U.K. Businesses Drowning in Red Tape Under Brexit Border
Rules
By Lucy Meakin, Lizzy Burden, and Deirdre Hipwell
January 12, 2021, 12:00 AM EST Updated on January 12, 2021,
4:39 AM EST
While the mile-long lines of trucks have dissipated at
ports, U.K. businesses are waking up to less visible forms of friction at the
border with the European Union that may cause more enduring damage.
From health certificates to new taxes and additional paperwork,
the cost of moving goods across the English Channel is rising due to Britain’s
exit from the EU. Just 6% of firms told the Bank of England they were fully
prepared for what was to come, and the headaches are just starting less than
two weeks into the new system.
While each one of the new rules marks a minor shift from the
border-free trade Britain enjoyed for four decades as a member of the EU,
together they add up to a significant constraint. That’s already starting to
upend supply lines and limit shipments for companies of all size. Those hit
hardest are the U.K.’s 5.9 million small- and medium-sized businesses, which
employ about three-in-five of those working in the private sector.
All told, Brexit may cost British exporters 25 billion
pounds ($34 billion) this year as a result of weak demand and more red tape,
shaving 1.1% off gross domestic product, according to a report Tuesday by the
trade insurance company Euler Hermes Group SAS.
“There’s
so much complexity,” said Adam Marshall, director general of the British
Chambers of Commerce. “It’s like an onion -- the more you peel, the more you
cry.”
Small Firms, Big Employers
Small and medium businesses account for 61% of U.K.
employment
Here’s some of the biggest irritations hitting businesses
because the U.K. is no longer a member of EU’s single market and customs union:
Rules of Origin
British firms post Brexit must show where their goods were
made -- and where the components in those products come from -- to determine
whether tariffs are levied on goods into the EU. Those regulations don’t exist
for trade within the EU, making the old system far simpler. In addition, VAT is now payable on all imports from the
U.K into the EU.
Confusion about the rules has already prompted complaints
from big-name retailers such as Marks & Spencer Group Plc. Others have
suspended sales to the EU. Debenhams temporarily switched off its Irish
e-commerce site, while John Lewis Partnership Plc, Asos Plc, and Fortnum &
Mason stopped deliveries to Ireland.
“Businesses have been completely
blindsided by the ‘rule of origin’ part of the deal, which leaves them at a
major competitive disadvantage when selling in the EU,” said Michelle Dale,
senior manager at accountancy group UHY Hacker Young. “Unfortunately, not
enough was done to prepare them.”
VAT
British exporters
must register to pay VAT in EU nations. That is prompting a number of
companies to halt their cross-border trade, said Stuart Lisle, chair of the
Brexit taskforce at professional services firm BDO LLP.
“If we want to keep
selling to customers from any EU state from our stocks in the U.K., we must
VAT-register in each target country immediately,” said Jennie Potts,
co-founder of Mama Bamboo, which sells eco-friendly disposable nappies and wet
wipes. “If we don’t, we will trigger immediate liabilities. It’s so irritating.
We have to ask is it worth all the time and effort.”
Lisle said many of his clients have not had to face those
issues before and that the added costs and complexities “can be very expensive
to administer.”
Tax Income
VAT generates around a fifth of U.K. government revenue in a
normal year
Health Checks
The Brexit deal didn’t align rules for cross-border
shipments of phytosanitary products, which cover plants and seeds. Farm goods
qualify for zero-tariff, zero-quota terms, but that doesn’t apply to live
plants.
For Andrew Skea, director of Potato House in Dundee,
Scotland, that effectively means that the EU just isn’t accepting his seed
potatoes. The product has been grown in Scotland for over 100 years, and half
of Skea’s sales are in the EU.
“Until now the EU has been a domestic market for us,” he
said. “Now we’ll need phyto-sanitary
certificates, and the paperwork’s going to have to accompany every order.”
Red Tape and Paperwork
In an effort to simplify the forms they must file, some shippers are now refusing to carry
loads containing a mix of different products from different companies,
according to trade body Scotland Food and Drink. That disproportionately hurts
firms shipping in smaller quantities. Another issue is that the terms of the
deal were announced only days before the deadline for compliance.
“If you’re only issuing guidance hours before the end of the
transition period and businesses are busy dealing with the pandemic, things
will start to fall apart -- and they are starting to fall apart,” said James
Withers, chief executive officer of the trade group. It’s asking the government
to request a grace period on enforcement by the EU until July.
Port Delays and Costs
The cost of shipping goods across the border is rising with
delays at ports and some trucking firms reluctant to deal with the hassle.
“Things keep getting
stuck,” said Oliver Conger, managing director of Rototherm Group, a maker
of sensors and now personal protective equipment. “I’m now having to buy up
what stock there is in the U.K. at three times the price.”
Tough new Covid-19 lockdowns that shut non-essential
businesses aren’t helping. Four in 10 companies said their cash flow
deteriorated in the fourth quarter, with the very smallest hit even harder,
according to a survey by the British Chambers of Commerce.
“Thousands of small
firms need to invest in tech, advice and operational adjustments in order
to keep trading across the EU but don’t have the cash needed to do so,” said James Sibley, who follows
international affairs at the Federation of Small Business.
Read More: Freight Firms Cashing In on Brexit Bake In Higher
Shipping Rates
Dueling
Certifications
Products sold in the EU require a CE mark showing they meet
health, safety and environmental standards. The U.K. will develop its own
certification, meaning companies selling in both regions need to register for
both standards.
“It’s such a ridiculous level of duplication,” Renee Watson,
founder of The Curiosity Box, a subscription service that teaches kids about
science. With annual sales of 500,000 pounds ($673,000), the company will have
to spend 20,000 pounds on new safety marks to sell in the Netherlands, France
and Germany.
Watson identified 26 areas of her business that would be
affected by Brexit. “I’ve struggled to allocate that much time.”
— With assistance by David Goodman, and Joe Mayes
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