Online service providers need to start preparing for an end to the UK’s inclusion in the eCommerce Directive following the conclusion of the transition period between the UK and EU.
The eCommerce Directive is a set of rules relating to online activities within the European Economic Area and allows member states to operate in any EEA country – whilst only having to operate within the rules of the country in which they’re based.
However, once the transition period ends on 1st January 2021, this directive will no longer cover UK traders.
The government is advising that businesses still wishing to sell online within the EEA consider whether their services ‘are currently in scope of the Directive and if so, ensure that you are compliant with relevant requirements in each EEA country you operate in’.
Many online services provided by businesses may already comply with these requirements, but it’s worth checking now and making the appropriate changes if required before the end of this year.
“The government intends to fully remove the eCommerce Directive’s Country of Origin principle from UK legislation, to bring EEA online service providers in scope of UK laws, which they were previously exempt from. As this principle is found in a number of pieces of legislation it will be removed at different points, when parliamentary time allows.”
Four steps to check compliance
The government has set out four steps to help businesses understand where they stand. They are:
- Check whether you are in scope: the eCommerce Directive applies to ‘information society services’, which covers things like payments, providing a service that can be used remotely and so on, These cover the majority of online service providers, including online retailers, video sharing sites, search tools, social media platforms and internet service providers.
- Check where your service is based: This is your ‘place of establishment’ and is fixed to where you pursue your economic activity.
- Check for new legal requirements: If your business is established in the UK, you should check for the legal requirements of an EEA country you currently and wish to continue operating in. Rules you need to pay attention to are those that fall within the ‘coordinated field’ and cover items including online information, advertising, shopping and contracting.
- Take appropriate steps: The government also recommends ensuring you have processes in place for ongoing compliance with individual EEA states and consider legal or other professional advice.
Key further reading:
For support with your ongoing Brexit planning, you can speak to Go Exporting for a full readiness audit and to understand the threats and potential opportunities that Brexit can service for your organisation. Learn more about our Brexit consultancy.
As the UK government and European Union negotiators continue in their search for a mutually-agreeable trade agreement, businesses have to carry on preparing for the end of the transition period as best as possible.
Whilst no future deal is guaranteed, what is almost certain is a change in the way the two parties do trade with each other. That change could be as small as some additional paperwork at points of entry, or it could be as large as a WTO tariffs structure and a new regime of regulations to digest, understand and comply with.
A new report lead by Professor Anand Menon, Director of The UK in a Changing Europe, has looked in detail at the way in which the manufacturing sector may be impacted by Brexit – especially as this segment of the UK economy is probably more significant than some would give it credit for.
The organisation, billed as an authoritative source for independent research on UK-EU relations, looked at a range of factors covering the UK’s manufacturing links with the EU, sectoral and regional exposure to Brexit and how the various potential Brexit outcomes may impact everything from tariffs and rules of origin to data protection and investment.
You can access their full report here.
Highlights from the report
- Manufacturing accounts of 10% of the total UK economy and 9% of employment
- The sector makes up almost half of the UK’s annual exports and 60% of private-sector investment into research and development
- Any disruption to this sector could have a ‘sizeable negative impact on the wider UK economy’ due to the reliance of other sectors on manufacturing
- UK manufacturers are deeply integrated with the EU single market, in particular with frictionless trade in order to maintain supply chains
- Skilled EU manufacturing workers often support key skills gaps in the UK, such as in engineering
- Sectors including aerospace may be more resilient to a no-deal scenario as they will likely face no tariffs with international trade in this sector being predominantly tariff-free
- Brexit will create additional financial and other cost burdens for companies with tariffs, customs declarations, loss of collaboration apportioning and audits costing money and time resource
- Brexit uncertainty has already resulted in delayed investment in UK manufacturing
How the government could help
- Loans, wage subsidies and government equity stakes in manufacturing businesses could help cushion the post-Brexit shock – similar to schemes already being utilised to support the economy during the coronavirus pandemic
- Policies covering skills, research and development and financial support could be devolved to regions and devolved institutions to support the addressing of regional economic disparities – or ‘levelling up’. This would entail a policy reset moment.
- Region-specific industrial policies could be used to take advantage of new technologies that are part of the fourth industrial revolution
Is your business ready for Brexit?
The transition period for the UK fully leaving the EU behind is less than 6 months away. Government figures show 61% of companies are unprepared! Discussions with the EU are faltering and a no-deal crash out seems ever more likely.
Read more: UK business leaders reiterate ‘hugely damaging’ prospects of no-deal Brexit
Now is the time to act. There’s a lot to do to be Brexit ready. Get ahead of the game by downloading our free Brexit Planning Checklist and seeing how prepared your business is right now.
Over 100 business leaders from UK companies and business groups have written to the prime minister, once more reiterating the damage that a no-deal Brexit would cause to the economy.
With Britain due to leave the EU at the end of this year and, despite the coronavirus pandemic, Boris Johnson confirmed that he won’t be asking for an extension to the transition period, businesses are still hugely concerned that the rigid negotiation timetable – which without a pandemic was still ambitious – could result in a cliff-edge departure from the European Union.
The letter, with signatories including Zoopla, Graphene Composites and Ebookers, said that no-deal would result in ‘more people out of work and lower living standards’, adding that firms ‘simply do not have time or capacity to prepare for big changes in trading rules by the end of the year – especially given that we are already grappling with the upheaval caused by coronavirus’.
Former Siemens UK CEO, Jurgen Maier who helped write the letter commented that: “This is not a call to reopen old divisions about remaining or leaving. The government must now deliver for us all, and on their promise to get a good deal, not a bad deal, and definitely not a no-deal.”
One issue the letter highlights is the growing trends towards localisation, especially in supply chains which may negate any opportunities to counteract lost business as a result of Brexit in territories including the US and China. It also called for alignment with EU regulatory bodies to allow the free-flowing of products in critical sectors such as medical, chemical and pharmaceuticals.
Read more: ‘Be as best prepared as you can be for the worst-case situation’
Businesses have every reason to continue fearing a potential no-deal scenario, which has already been touted as being extremely disruptive. But with the additional economic damage caused by Covid-19 where 11 of 14 key service sector indicators such as sales and cash flow show record declines, recruitment is at an all-time low and domestic sales are down for three in four firms.
Last month, Go Exporting CEO Mike Wilson spoke to Ramzi Bouchrit on his web show on international trade to discuss a range of exporting issues, including Brexit.
What factors do businesses need to consider? What will happen if a trade deal with the EU isn’t reached? Will the UK still be a viable option for a distribution centre?
Watch the Brexit segment of the interview below:
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.”