for retailers and those within the supply chain, as follows:
- No new tariff costs on imports from the EU, avoiding up to £7 billion of new tariff costs.
- New red tape will emerge at the UK/EU border, but the agreement contains provisions to minimise the cost of this.
- E-commerce sales of less than €150 in value from the UK to the EU will be exempt from customs duties. The corresponding value for EU e-commerce to the UK is £135.
- Most EU preferential trade deals have been extended to the UK, so there should be no increase in import costs for these countries (e.g. SACUM trade bloc).
- Existing preferential tariff arrangements for developing countries have largely been rolled over.
- UK imports of many products from Most Favoured Nation (MFN) supplier countries will enjoy marginally lower tariff rates, and a handful will enjoy significant reductions in tariff rates.
- The UK will scrap additional duties on bicycles from China and a range of consumer goods from the US.
- Reasonable prospects for future free trade agreements (FTAs) with Australia, New Zealand and the US.
- The possibility of tariffs on UK/EU trade in the future in very strictly defined circumstances.
Next Steps for UK Trade Policy
Now that it has secured a trade agreement with the EU, and agreed to roll over most other existing bilateral FTAs, the UK can turn its attention to other trading partners. In particular, trade negotiations with Australia and New Zealand were opened in 2020 and should be able to move forward quickly given the strong and important relationship between the UK and these countries.
Trade negotiations have also been opened with the US and these could move forward relatively quickly under a new US administration, particularly as the UK has removed the elements of the Internal Market Bill that caused concern for President-elect Biden. New FTAs with these key supplier countries could lead to a significant reduction in tariff costs on imports of consumer goods, especially food and drink products.
Insights
“For most businesses, a deal is much better than no deal. That is partly because of the detail of what is agreed, and partly because the acrimony likely to be caused by no deal would also be damaging to the overall atmosphere. The deal we have is not perfect – no tariffs or quotas is great (and is a significant first in a deal with the EU). Things like rules of origin and the bureaucracy of trade will make things more complicated. There is quite a lot more that needs to come – in services, in regulatory recognition, data transfers, etc. Therefore, this is far from the end of the Brexit journey. However, it is a start, on a more positive note than many had feared. It was a real challenge for businesses to prepare for a new year change that was only agreed on Christmas Eve. But it is clear that a lot of work had been done, and we have started to adapt to our new way of trading with our neighbours.”
Matthew Kirk, International Affairs Advisor, Squire Patton Boggs
“The agreement is a massive relief to UK business. There has been a huge amount of discussion over the last two years about supply chain disruption in the face of no deal, but disruption does not stop now that we have a deal. The impact of Brexit on the supply chain is already being felt, in particular around Northern Ireland. We are seeing a number of retailers reviewing their supply chains as they face the issue of tariffs on re-exporting goods to the EU.
“What was billed as a deal preserving zero-tariff and zero-quotas is not as clear-cut as goods or commodities that are sourced from outside (or even inside) the trading bloc and then brought into the UK, and re-exported to the EU, which could attract a tariff.”
Richard Lim, Chief Executive, Retail Economics
“We have seen news reports of retailers suspending deliveries to customers in Northern Ireland and other EU countries. In a year that has seen retail sales being the worst for 25 years (according to the British Retail Consortium figures), it is important that retailers appreciate the complicated rules around re-exporting, which could mean goods imported from tariff-free developing countries attract tariffs when re-exported. The last thing retailers need are empty shelves. Also, consumers could be looking at higher prices and less choice as companies grapple with post-Brexit changes. Looking on the optimistic side, there are ways to avoid tariffs by reviewing logistics, warehousing and distribution.
Longer term, the short-term issues and workarounds will be superseded by an abundance of opportunities as the government looks to reduce red tape and continue to build the global brand with more trade deals to come.”
Matthew Lewis, Partner, Head of Retail, Squire Patton Boggs
Our full report can be accessed here.
