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Trading with the UK in the post-Brexit era

Continuity and change

On Christmas Eve, close to the last minute of the transition period, the EU and the UK agreed on a deal. Brexit came into full effect on 1 January 2021 with a Trade & Cooperation Agreement in place, but with a lack of clarity in several areas and many surprises to come. More than 500 corporate executives attended our Brexit – Trading with the UK in the post-Brexit era webinar on 28 January, suggesting that many Belgian organisations still have to come to grips with the changes Brexit has brought, and adapt to the new reality.

Opening the door to cooperation

After nearly five years of discussion, the UK opted for a definitive break with the EU, choosing a path much closer to ‘no deal’ than a soft Brexit. There are only two main areas in which what was achieved was gentler than no deal: the agreement to avoid tariffs and quotas on goods originating in the EU or the UK, and a mechanism to deter non-divergence by both sides from current standards on environment, social and labour rights, tax policy, and state aid.

Those two issues went together as a package, and had been linked by the EU from the very start of the negotiations. In the end, the UK agreed to a form of level playing field, but without a role for the European Court of Justice in case of conflict. In return the EU agreed to the largely tariff-free regime for trade in goods. That crucial agreement allowed the two sides to finalise a deal, and the risk of uncertainty and bad feelings that a no deal would have caused was avoided. This is crucial - as it means that the inevitable ongoing discussions in many areas have a chance of taking place in what we hope will be a cooperative environment. Not that there won’t be political point-scoring from time to time: the issue of Covid vaccine distribution in late January has shown how brittle the UK-EU political climate can be.

Steep learning curve

Traders are now facing more border formalities for imports and exports, both on the customs and regulatory side. There are three key elements which are critical to benefit from duty-free trade: classification, valuation, and origin.  

The product codes in the UK are still a copy of what we see in the EU, but many companies exporting to the UK will nevertheless need to review their codes (for example in cases where they were not set correctly in the past). The value of goods, which is not merely the amount that goes on the invoice, becomes especially complex with consignment stock models, for instance. And litigation cases have already begun for companies that have been importing based on the incorrect value. Finally, the crucial lesson on tariffs is that zero duty rates apply only to products with EU or UK preferential origin.

The pro forma invoice (required by the service provider to get the goods across the border) is the typical carrier for all of these data elements. For companies that have not had to issue such invoices in the past, this can be a burdensome process.

There are also considerable changes to VAT under the agreement, and all trade with the UK is now subject to different rules. Organisations will need to change their VAT tax code set-up if they are trading under the DDP Incoterms.

Bumps in the road

From logistics companies to the customs authorities and the ports, everyone is feeling the impact of the new requirements. Europa road, which has even seen a number of its competitors stop providing EU-UK-EU services due to Brexit, is finding that their customers are ill-prepared, struggling to cope with processes which have changed completely, and learning to prepare compliant invoices, health certificates, and certificates of conformity.

The Belgian Customs authorities have implemented a “no penalties” two-month grace period to allow companies to adjust to the new requirements. The main issues they have encountered so far relate to product origin, poor quality of data, and incomplete British health certificates.

With its long-standing history of trade, its new data-sharing platform, and precautionary measures such as creating two temporary car parks, the Port of Zeebrugge has been able to continue to ensure smooth trade traffic throughout the month of January.  

From shocks to smooth solutions

Belgium is of course not alone. Across Europe, organisations are adjusting to the changes brought by Brexit. And, while there was widespread relief in the UK that a deal was reached, Great Britain and Northern Ireland are dealing with the same kinds of disruptions that we are seeing here, but on a larger scale.

The UK is experiencing a massive regulatory shock, with the unwinding of arrangements that have been in place for decades and which were designed precisely to reduce both administrative friction and the costs of moving people, goods and services. Brexit is also a macroeconomic shock, with the Bank of England estimating that growth in the current quarter will be 1% lower than it would have been without Brexit. However, given the current pandemic, these economic movements may be hidden in the general downturn caused by COVID-19.

There are already thousands of examples of (mostly unpleasant) surprises and glitches that have shown traders that we really are in a new environment. The hope for traders and consumers is that many of these are due to initial bumps in the road and that practical and smooth solutions will be found in the coming weeks and months.

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