OK, a Christmas deal was struck, and Boris Johnson lauded himself for having secured UK-access to the European Common Market without incurring any tariffs or quotas. Quite frankly, that is about all that this 1.260-page document achieved in terms of good news. Its value in enabling manufacturers to figure out what to do, is negligible. Not only does it not cover about 80% of the British economy (i.e. Services), but on the areas it covers, it still burdens manufacturing firms with what they were presumably more concerned about, than a few percentage points of tariff: namely, the customs and permitting processes of a third-party nation.
Cars built in the UK require an additional approval for the EU. And any shipment to Europe with a value of more than 1.000 EUR need to be logged with the ATLAS system (for which an EORI-number is needed), and for which a form U116 must first be completed. And so, it goes on.
The most dramatic effect, to which few on the island seemed to have cottoned on, is the question of country of origin and preferential treatments arising therefrom. The EU has many Free Trade agreements with major economic blocs; and these agreements outline tariff-free access to their markets (or other preferential treatments) for products that originate from within the EU.
A European manufacturer, producing an item and using raw materials or semi-finished goods from Great Britain might have had a product originating from within the EU until the 31.12.2020. But as of 01.01.2021, components brought in from the UK will count against a European manufacturer’s calculation of origin, and thus risk losing the tariff free entry into Switzerland, Canada or Japan. Guess what will happen now …
As goods brought in from the UK result in endless paper-work, European manufacturers are likely to buy from one of the other EU-27 based suppliers. And, as aptly demonstrated immediately prior to Christmas – Just-in-Time both from and to the island will become a thing of the past. British firms will need to get used to the fact that they presumably won’t be part of European supply-chains for much longer.
A similarly fraught picture emerges on the investment and M&A side. What tax implications does a subsidiary in the UK suddenly have for a European group of companies? Or imagine a European group has a plant producing in the UK, and as does happen from time to time, something goes wrong. Up until 2020 they would simply send a specialist from the HQs to fix the problem. Now they will need to apply for permits for people to enter the UK, and do some urgently needed repairs on their own premises.
Irrespective of what is being talked about in political circles, the genuine attractiveness of the UK as entry destination to the European Common Market is gone. It is true that Asian or American FDI-investors will still be able to sell into the EU from a UK-base. But if you don’t mind the paper-work, you can do so from Albania as well. If, however, you want to side-step the paper-blizzards, the UK is not a convenient destination any longer.
All of this could have been averted. If a free trade deal was sought, and negotiations focussed on substance, rather than time-lines, theatrics and fish, we could have laid the groundwork for a genuine long-term relationship. But that would have necessitated telling people that such a deal could not be achieved in a year. Pretty well all Free Trade Deals take from 5 – 8 years to negotiate. There is a reason for that. The sheer volume of minutiae is overwhelming. But if you want a deal that does indeed make firms’ day-to-day business simpler, rather than a list of empty headlines, then this is what it takes.
So, despite its 1.200 plus pages, all we have is a wafer-thin document that is failing to regulate even the most basic of practical questions. It is in fact endangering British manufacturers of dropping out of supply-chains.