Why have Fees on Consumer Products Increased? Ramifications of the EU-UK Trade Agreement
On 1 January 2020, the United Kingdom officially left the European Union, becoming a “third country” in EU terminology. Brexit has also meant leaving the EU Single Market and Customs Union. The transition period, lasting until 31 December 2020, allowed for a maintained status quo until a trade deal could be reached. In the attempt to avoid a no-deal Brexit, the UK and EU agreed upon the Trade and Cooperation Agreement (TCA).
The European Commission identified four major pillars of this agreement:
an “unprecedented” free trade agreement,
economic, social, and environmental cooperation,
a framework for citizens’ security,
an overarching governance framework.
On the surface, the TCA sounds mutually advantageous. The deal allows for tariff-free trade of goods and is clearly preferable to a no-deal Brexit. This, of course, generated relatively high amounts of confidence in the market immediately following the announcement of the deal.
However, the headline of continued free trade with zero tariffs is more complex than it appears. In some cases, the TCA will create new issues as companies will be required to navigate more complex trade regulations. For example, both imports and exports will be subject to requirements to prove the origins of goods upon arrival, which adds difficulty to company shipments. Additionally, new UK product standards are different to their EU counterparts leading to additional checks and paperwork for companies on both sides of the deal.
Retail companies that worked in both the UK and EU have faced extraordinary challenges due to the new regulations implemented in line with the TCA. Companies questioning whether shipping to the UK is worth the extra charges has led to a backlog of goods in the EU that cannot be shipped. Nearly a quarter of companies believe they will run low on stock for UK customers by February 2021 and nearly half of UK exporters are struggling to adapt to the new regulations. Some foreign companies have even completely refused to continue shipping to the UK, citing the new regulations and fees as their reason. Hauliers reported that there was a 68 per cent decrease in volume of exports through British ports to the EU in January 2021 when compared with January 2020.
Unfortunately, the challenges are not limited to companies. Consumers are also having to deal with the consequences of this trade deal. Along with a lack of products, customs fees are an issue as well. These charges are the responsibility of the customer, not the retailer. Under the new agreement, gifts from the EU worth more than GBP 39 are subject to an import VAT of up to 20 per cent and goods costing more than GBP 135 face customs duties ranging from 0 to 25 per cent. This has led to numerous cases of consumers finding themselves paying hundreds of pounds extra because of these hidden charges. Goods that are not 100 per cent manufactured in the UK or EU are subject to these customs fees.
The consumer products sector has been hit hard, but the meat processing industry, in particular, is worried about April 2021. That is when their transition period ends and when the chaos seen in retail already could occur for them. Meat trade between the UK and EU is worth GBP 8.2 billion annually. What worries the meat industry more than the consumer products industry is that their products have an expiration date; if meat is shipped with missing or incorrect paperwork, it could mean rotten food at ports of entry. The deadline of April could also bring an increase in cost, decrease of stock, or even both for meat products that would have been shipped between the UK and EU.
Arguably, these issues created by the TCA are manageable and will be fixed in time. Most agreements have a period of time in which small issues are sorted. However, with exports from the UK to the EU alone being valued at nearly GBP 300 billion in 2019, the hurdles created by the TCA must be corrected swiftly in order to mitigate further damage than has already occurred.