Brexit and the Free Trade Deal

 

What has been agreed?

There are 1,246 pages in the brexit agreement between the UK and the EU, covering a wide variety of topics to ensure zero disruption and a level playing field for both parties.

After many months of discussion, the UK and the EU have reached agreement on an economic partnership agreement that will govern large swaths of bilateral trade worth more than £650bn.

The EU and the UK will form two separate markets; two distinct regulatory and legal spaces. This will create barriers to trade in goods and services and to cross-border mobility and exchanges that do not exist today – in both directions.

The agreement covers not just trade in goods and services, but also a broad range of other areas in the EU's interest, such as investment, competition, State aid, tax transparency, air and road transport, energy and sustainability, fisheries, data protection, and social security coordination.

But potentially the most impactful for ecommerce is the free trade deal that has been agreed with the EU.

Introduction of the free trade deal

A free trade agreement has been negotiated and accepted. This form of agreement aims to encourage trade between countries, by removing or reducing charges such as tariffs, taxes for trading across borders or even quotas that limit the amount of goods which can be traded at one time.

No Tariffs

The EU is the UK’s largest trading partner and whilst the EU had to ensure there were some measures in place to ensure a level playing field, there needed to be benefits and less restraints for both parties to maintain the same trading relationship.

This means no tariffs or quotas for UK merchants selling into the EU, and vice versa.

This is hugely important news for any merchant who sells into the other market. One of the larger concerns many merchants had over a no-deal Brexit was the inclusion of tariffs or quotas, which can add a considerable expense to international trade, or even make selling internationally commercially unviable. 

Both the British Government and the EU leadership have stated that one of the major objectives of this trade agreement isn’t to restrict trade, but to encourage it even further.

However, there is a slight downside as to benefit from zero tariffs, UK/EU merchants' products need to qualify for the rules of origin that have been put into place. 

Rules of Origin

There has been an agreement for a rules of origins chapter which contains modern and appropriate rules of origin, ensuring that only EU/UK originating goods benefit from the liberalised market access. 

What does this mean?

Basically, for products to be covered in the new free trade agreement, they need to be entirely obtained within the UK or EU, or substantially transformed. For UK merchants, any product sold needs to be made in Britain, or any materials from outside both the UK or EU, needs to be transformed into an entirely new product. For example, this can be cotton imported from outside the EU, but the clothing item needs to be crafted in the UK or EU to qualify for free trade movement. 

To understand more, you can find the “The Trade and Cooperation Agreement (TCA): detailed guidance” rules here

Technical Barriers to Trade

The agreement also includes a TBT chapter which addresses regulatory barriers to trade between the UK and EU, while allowing both parties the freedom to regulate goods for their own market.

It also envisages arrangements to share information on dangerous and non-compliant products on the UK and EU markets. Combined with operational cooperation between UK and EU market surveillance authorities, this exchange of information will help both Parties better protect their consumers. 

Impacts to Customs, Taxes and Shipping

However, as the UK will no longer be following the EU's rules on product standards, businesses will need to get used to new checks. This will mean more paperwork, which could cause problems and delays if businesses turn up at ports unprepared.

This is something we’ve touched on previously. The agreement does mean changes to customs, taxes and shipping, and it is something that merchants not only need to be aware of, but plan around.

There are changes that merchants need to be aware of as it won’t be possible to sell into the EU until these requirements are met.

A quick summary of what needs to be done:

1. Register for all necessary VAT and EORI - You will need to register for the necessary VAT in each market you want to sell into, as well as setting up an EU EORI. The process could take up to a couple of weeks so it’s a good idea to begin now rather than wait.
2. Correct Product classification - Your products need to be classified with HS codes correctly to avoid any customs and delivery issues, as well as VAT problems. Not only is getting parcels stuck in customs going to give a negative experience to your customer, but risking fines for incorrect VAT payments further down the line isn’t nice and can be avoided.
3. Implementing Tax and Duties - Ensuring all customs tax and duties are correct is also incredibly important for your customers. Being able to display the VAT at checkout rather than have them face surprise VAT stings is going to improve their buyer experience and the likelihood of them returning for repeat purchases. Don’t run the risk of upsetting customers - implement the correct tax and duties at your checkout.
4. Shipping  - Having a correct shipping strategy and solutions in place is necessary to prevent friction for you and your buyer as well as being able to deliver into all of your chosen markets. This includes adding the additional requirements into your shipping process, i.e How will duties be handled? will they be collected on delivery? And how is this cost reflected to your buyers? Also how will you share necessary data with respective carriers such as HS codes and customs declarations? There are a lot of fundamental components to integrate into your shipping process.

For any EU, US or other international market merchants selling into the UK, they are going to need to get registered for UK VAT to sell into Britain and prepare customs declarations in a similar fashion.

What does this mean for UK/EU merchants?

According to the British government, the deal itself avoids a no-deal brexit, which was estimated to have reduced Britain’s economic output by £40bn and cost more than 300,000 jobs in 2021 alone.

A no. 10 spokesperson said: “We have taken back control of our money, borders, laws, trade and our fishing waters. The deal is fantastic news for families and businesses in every part of the UK. We have signed the first free trade agreement based on zero tariffs and zero quotas that has ever been achieved.”

Whilst there are some limitations, such as the free movement of British people across EU borders, it seems the British government is very content with the deal and classes Brexit as a commemorative success.

This all seems positive for the UK, but what about the potential ecommerce benefits for both the UK and the EU?

As it stands, the free trade deal is fantastic news for merchants selling between the UK and the EU. Whilst UK merchants may see increased costs through the change to customs, the removal of tariffs or quotas is going to make selling into the EU (or into the UK) a lot easier and a lot more beneficial for merchants from both parties.  

Whilst there may still be some lingering doubt about the future for some merchants, there is no denying that trade between the EU and the UK is going to be more important than ever. 

With 7 EU member states being in the UK’s top 10 list of trading partners, we’re confident that the opportunities will continue to rise and ecommerce will thrive in the new future.

There are still many more details to be ironed out over the course of 2021 and beyond, but the course Brexit is now set on looks very fruitful for UK/EU and even US merchants and now is a great time to start or continue selling across borders.

Download the “How to get your store brexit ready” ebook and get your store qualified for the new brexit requirements.