One year on—Trade in goods between Great Britain and the European Union Contents

Summary

In his announcement of the signing of the Trade and Cooperation Agreement with the EU on 24 December 2020, the Prime Minister promised that UK companies would face “no non-tariff barriers to trade” with the EU and that the Agreement would enable even more business to be conducted between the UK and EU. Nearly one year on, this report examines the extent to which trade in goods between Great Britain and the EU has been supported by the framework provided by the TCA so far, and the challenges remaining.

There is 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. It is very difficult at this time to disentangle the impact of the end of the transition period from that of the COVID-19 pandemic. The falls in UK-EU trade are greater than those seen in trade with the rest of the world over the same period, though trade with the rest of the world has not had to cope with the same significant changes as trade with the EU. On the other hand, there is evidence that businesses face new and significant real-world challenges in trading with the EU that cannot be attributed to the pandemic, even if the two issues are difficult to distinguish at a macroeconomic level.

Despite the aspirations of last December, businesses have been faced with significant additional administrative burdens and, in some cases, delay affecting trade with the EU since the end of the transition period. These include compliance with rules of origin, complex Sanitary and Phytosanitary (SPS) and customs requirements, new VAT requirements, and haulage restrictions. Although there has undeniably been some adjustment over the year as initial “teething problems” subsided, many of these challenges and costs are inherent in the new relationship with the EU and are unlikely to be eliminated with further time or experience. However, we do identify several areas where processes could be smoothed through further dialogue with the EU. This is particularly important in the SPS area, where we call on both the UK and EU to show flexibility in order to reach a more comprehensive agreement.

These burdens have fallen particularly heavily on small and medium-sized enterprises (SMEs), who have fewer resources to draw upon in adjusting to this structural reconfiguration of the trading landscape. While Government guidance has improved after taking business feedback on board, we are concerned that what little financial support for adjustment that was available, through the SME Brexit Support Fund, has now been withdrawn. We urge the Government to reinstate the fund, with wider eligibility criteria to ensure small businesses can access the support they need.

British exporters are also concerned about the inconsistent application of the new rules by different EU Member States. This requires significant extra time and resources to navigate effectively, the burden of which again falls disproportionately on SMEs. We urge the Government to continue to engage with the EU and the Member States to reduce the impact of these disparities.

A further area of interest to our inquiry was the delay to the introduction of many of the UK’s own import controls, which are now scheduled for 1 January 2022 and 1 July 2022. There is disquiet among some GB businesses about the ongoing asymmetry in the border regimes, with GB exporters to the EU facing a far more rigorous import regime than that faced by EU business sending goods to GB. Additionally, the repeated delays risk giving some businesses the impression that these controls may never be implemented, risking widespread non-compliance, and have interfered with the planning process, costing both time and money.

The Committee investigated the level of preparedness for the ultimate introduction of these import controls and found some nervousness about whether the necessary port infrastructure would be ready in time. Ahead of the imminent introduction of full customs declarations and additional paperwork requirements for rules of origin, we are also worried about business compliance with the new requirements when they are introduced. We therefore support the Government’s intention to take a pragmatic and supportive approach to enforcement as the new systems bed down.

Looking to the long-term, the Government has signalled its intention to implement a lighter-touch border regime in its drive to operate the “best border in the world” under its 2025 UK Border Strategy. We welcome this approach and share the Government’s hope that this will lead to reciprocal simplification of the border regime on the EU side. This is but one area in which the Government has indicated its desire to diverge from the EU’s regulatory framework. Although businesses are not opposed to this approach in principle, we note that support for divergence varies from sector to sector. We welcome the Government’s undertaking to consider the impact on trade before diverging from the EU.

The Committee finds that, so far, trading with the EU has become more complex and burdensome for businesses since the implementation of the TCA on 1 January 2021. We note the difficulties in drawing definitive conclusions from the available UK-EU trade data. We recognise also the Government’s efforts to date to find solutions and support business to adapt. But it is clear that there is still much to do if the UK is to develop a mutually beneficial and efficient trading relationship with its neighbours in the EU.





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