Trade Alert

UK-EU trade deal results in a surplus of £600m in duties by British traders

Complex rules of origin in the UK’s trade deal with the EU resulted in British traders paying a surplus of £600m in customs duties in the first 6 months of 2021. This deal originally was supposed to remove tariffs for goods.

Companies are not ready to cope with the difficulties of the post-Brexit trade. Businesses didn’t realise the implications until it was too late which led to companies simply pay the tariffs to simplify trading. Data shows that only 1/3 of businesses understood rules of origin.

Rules of origin is used to prove and determine the economic origin of products or parts of goods that are being imported. This is necessary so companies that are trading can benefit from trade deals, such as reduced or removed trade tariffs.

ONS statistics show that exports to the EU dropped since Brexit and the pandemic, resulting in a decrease of 1% in July (the equivalent of £300m). This being said, there was an increase of 5% in export value to non-EU markets.

With Christmas approaching and new import checks to be implemented on the 1st of October, there is a fear of further supply chain disruption. There is also concern towards the lack of vets to comply with the new requirements for food imports as well as EU exporters not introducing systems to deal with the UK’s new regime. With this in mind, the government has decided to delay import controls with the EU as of the 14th of September.

Mixed response from the industry regarding the postponement of import controls with the EU

As of the 14th of September, the UK government has decided to delay all import controls that were due to start on the 1st of October to 2022. These requirements included sanitary checks and export health certificates.

Why this decision to postpone? The government’s paymaster general explains that the pandemic had a role to play. There is an already existing pressure on the global supply chain, especially felt in the agri-food sector, and the increased cost in freight transport. Adding import checks to this will make things even more difficult for British traders.

However, not everyone believes this decision will help the current situation. The Chief executive of FDF (Food and Drink Federation’s), explains that the announcement to postpone will not relieve the existing pressure supermarkets are already facing. He later explains that FDF members had already prepared themselves for the import checks that were due, and this postponement will put British exporters at a disadvantage compared to EU competitors.

UK food and drink export have already sharply declined since Brexit and the pandemic has worsened the situation causing a decrease of 27.4% in the first 6 months of 2021 comparing to the same period in 2019.

Digital trade, Asian growth and financial services will be the new focus

International trade and free enterprise will be at the centre of the government’s agenda, explained International Trade secretary Liz Truss on the 14th of September.

The UK’s focus will shift from Europe to the Indo-Pacific, which over the next 3 decades will account for 56% of global GPD growth and 44% of global import demand growth.

She suggests that Brexit should be viewed as an opening to increase opportunities in Asia.

Furthermore, she suggests focusing on digital (which is expected to grow by 117% and financial services which are strengths for Britain.

‘The DIT, will continue setting up new trade and investment offices across the country and provide guidance on new post-Brexit trade rules’ says Truss.

Since Brexit, the UK has secured agreements with Australia and Japan. Ongoing negotiations with India will start at the beginning of next year.

Cap on freight prices is set by French shipping company CMA CGM

As Freight prices are soaring, French shipping company CMA CGM sets a cap on their prices until February 2022. They explained that this decision was led by wanting to prioritise its long-term relationship with customers.

Shipping companies have not earned this much since 2008, as prices have skyrocketed. To ship a standard 40-foot container from China to the east coast of the US costs more than $20000 now comparing to less than $3000 in 2019.

This brave move from CMA CGM created a domino effect. Other shipping companies are now needing to contemplate whether to make the same move.

Xeneta, a freight rate benchmarking platform, explained that ocean freight rates have increased by 85% since last year. Furthermore, there seems to be almost no sign of these prices decreasing in a near future.

Here are 5 trends we need to know about according to international trade minister Liz Truss

Liz Truss, now Foreign Secretary as of the 15th of September, suggested the government’s post-Brexit strategy to push businesses to look for new export markets.

The UK needs to focus on growing trade with the fastest developing parts of the world. Furthermore, she continued stating that the UK is building ‘a global network of next-generation trade deals that are advanced in services and digital trade and forging closer economic ties with markets in East Asia and Asia-Pacific’.

What are the 5 takeaways?

1. Due to slower rates of population growth and an ageing workforce, GDP will grow at a decreased rate. Trade is expected to grow in line with global GDP over the next 3 decades reaching $100 trillion by 2050.

2. There will be a new economic centre which will be located east. As of now, China, Brazil, Russia, Indonesia, Mexico and Turkey, also known as E7, are the seven largest emerging economies. E7 is projected to overtake G7 in economic size during the 2030s.

3. There is a shift in global economic structure as it’s becoming more services oriented. This is also due to rising incomes in emerging markets. It is expected that the service sector will grow by 2% in global GDP by 2030. This shift will also be noticed in the trade sector as it is expected to grow by 3% by 2030.

4. The growing middle class, due to an increase in incomes, will be a key source of demand. This being said, the government is pushing UK food producers to target this segment with high-quality products.

5. In comparison to global GDP in 2019, UK’s share is expected to drop by 0.6% due to an increase in living standards overseas. Opportunities for trade growth will rise. Regardless, UK exporters are well-positioned to capitalise on the growth of the global middle class and it’s expected to remain one of the top 10 trading nations in the world by 2050.

Short term solution to the driver shortage put in place as Christmas approaches

It is no secret that the UK has been facing serious problems regarding driver shortages and with the festive period approaching it is more important than ever to come up with a short-term solution. The National Economic Recovery Taskforce is focusing on finding more HGV drivers and work with food suppliers. The goal is to avoid empty supermarkets.

Archie Norman, chairman of Marks and Spencer, expects supermarkets to face a challenging period as a result of driver and labour shortage and global supply chain issues.

Changes to the HGV licensing system can end up costing applicants an extra £250 to access. Furthermore, the committee refuses to ease immigration regulations for EU drivers.

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