What has happened since Brexit?
The UK, left the European Union at midnight on January 31st 2020, and the UK and EU Governments agreed a Trade deal called the Trade and Cooperation Agreement (TCA) which it states to provide, amongst others “a level playing field for open and fair competition and sustainable development, through effective and robust frameworks”.
It was received by many UK business owners as a favourable outcome compared to a no-deal scenario, which would have brought the UK-EU trading by default on World Trade Organization (WTO) terms.
So, we’re now over 18 months on and we’ve not only had Brexit to contend with, but we’ve also had three lockdowns due to Covid-19 which has had major implications throughout the world. In the early months of the pandemic, UK GDP fell by around 20% before recovering in the Summer. The latest figures show that in February 2021, the economy was 7.8% lower than before the effects of COVID-19 (February 2020).
That said, recent data reveals a notable increase in activity in April 2021, relative to the previous 3 months.
What is the effect on UK exports?
Leaving the EU means leaving the customs union. Non-EU markets, in the absence of a trade deal, are subject to EU tariffs* in alignment with the WTO’s Most-Favored-Nation Clause (MFN).
Fortunately for the UK, we secured a trade deal that allows UK businesses to continue tariff-free trade with its EU neighbours. The rules, however, are a little different than before.
Now that we’re out, the goods we export or import must qualify for tariff-free trading or ‘preferential treatment’ under the terms set out in the TCA.
(* tariffs are a type of tax, usually paid on imported goods; if goods are subject to quotas, it means there are limits on how many can be traded over a given period)
- MFN requires that a country act fairly with all WTO member countries, extending the same privileges and immunities granted to one country to all members.
- MFN advocates for non-discriminatory trade policy, ensuring equal trading among all WTO member nations.
- Nations designated as developing by the WTO receive special consideration from the U.S.
How do businesses qualify for tariff-free trading?
To qualify for tariff-free trading under the new TCA, operators must demonstrate that the products they are moving are ‘originating’ products. That is, they must derive from either the UK or EU.
A product can be considered originating in two ways:
Wholly obtained – these goods that have been procured and produced within the territory of one nation, without using materials from another. Given the increasingly intercontinental supply chain that most businesses now participate in-this largely applies to agricultural and animal products grown from a nation’s soil.
Substantially transformed – these goods may be drawn for outside of the UK or EU but have been sufficiently altered so as to render a ‘originating’ new product.
What is the impact on prices?
A weaker pound makes UK goods and services more affordable for trading partners whose currency has strengthened relative to the pound, i.e. Europe, the US and most of our major trading partners.
As such, UK exporters could try to exploit this opportunity by increasing the amount they export and by thinking strategically about how to best price their products in the new trading climate.
Yet, a flailing currency can also have significant impacts on manufacturing costs and your supply chain.
What we have seen and what we will see is: a) a greater international demand for cheaper UK goods and b) a cost increase for those who rely on imported parts – meaning either absorbing these costs and therefore a potential decrease in profits or a rise in sales prices (in the hope demand will remain constant).
Companies will need to take into consideration the time it will take to complete additional paperwork and declarations when moving goods across the EU/UK border,
Though the TCA provides for mutual recognition of Authorised Economic Operator (AEO) status and commitments to reduce the burdens, some friction at the borders is still likely. This comes at a time with additional Covid-19 testing at some borders too and therefore the risk of delay is considerable. For just-in-time supply chains this can be critical to the production process and any delay will have a quantifiable impact.
Time delays is also a cost factor, as time is money. Delays at any stage could be costly, workforce waiting around and potentially holding up important projects with contract clauses containing fees.
Over time this disruption and friction will ease but manufacturers should consider this impact in the short term.
Supply chain to give Long term commitments
Despite the upheaval and uncertainty, there is growing confidence with all aspects of the supply chain, so much so, that European customers are now prepared to give a longer-term commitment to the UK.It is not an unknown fact that the UK is seen as manufacturers of quality products and Hobut is no different here, and therefore EU customers want to ensure that these products are procured and specified.
It is paramount that EU-UK relationships are forged and continued. Companies working together in synergy so that an agreed infrastructure is in place to streamline the chain – pricing, products, certification, necessary paperwork and delivery times.
Hobut – with strategic planning – has ensured continuity of raw materials, manufacturing processes, storage facilities and customer agreements are in place to position themselves as a central business partner.