Increased friction but there is clarity from which we can build
The UK and EU have announced that they have provisionally agreed a Trade & Cooperation Agreement that will determine the framework for a new UK-EU relationship effective from 1 January 2021.
Whilst the trade deal negotiated by the government falls short on the trade benefits we previously enjoyed, it is a starting point for our future relationship with the EU. A no deal outcome would have done catastrophic damage to manufacturing in Britain.
When compared with the UK’s integration in the EU’s wide-ranging legal, regulatory and economic structures, the provisional agreement still marks a fundamental moment in the UK-EU relationship.
Even with commitments in the provisional agreement to support elements of the existing relationship in the trade in Goods and Services, there will be significant change for any business operating in Great Britain (GB), Northern Ireland (NI) and EU markets.
The rules that govern how business deal with the previous EU/UK border will end. Business will need to learn to operate in and through the UK differently, under new regimes that will be interpreted, enforced and developed in different ways for trade between GB and EU, and GB and NI.
The passing of the EU (Future Relationships) Bill ends more than four years of uncertainty and dispute, during which investment has faltered. We now have at least some clarity from which we can build.
That said, it confirms the introduction of other trade barriers for businesses exporting from the UK and creates large amount of friction with significant burden and immediate uncertainty for many.
Cause for concern for manufacturers from the agreement
1. Implementation: No bilateral easement or phasing of new arrangements
The timing of the provisional trade agreement does not address all of the challenges that the economy is responding to at the end of the transition period. To help address the immense implications, the UK and the EU need to urgently conclude a series of bilateral easements for a period of time so that Business in the UK, EU and globally who are dependent upon the efficient and frictionless trade between both Parties, have time to adjust.
2. Rules of Origin
The Trade agreement delivers on duty and quota free trade, only so long as exports meet stringent local content requirements. The lack of inclusion of allowing imported non-EU parts to count towards the agreement’s rules-of-origin thresholds, which determine whether a product can be traded tariff-free or not, will provide complications for UK business and could quickly lead to punitive tariffs being placed on UK business.
There are a number of issues that arise:
- Bilateral cumulation: While bilateral cumulation is helpful it is not sufficient for a number of sectors in manufacturing, particularly sectors who depend on non-UK/EU inputs.
- EU tariff schedule; A number of key UK manufacturing sectors are vulnerable to the imposition of high EU’s tariffs if they fail to meet cumulation requirements. For goods that attract a zero or low tariff, there is little or no consequence. The higher the EU’s tariff, the greater the possible cost implications for UK firms.
- Certification: self-certification for the origin of goods in order to demonstrate content towards ‘cumulation’ requirements experience and resources. UK firms will need identify the complete economic origins across their supply chain and understand the ‘’transformation” requirements to meet cumulation
3. Non-Tariff Barriers/Red Tape
4. Conformity Assessment
The Trade agreement does have the opportunity to maximise trade opportunities and extend the ongoing collaboration to minimise non-trade barriers. However the failure to include provisions allowing UK-based product testing and assessment bodies to continue certifying products for the EU market will add additional costs for firms supplying goods requiring such authorisations to supply goods to the EU, NI and GB markets.
- New product certification requirements will be needed for GB firms wishing to export to EU and NI who will have to comply with ‘new’ UK and EU technical regulations & standards.
- Increased costs from new design, test, certification, and administration to cater for this new double regulation for no real gain. The theoretical gain is that it allows deregulation for domestic market.
- Implications for the UK to diverge from EU rules and approaches, and the consequences of doing so such as; low cost destination for importing nations; future disputes/reviews with the EU, loss of UK’s influence & reputation in global standards
5. Dispute Resolution
6. Services: Short term business travel and Mutual recognition of professional qualifications
The provisional agreement does not provide for mutual recognition of professional qualifications, although it does set up a framework for the mutual recognition of professional qualifications through the Partnership Council, but no new qualifications will be recognised on day one.
7. UK REACH
This will especially be a problem for small companies who will have to register their products in the EU REACH and now will have to do the same for an equivalent UK REACH, which in reality is quite a small market. There will definitely be some EU companies that will consider importing products into the UK as not worthwhile, given the extra cost, so there will be limited consumer choice on some items.
Make UK continues to Back Manufacturing to Engineer our Future. We have a range of information, guidance and services dedicated to helping you manage these new changes. Visit our Hub to find out here: EU Hub | Make UK