The Difficult Road to Brexit and its Impact on Trade
On January 31, 2020, the United Kingdom (UK) withdrew from the European Union (EU). This triggered an 11-month-long transition period, during which the two sides sought to formalize the future relationship between the UK and the EU. We look at the Brexit process and its implications for trade.
What is Brexit?
Brexit is a portmanteau word combining Britain and Exit and it refers to Britain’s exit from the EU.
The UK held a national referendum on June 23, 2016 and, contrary to expectations, 51.9% of participants voted in favor of Brexit. This began a process that would ultimately lead to the UK leaving the EU, an organization it had been a member of since 1973.
However, the process was not straight-forward. The first withdrawal agreement, negotiated by UK Prime Minister Theresa May, could not get approval from a divided UK Parliament. She was succeeded by Alexander Johnson, commonly known by his middle name of Boris, who, following a General Election, used his majority to get approval for a new withdrawal agreement. There were, however, still several hurdles that had to be overcome, each resulting in further delays.
Finally, on January 31, 2020, the Queen gave her consent, the bill became law and the UK formally left the EU.
The Trade Deal
The period of transition ran between February 1, 2020 and December 31, 2020. The problem for businesses was that they knew that within eleven months they would have to adjust to a new way of filing export, import and transit declarations for trade between the UK and the EU but it was unclear what form this would take. At the time, a ‘no-deal Brexit’ was still a possibility.On December 24, 2020, an agreement on the framework for future relations between the UK and EU was finally reached. It basically contained three pillars: trade, cooperation, and governance. In respect to trade, the deal ended freedom of movement between the UK and the EU from January 1, 2021. However, it did allow for goods to be traded between EU and UK without tariffs and quotas. It also contained several provisions relating to cooperation and coordination on a range of issues from transportation to environmental protection.
While a ‘no-deal Brexit’ has been averted, the consequences of Brexit remain profound. Since the UK was no longer a member of the EU internal market, it was now mandatory to file customs declarations for shipments going in either direction between the EU and Great Britain (England, Scotland and Wales). It is important to note that Northern Ireland will remain aligned with the EU for the next four years, meaning trade between the EU and Northern Ireland will be the same as before.
The first few weeks of 2021 have given us multiple examples of the huge impact of Brexit on trade. Several EU businesses have stopped delivering to UK customers and some UK companies have paused trading with the EU, because of the insufficient preparation.1
The UK economy has also slowed and a lot of companies have moved their headquarters to countries within the EU.2 In addition, the UK must now negotiate its own trade agreements with countries outside of the EU. This will create additional costs and delays for businesses, which will inevitably be passed on to consumers.
It is clear that many traders, on either side of the Channel, currently lack the necessary understanding of customs to adequately negotiate the new complexities brought in by Brexit. To avoid further delays at the border, they need to familiarize themselves very quickly with the new regulations, procedures and processes.
SGS has been involved since the earliest stages of Brexit. We have developed customs transit solutions in 25 countries, in addition to full customs broker services in the Netherlands, Belgium and the UK. They help economic operators in the UK and EU ensure smooth and compliant cross-border trade. SGS can act as the importer or exporter’s representative, declaring shipments to customs and expediting the release of goods.
The SGS e-customs network provides a one-stop-shop solution, from process automation to complete outsourcing, to help clients deal with the burden of Brexit.
Learn more about how SGS can help with frictionless trade between the EU and UK here.