Bordering on Trade
Posted on: 23/10/2017
Hasn’t the last year been an interesting one for our country?
In a post-Brexit Britain we are all discovering the impact that the European Union has had on our economy over the last 40 years.
And who knew that what we do at the Chamber every day, facilitating trade across national borders, could be so interesting to everyone else?
Every night on the news there’s talk of frictionless trade, the customs union, hard or soft Brexit and now the nation has woken up to the importance of International Trade to our future economic growth.
It seems that our everyday discussions are Brexit flavoured as we talk about the impact and opportunities that it might bring.
And so over two days in October at the BCC Trade Facilitation Forum and International Summit, Chambers joined businesses from across the UK, who shared their experience of doing business abroad.
And we heard from the policymakers, the people of influence who will define our future trade arrangements, share their thinking on our future partnership options.
In Chambers, we know that the way trade is done is constantly changing, but change is generally slow paced, it’s planned and we get ready for it. The big shocks are rare. And while change is happening, with or without Brexit, it seems obvious that a big shock for the way we trade is on its way. Let’s consider what we know already?
- The Union Customs Code (UCC) is now fully implemented and will be with us for at least 18 months or until a new UK code is implemented. (Expect the new code to look much like the UCC, as changes will only delay a trade agreement with the EU27).
- The Approved Economic Operator (AEO) system to approve trusted traders will continue to be implemented post Brexit. It’s present now, is on the horizon for many businesses and is certain to be part of future FTA’s in its safe and secure (AEOs) form at least.
- The WTO Trade Facilitation Agreement was implemented in February 2017 across 164 countries, of which the UK is a signatory. It’s here to stay.
The UK Government published white papers on the Trade and Customs Bills in October too. They outline the proposed options for a negotiated agreement with the EU27, and state clearly that the government will prepare and legislate for the instruments to deal with a hard Brexit if it comes.
If that happens, it’ll bring a bigger shock to our trading system as we revert to WTO rules on tariffs and trade.
If we leave in an ordered way, the aim of frictionless trade between the UK and the EU will accelerate the rate at which companies may need to become a trusted trader (AEO accredited). The UK has just over 600 AEO traders compared to over 6,000 in Germany.
We are working with other stakeholders and the Chamber Network to develop a UK wide response to improve applications for trusted trader status and increase approvals by HMRC. We must remain competitive.
So, we need to keep talking, and as we ruminate about the impact on business, our need for a 3 year period of transition, and the aim to agree a negotiated settlement with the EU, the hard reality is that as new trade deals are agreed, businesses will need to adapt, and adapt quickly.
For most people a Free Trade Agreement (FTA) simply means that we can move goods across nationally agreed borders without hindrance, and that is true. However, most countries or trade blocs that we want to agree a deal with will already have existing FTAs in place. Those existing deals with other nations and trade blocs, the EU27 for example, could impact on the nature of the deal we can strike.
On Brexit day +1 we will not have any existing agreements and everyone we want to do a deal with will. A pragmatist might suggest that it’s unlikely that we’ll get a better deal than any that the EU already has in place.
FTAs provide benefits for many areas of trade. The most obvious of those is on tariffs that are usually duty free or reduced. It is that factor that reduces the cost to the importer and makes our exported goods more competitive. It’s like offering your buyer a discount voucher. But for the buyer to be able to use it, the seller must satisfy a range of conditions that are unique to most trade deals. Some conditions will centre around the Rules of Origin.
It is those rules and how they are dealt with in trade deals that will determine whether goods can be traded without tariffs and the conditions attached to trade being free.
Many traders use components sourced from the EU and other trade partners to make finished goods that are then considered to be of EU Origin and free to circulate in the EU. Post Brexit, those same goods will need to be able to prove UK origin and the proportion of the finished goods that will need to originate in the UK for the goods to export without tariff will be deal dependent.
It’s what makes the clothes we buy, the latest electronics we demand and the food we eat so cheap. Even if they don’t understand it, consumers benefit from Free Trade Agreements every day of the week.
Trade is technical and at times complex, so when changes happen, Chamber and the wider exporter community reasonably expect that Chambers of Commerce will be a reliable source of advice and information. And we have a national and international network of Chambers in our network that can offer help and advice to get goods to market.
So, spending time keeping up to speed with what’s happening now and what changes may take place in the future helps us to support our members. We want to help our members to be ready for the big shocks if they come.
The movement of goods across the EU will need to be as frictionless as possible if we are to maintain our ability to take advantage of ‘just in time’ efficiency. Over 185,000 businesses only trade with the EU, with around 45% only trading in services. That means that 100,000 businesses may have to learn to make customs declarations for the first time.
The number of trade documents issued by UK Chambers reached record levels last year, perhaps it’s no surprise that during a period of uncertainty businesses are more likely to turn to a tried and trusted third party to provide the assurance and guidance that they need.
So, what questions should businesses be thinking about right now?
- What countries are we selling to and could Brexit impact future orders?
- What countries are we buying from, is our supply chain secure?
- What currency are we being paid in now and how will we manage rate fluctuations?
- Are there any specific rules of origin that could impact our access to our markets?
- Do we benefit from EU FTAs, what tariff may be due if WTO rules were applied and how might it affect margins?
We are in a period of uncertainty for companies that are trading across borders. And the only way for business to deal with uncertainty is to forecast and plan for the possible outcomes. Identifying potential risks will allow the time to mitigate their impact and time has a habit of running out.
The team at the Chamber are the people that make trade agreements work because we can help to ensure that you understand the potential risks and opportunities. A deluge of FTAs arriving in short order has the potential to create confusion and reduce competitiveness, particularly for SMEs, if businesses don’t take advantage of the benefits of tariff free trade.
The potential cost of change is concerning, and that’s why the British Chamber of Commerce are lobbying on behalf of our members to have a minimum 3-year transition period. Business will need time to adapt.
Chamber teams across the country stand ready to help exporters to succeed and to manage the inevitable change. We can see change is coming, it’s on the horizon, we just cat see enough of it yet to make out its size and shape.
by Liam Smyth, Director of Trade Facilitation, British Chambers of Commerce
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