The Free Trade Agreement – implications for SMEs
Despite the “push to the eleventh hour”, the initial response to the achievement of a trade deal was one of positivity and relief. Relief that the deal would provide some certainty and avoid widespread disruption.
This response although entirely understandable given the confusion of the last 4½ years of negotiations, ignores both the most positive, and most negative, aspects of the deal.
We should be very proud that the deal reached is, according to David Frost, the biggest and broadest trade deal in the world. Whether that is or is not the case, it is accepted that this deal is by far the largest deal the EU has struck. The Free Trade Agreement is comprehensive across multiple sectors, covering over £668 billion worth of trade. And there will be no tariffs and no quotas imposed on goods travelling between the UK and the EU - albeit that goods crossing the border from 1 January 2021 will still face further checks, as the UK is leaving the EU’s single market.
Notably, this only refers to the disruption in the movement of goods. What about the provision of services? The trade deal is limited in scope and does not address, other than in a very limited way, the UK’s significant trade in services (it is estimated that the UK economy is based 80% on services).
The Agreement is being marketed as “one deal, four major pillars of cooperation”. These are:
- Free, fair and sustainable trade
- Connectivity, sustainability and shared opportunities
- Citizen security
- A new EU-UK governance framework for lasting cooperation.
The Free Trade Agreement is welcomed in that it gives UK businesses some much needed certainty on their future trading with European markets and vice versa.
Businesses, have, however of late had a tumultuous time with much of their energy being focused on coping with the global pandemic and its impact. The results of the Government survey (reported by Michael Gove MP, Hansard 23 September 2020: 962) state:
Our survey evidence indicates that while 78% of businesses have taken steps, just 24% believed that they are fully ready. Indeed, 43% of businesses believe that the transition period will be extended, even though the deadline for any extension is now long passed and the date on which we leave the single market and the Customs Union is fixed in law and supported across the house.
The Institute for Governments “Preparing Brexit: How ready is the UK?” (3 November 2020) states:
As late as October, a third of small businesses believed that the transition period would be extended, despite the deadline for any extension having passed in June. The economic damage wrought by the coronavirus has robbed many of the band with and cash, to do what is needed.
Thus, despite the last minute agreement of the trade deal, many businesses simply will not be ready. As a minimum, it is essential that businesses as a priority consider the following:
- Make sure they are in a position to make accurate and compliant declarations regarding goods being transported
- Manage their indirect taxes.
- Review their supply chains and ensure that they are clear whose responsibility it is to be the importer, and who will be responsible for completing the relevant declarations.
- Provide training for employees.
- Consider transport and logistics and the impact port delays and potential haulier shortages might have.
- Addressing IT – systems and data, and the sharing of data; data protection obligations. Check what restrictions there will be on transferring data across borders and put new policies in place to prevent potentially expensive breaches of rules in EU countries. There may need to be a change in contract terms to comply
- Classifications of goods.
- The cost and impact of customs schemes and the steps that need to be taken to ensure compliance.
- Terms of trade agreements with suppliers – access to labour, impact on supply chain, supply of contracts and new tariffs.
- Cash flow analysis – planning for any additional costs incurred, Brexit disruptions and additional VAT obligations.
- Contractual arrangements to maintain relationships with EU partners and any territorial restrictions in agreements.
- Commercial obligations – engaging with customers on areas such as pricing and potential border delays. Adjust contract terms as necessary – where post Brexit trade will incur additional duty, administrative costs for transport or other costs, the terms of business with customers will need to be reviewed. Who will absorb these costs? It will be essential to communicate any changes to customers and/or renegotiate terms with customers and/or suppliers.
- Compliance and regulation changes – for example, product safety and legislation.
So although many took a huge sigh of relief when the trade deal was finally agreed, as can be seen from the ‘ shopping list’ above, this is just the start of the journey. With the demands already placed on business on an ongoing basis dealing with the pandemic, finding the time, money and people to focus on the areas that need to be addressed will be difficult for many businesses. If they fail to do so promptly, however, they are likely to encounter business disruption further down the line, and so it is important to tackle these issues now – for the benefit of the business, its workforce and customers.