The UK government has formally notified the European Union that it won’t be seeking an extension to the Transition Period and wouldn’t accept one should it be offered.
Following the announcement, the government set out details of its accelerated border planning for controls on EU goods coming into the Great British marketplace from January 1st next year – planned to be rolled out in a phased way to help businesses adjust – as well as additional funding to grow customs operations.
“We have informed the EU today [12th June] that we will not extend the Transition Period. The moment for extension has now passed. At the end of this year, we will control our own laws and borders which is why we are able to take the sovereign decision to introduce arrangements in a way that gives businesses impacted by coronavirus time to adjust,” Michael Gove said in a statement.
“Today’s announcement is an important step towards getting the country ready for the end of the Transition Period, but there is still more work to be done by both government and industry to ensure we are ready to seize the opportunities of being a fully independent United Kingdom.”
Is your business still ready for Brexit?
For many companies, Brexit was already the biggest upheaval in their company’s history following years of uncertainty where the best approach was typically preparing for the worst but hoping for the best. The best being a free trade agreement, the worst being a cliff-edge departure from the UK’s largest international trading post.
However, few firms would have foreseen a year where Brexit would be married with a pandemic, although studies have shown that those businesses who were best prepared for Brexit have also done better at mitigating the damage caused by Covid-19.
Read more: Firms prepared for a no-deal Brexit better placed to deal with pandemic crisis
What recent announcements show though is that, virus or no virus, Brexit will be going ahead as planned. And, once more, there’s a real possibility that trade talks could yield no agreement on free, unimpeded trade between the UK and European Union.
So, despite the immediate threat to all businesses and livelihoods being the coronavirus, organisations can’t take their eye off the ball when it comes to Brexit. It’s less than six months away and there’s no transitional buffer on the other side. The dress rehearsal is almost over, here comes the real thing.
Here at Go Exporting, we’ve been helping businesses to understand the impact that Brexit can have, where threats to operations lay and how to mitigate for a worst-case scenario.
If your company needs support, learn more about our Brexit Audits here.
The UK has begun the first round of trade negotiations with Japan in the first step of government plans to join the Comprehensive Progressive Agreement for Trans-Pacific Partnership (CPTPP) – a trading region which covers nearly 500 million consumers from Australia and New Zealand to Chile, Canada and Peru amongst others.
Designated ‘a key UK priority’ for a post-Brexit business environment, a trade deal could boost the UK economy by £1.5bn with an agreement based on the existing EU-Japan agreement, although the UK is looking to secure additional benefits which will likely include digital trade and tighter financial cooperation.
Secretary of state for trade, Liz Truss, said she hopes a trade deal will be concluded before the Brexit transition period ends on 31st December.
“We aim to strike a comprehensive free trade agreement that goes further than the deal previously agreed with the EU, setting ambitious standards in areas such as digital trade and services,” she said.
Read more: Be prepared for no-deal Brexit, BoE warns lenders
Japan is the third-largest economy in the world with a GDP of $5.18 trillion with UK-Japan trade worth £31.4bn last year. And exports to the region have been growing, up 8.5% over the last 24 months.
Increased digital trade will prove a key part of any future agreement with Japan’s future e-commerce market set to grow by almost 30% over the next two years and be worth more than $200bn.
The UK’s smallest exporting firms are reportedly ‘jumping before they’re pushed’ by selling products away from the EU.
Some £10bn in exports have been diverted to other international markets over the last four years according to research from Aston University in what it calls evasive action from businesses to mitigate the damage of a potential collapse in ongoing trade talks.
The university analysed 340,000 export transactions by 26,000 UK businesses over half a decade and found that the smallest firms had switched up to 46% of new export growth to non-EU markets since the referendum took place. For SMEs, that figure was 19%.
Commonwealth nations, Russia, India, Brazil, China and South Africa were the primary new export markets.
However, data does also suggest that the percentage share of total exports into the EU has been gradually falling over time, perhaps the result of increased confidence in selling further afield and increased global demand for goods and services made in Britain.
Still today, over half of UK exports land in the EU – a trading relationship that’s worth £650 billion every year.
Read more: Be prepared for no-deal Brexit, BoE warns lenders
Professor of economics at Aston Business School, Jun Du, commented that: “This evidence suggests that UK exporters are jumping before they’re pushed – finding alternative markets worldwide for their products even before we know the outcome of the current UK-EU trade negotiations and any potential new barriers.
“Of course, we will need to see whether these patterns still hold true in the aftermath of the Covid-19 crisis.”
The Bank of England has warned lenders to bolster their no-deal Brexit planning in the event of a cliff-edge departure from the European Union at the end of the year.
Governor Andrew Bailey, who in his first few months in the role has already had a pandemic crisis to deal with, has called on financial firms to prepare, with a spokesperson noting that ‘it’s fundamental to the Bank of England’s remit that it prepares the UK financial system for all risks that it might face’.
Trade discussions between the UK and EU are ongoing with the Prime Minister shunning the idea of delaying the Brexit process due to coronavirus. The fourth round of talks is due to take place soon regarding the future trading relationship, yet key issues remain and time is ticking for an agreement to be reached in a period when the bandwidth of political bodies are stretched during public health and worsening financial emergencies.
Just last month the BoE warned that the UK economy is heading towards its sharpest recession on record, expecting a shrinking of 14% – dependent on there being no second wave of the virus and avoiding a second lockdown.
Bailey commented at the time: “Not all of the economic activity comes back. There’s quite a sharp recovery. But we’ve also factored that people will be cautious of their own choice.
“They don’t re-engage fully, and so it’s really only until next summer that activity comes back fully.”
Read more: Q1 food and drink exports fall by £700 million
However, some are optimistic of a largely ‘V-shaped’ recovery, where the decline was sharp but the return could be faster than a traditional economic slump.
Government schemes aimed at helping support the economy through the health crisis, including business grants, CBILS loans and the furlough scheme supporting jobs as best possible. Yet unemployment is still on course to rise above 9% from what was a record low at the end of last year.
The coronavirus pandemic has hit food and drink exports hard with a £700 million drop in value compared to 2019, equating to a 12.7% fall.
That’s according to the Food and Drink Federation who noted whisky, chocolate, cheese, salmon and gin as the hardest hit, pulling back on increasing demand over the last five years for British whisky, gin and salmon in particular.
However, pork saw an increase in value whilst the volume of vegetable and beef exports also rose.
Sales to the EU were the most impacted with total value falling by 17.4%, driven primarily by the immediate impact of Covid-19 as hospitality and travel sectors shut down across the continent.
But further afield, the picture is a little rosier. Outside the EU, demand has remained resilient with sales of branded food and drink products increasing in the US, Australia and China. Demand for cakes and baked goods in Australia grew 12% compared to the same period last year whilst the exports of gin, bottled water and infant food grew to £34m in China. Demand for British beer and soft drinks spearheaded near-7% overall export growth to the US too.
Head of International Trade at the FDF, Dominic Goudie, commented that: “Manufacturers and the other hidden heroes working across the supply chain have ensured continued access to essential food and drink for UK shoppers during this crisis. But we can now see how COVID-19 has impacted valuable overseas sales of UK food and drink that were worth over £23 billion in 2019.
“The closure of the hospitality sector in high-value export markets in the EU and further afield has been devastating for many exporters. However, we can also see that opportunities do remain in retail channels in many markets.
Read more: Government to guarantee trade credit insurance from the end of May
“Ensuring a quick return to growth will be essential to support resilience in our industry and also the UK’s economic recovery. We are working closely with Government and industry partners to set out a recovery plan that will deliver a return to sustainable export growth right across the UK.”
The government has agreed to temporarily guarantee trade credit insurance to support businesses struggling to get cover during the pandemic.
The guarantee will help both domestic and exporting companies within the supply chain.
With almost all sectors being financially impacted due to coronavirus, some firms have seen the number of payment defaults increase, making it harder to manage cash flow as well as more difficult to get trade insurance in the first place.
The scheme will launch at the end of this month with the government agreeing to a temporary reinsurance arrangement with trade credit insurers in a move which it hopes will ‘support supply chains and help businesses to trade with confidence as they can trust that they will be protected if a customer defaults on a payment’.
John Glen, economic secretary to the Treasure commented that: “This country’s businesses are crucial in helping us to kick start the economy as we get back to work, and I will do everything I can to help support them through this difficult time.
“By guaranteeing business-to-business transactions currently supported by trade credit insurance, we will help to maintain a vital cog in our economy.”
Read more: Coronavirus Live Chat support leads to government emergency loan policy change
The Institute of Export & International Trade welcomed the announced, with the director of stakeholder management Kevin Shakespear saying that: “The continuation of a viable trade credit insurance market is essential for UK businesses and maintaining supply chains.
“For businesses selling in the UK, EU and the rest of the world there are benefits to using trade credit insurance to support payment terms, mitigate payment and country risk and in some instances support provision of finance for both UK and overseas sales.”
The UK government has confirmed plans to enhance border checks at ports in Northern Ireland and intends to release detail with the executive outlining ‘physical posts at ports of entry’ as soon as possible.
Whilst the rest of the UK will stop following EU rules on agricultural and manufactured goods at the end of this year, Northern Ireland will continue to align itself with EU single market regulations.
A cabinet office spokesman told the BBC that: “We want to work with NI businesses and the executive to ensure new admin procedures are streamlined and efficient.
“The protocol puts legal obligations on both sides. We are committed to complying with ours, just as we expect the EU to comply with theirs.”
He said that the government had made clear the checks requirement for live animals and agri-food – similar to what’s already in place at ports including Belfast and Larne – especially due to how strict the EU’s rules on the entry of animals and food products into the single market.
So, whilst these border checks would always have been in the pipeline and a requirement of the Brexit outcome, this looks to be the first time the government has confirmed this will indeed happen.
‘Deeply dishonest’?
Despite telling business leaders in November that there would be no buffers between GB and NI trade, and even saying that he would personally throw any suggested additional customs forms in the bin, the confirmation of enhanced border checks sits in contrast to Boris Johnson’s earlier Brexit rhetoric.
Brexit spokesperson for the Liberal Democrats, Alistair Carmichael even commented that: “It now seems Johnson was deeply dishonest with businesses when he previously asserted there would be no checks and businesses could put paperwork ‘in the bin’.”
Read more: DIT outlines financial support available to UK exporters
However, minister Declan Kearney says that checks are required in order to ‘implement the protocol for 1st January’ and in a bid to avoid disruption to trade.
“Delivery on that infrastructure needs to start as soon as possible, and the British government has indicated that it will provide advice on the requirements and the funding to put that in place.”
As UK-US talks on a free trade deal officially get underway, there’s hope in the SME community that an opportunity arises which will help mitigate some of the damage caused by Covid-19.
Almost 200 negotiators will be locked in detailed discussions, via video call, every six weeks in a deal that could see UK-US trade, already valued at almost £221bn a year, expand massively. The big hope for UK exporters is that tariffs imposed by the US, especially on farming, textiles, food and manufactured goods products, are lifted.
International trade secretary, Liz Truss commented at the commencement of discussions that: “The US is our largest trading partner and increasing transatlantic trade can help our economies bounce back from the economic challenge posed by coronavirus.
“We don’t just want any trade agreement. We want an agreement that will work for small business, an agreement that works for consumers and workers, and an agreement that will benefit all regions and nations of the UK.”
Currently, there are 30,000 SMEs in the UK exporting to the US and Federation of Small Businesses surveys have found that it’s the most important export market for these businesses – 46% saying it’s their key target region over the next three years.
Mike Cherry, national chair of the FSB commented that: “For small businesses, the US is the number one single market of choice for importers and exporters for the next three years, which is why these negotiations are so critical. With our economy likely to be suppressed for some time, we are going to need small businesses that trade to lead the way.
“Small businesses are already the backbone of the UK’s domestic economy. And especially in these difficult times, we now need to see their share of global trade start to catch up. We can do this by putting SMEs front and centre of all new trade agreements.
Read more: Coronavirus Live Chat support leads to government emergency loan policy change
“Securing a pro-small business free trade agreement, which includes a comprehensive and dedicated small business chapter, will be essential to addressing the needs and distinct challenges that small firms face when engaged in transatlantic trade.”
Go Exporting’s free coronavirus Live Chat support service for exporting businesses has helped change the rules surrounding the government’s emergency loan scheme, making it easier for exporters to access funds.
The Coronavirus Business Interruption Loan Scheme has made £1.25 billion available to UK firms who have seen trade dry up due to the lockdown. However, for many exporting businesses, funds have been unattainable.
This was due to a clause in the scheme which meant that any UK firm achieving 80% of turnover from exports was not eligible.
One of those businesses struggling to access the critical funds got in touch with Go Exporting for advice on the issue. We advised them to contact their Chamber of Commerce which took up the issue whilst we consulted with the Federation of Small Businesses and the British Exporters Association – both of whom agreed the rule was unfair.
Read more: Firms prepared for a no-deal Brexit better placed to deal with pandemic crisis
Further clarification from the British Business Bank, the administrator of the loans, was sought by the FSB, as well as the press being notified, which has now led to the government updating its guidance and clarifying that exporters are eligible to access funds.
Learn more and access the free Live Chat support service here.
Enterprise Ireland has launched its UK Local Authority Report following working with Go Exporting to produce and provide the research and overview.
The report outlines the 353 UK councils, their structure and the opportunities they present for Irish companies.
See below for a snapshot of the report.
Enterprise Ireland is the Irish Government’s trade and innovation agency, supporting innovative Irish companies through all stages of their growth and creating connections to international customers.
Read more: Coronavirus Live Chat support launches for exporters
Full access to the report can be garnered by contacting one of Enterprise Ireland’s UK market advisors.
