Beyond Brexit: trade in goods Contents

Summary of conclusions and recommendations

Overarching findings

1.An agreement with the EU is far better than a ‘no deal’ outcome, but the TCA does not rectify significant regulatory, logistical and administrative barriers to trade arising from the UK’s status as a third country. These barriers particularly affect smaller businesses and those unaccustomed to submitting trading paperwork. In practice, the current outcome falls far short of the ambition of frictionless trade. (Paragraph 21)

2.We regret the Government’s decision to defer establishing the Partnership Council and other bodies and urge it to review this position. Given the many practical difficulties arising in the TCA’s implementation, we urge the Government to work with the European Commission to set up these governance bodies swiftly, and to ensure that they operate inclusively and with transparency. (Paragraph 22)

3.The Government’s future approach to trade with the EU should be ambitious. It must implement the TCA with as little disruption as possible and utilise the bodies established by the agreement to their fullest extent to reach a smoother trading relationship with the EU. We urge both Parties to work in the spirit of cooperation and openness in service of this objective. (Paragraph 23)

Level playing field

4.Following the closure of its consultation on 31 March, the Government should move swiftly to introduce a transparent subsidy control regime. While the nature of this regime should be driven by the consultation responses, we recommend support to help smaller firms navigate the new requirements for cross-border trade as one initial area of focus for UK subsidy control policy. In this regard, the new £20 million SME Brexit Support Fund is a welcome step in the right direction, but we are concerned that the funding provided will be insufficient to meet its objectives. (Paragraph 38)

5.We welcome the Government’s stated commitment to high labour and social standards and urge it to approach any changes to these standards with caution. When it identifies a need to amend the current standards, it should proceed with transparency and only after consultation, taking into account the potential impact on UK-EU trade in goods. (Paragraph 42)

6.Notwithstanding its confidence that the TCA’s complex dispute resolution measures will be used infrequently, we recommend that the Government work with the EU to clarify publicly the precise circumstances in which either Party is likely to invoke them. (Paragraph 49)

Rules of origin

7.Rules of origin were among the biggest issues facing traders following the TCA’s implementation. The very short period between publication and implementation exacerbated administrative difficulties and costs. Businesses will adapt over time, but the Government must ensure full awareness of the need to follow the rules during the grace period. (Paragraph 62)

8.We recommend that the Government embark on a programme of industry engagement to identify and pursue simplifications to adherence processes. (Paragraph 63)

9.The Government should make full use of the Trade Specialised Committee on Customs Cooperation and Rules of Origin to ensure consistency in implementation across the UK and EU. (Paragraph 64)

10.We recommend that the Government regularly publish detailed, sector-specific data on preference utilisation, and use it both to identify particularly affected sectors and to inform future dialogue with the EU on the implementation of the TCA. (Paragraph 67)

11.Through continued engagement at the Partnership Council, we urge the Government to seek a negotiated exemption with the EU, allowing non-processed EU-originating goods to be re-exported to the EU without tariffs. In the meantime, the Government should encourage and support affected businesses to apply for duty relief, and to use transit procedures. (Paragraph 75)

12.The EU’s rejection of diagonal cumulation in the TCA negotiations was disappointing, and its absence is likely to have a negative impact on supply chains and exporters in developing countries. Although re-negotiation of this issue appears unlikely in the short term, the Government should continue to make the case for full diagonal cumulation and push for related amendments when the TCA’s provisions are reviewed. (Paragraph 80)

13.Rules of origin present both short-term administrative issues and long-term structural challenges, chiefly where certain products do not qualify for zero tariffs under the TCA. (Paragraph 84)

14.Rules of origin requirements are likely to trigger substantial supply chain shifts in certain sectors and adjusting to these changes will incur significant costs for many UK businesses, as well as exporters in developing countries. Targeted intervention could, however, enable some sectors of UK manufacturing to benefit from supply chain shifts. We recommend that the Government take an ambitious approach to the onshoring of some manufacturing processes. For example, the Government should seek to attract manufacturers of cells and battery packs for electric vehicles to shift production to the UK. (Paragraph 85)

Technical barriers to trade

15.The failure to agree mutual recognition of conformity assessment will cause duplication of testing of certain products, for which businesses will incur significant costs. The Government should develop comprehensive consultation mechanisms to enable businesses and trade bodies to regularly feed into, and remain informed of, regulatory policy. (Paragraph 97)

16.The Government must further consider temporary recognition arrangements to enable pre-transition contractual obligations to be fulfilled. It should raise this issue with the EU in the Trade Specialised Committee on Technical Barriers to Trade. (Paragraph 100)

17.Continued cooperation on technical barriers to trade is critical. While continuing to seek mutual recognition of conformity assessment, the Government must engage with businesses and regulatory authorities to identify areas where regulatory cooperation can be improved, and seek agreement to empower specific regulatory authorities from both Parties to recognise standards set by, and products approved by, the other. (Paragraph 104)

Sanitary and phytosanitary measures

18.Traders in animal and plant products have been hit harder by red tape than perhaps any others since 1 January. Many of their products cannot be stockpiled but face the most stringent checks. While some of the sector’s problems will improve as stakeholders gain familiarity with new requirements—at a cost—physical SPS checks could become a permanent barrier to trade in animal and plant products unless the UK and the EU can agree mitigations to the current regime. (Paragraph 123)

Customs

19.The UK’s Authorised Economic Operator scheme is, for many businesses, inaccessible. The time-consuming application process and the high threshold for approval means that few businesses can take advantage of the simplifications it provides. We recommend that the Government take steps to simplify the application process and lower the threshold for entry, to enable easier access for small businesses. (Paragraph 135)

20.We recommend that the Government seek the EU’s agreement to a trusted trader scheme to enable those businesses that do not meet the Authorised Economic Operator criteria to benefit from some simplifications to customs or safety and security processes. This scheme could be tiered to enable even smaller businesses to access some degree of relief. Provision for transporters—common in air freight—should also be sought. (Paragraph 138)

21.The Government should urgently clarify the circumstances under which an ATA Carnet is required. Within the Trade Specialised Committee on Customs Cooperation and Rules of Origin, it should seek reciprocal exemptions for the most affected sectors. (Paragraph 142)

22.The customs intermediary sector does not have the capacity to meet increased demand, and smaller businesses are bearing the brunt of the shortage. The Government should increase and extend grants to the sector to increase the capacity and consider what financial support could be provided to smaller businesses to access the crucial services of intermediaries. (Paragraph 149)

23.Funding to support the development of physical customs infrastructure has been insufficient, particularly given the very short timeframe for making improvements. We recommend that the Government release additional funding before these checks are imposed. (Paragraph 155)

24.The Government should embark on a renewed effort to raise awareness of record-keeping requirements, and we also recommend that the Government adopt a pragmatic approach to border inspections as new requirements are phased in. (Paragraph 159)

VAT

25.We welcome the Government’s introduction of postponed accounting for VAT, which has mitigated some of the cashflow issues and, by dint of applying to non-EU trade as well, has even given some UK businesses a competitive advantage internationally. We recommend a programme of support for businesses to become VAT registered to enable more traders to benefit from these important mitigations. (Paragraph 175)

26.Government support for promoting awareness of VAT implications has, to date, been poor. We call on the Government to take action to improve the understanding of VAT among traders and the customs intermediary sector alike. (Paragraph 176)

Transporting goods

27.Some of the issues disrupting transport flows are likely to be short-term, but swift Government action is required to minimise their consequences and lower transport costs. At the same time, we ask the Government to identify and consult with the industries likely to struggle most to move goods in the long term, to consider what mitigations might help to preserve trade flows. (Paragraph 187)

28.We are concerned that groupage problems appear to be having a disproportionate effect on smaller exporters. We welcome the steps taken to mitigate such problems for the movement of food and animal products, including the Groupage Export Facilitation Scheme (GEFS). We recommend that the Government urgently extend the 30-day attestation period for GEFS and implement a similar scheme for other goods. (Paragraph 194)

29.In the absence of greater bilateral cross-trade and cabotage rights for UK and EU hauliers, we encourage the Government to seek opportunities to negotiate exemptions for the categories of goods most affected by the restrictions in the TCA. (Paragraph 199)

30.The Government should seek to negotiate full fifth freedom rights in the EU for cargo and passengers at the earliest opportunity. As an interim measure, it should seek liberal bilateral arrangements for cargo with as many individual Member States as possible. (Paragraph 204)

Guidance, advice and support

31.The Government’s detailed guidance on changes for traders is welcome, but it needs to be easy for businesses to understand—including those with lower English-language skills—and honest about the complexity of some of the new requirements. The Government should supply more specific scenarios to help businesses make sense of the mass of information available to them. (Paragraph 219)

32.We welcome indications that the Government is starting to take this message on board. But the Government should take further steps to improve the advice and support it provides to businesses. This includes providing additional training to ensure that all officials interacting with businesses give accurate and informed advice. (Paragraph 220)

33.The introduction of the SME Brexit Support Fund is a welcome step, but the level of funding provided may be insufficient. We urge the Government to monitor the fund’s performance closely to ensure it is helping SMEs access the support they need and, if necessary, take swift action to adjust its parameters accordingly. (Paragraph 223)

34.The end of March is too soon for funding for EU transition advisors to end. New requirements are to be introduced later in 2021 and many companies are still struggling with those introduced in January. We recommend that the Government extend this funding until the end of 2021. (Paragraph 224)





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