Friday, 2 December, 2022
HomeWorldWhat the Brexit deal means for British businesses and why they want...

What the Brexit deal means for British businesses and why they want grace period to comply

Brexit deal gives British businesses a relief as it avoids worst-case scenario of new tariffs and quotas, but it will still create significant disruption for a range of industries.

Text Size:

London: The U.K. and European Union may have signed a trade deal, but British businesses still face a raft of difficult changes.

More than four years in the making, the Brexit agreement avoids the worst-case scenario of new tariffs and quotas after Dec. 31. That’s a welcome relief, and gives companies greater scope to focus on containing the damage from the coronavirus pandemic.

The divorce will still create significant disruption for a range of industries. Mutual recognition of standards, which would have allowed firms to make products in the U.K. and market them in the EU without any extra certification process, isn’t part of the deal. Likewise, workers in Britain’s services industry — which makes up 80% of its economy — face new costs and bureaucracy as their professional qualifications will no longer be automatically recognized in the EU.

The deal also requires extra customs paperwork and checks at the EU border. The queues of trucks that formed around Dover this week, Britain’s busiest port, after France blocked incoming traffic has given Britons a taste of the disorder that could be in store.

With the full text of the agreement being published only days before it comes into force, a chorus of business voices has pleaded for a grace period to comply with the changes.

Here is a look at what a Brexit deal means for a variety of industries.


U.K. auto manufacturers generated about 79 billion pounds ($107 billion) in sales last year and employed about 180,000 people. Carmakers now must decide whether to move forward with investment in new models and production capacity that had been put on hold for years.

Vauxhall, owned by France’s PSA Group, had been holding out for more clarity on Brexit before deciding whether to approve further investment in its plant in Ellesmere Port. For others, the delays to the deal have already taken a toll — Nissan Motor Co. has decided against producing an electric model in northern England.

The deal is good news because it mostly avoids tariffs and gives electric-car makers sufficient time to phase in the new requirements, raising the chance that PSA will further invest in Vauxhall, said David Bailey, a business economics professor at Birmingham Business School.

Here are the key requirements for the rules of origin, which determine what percentage of the value of a car’s components need to be sourced locally to qualify for tariff-free trade:

  • Parts made in the U.K. as well as the EU count as local content.
  • Gasoline and diesel cars need to be made with at least 55% local content to avoid tariffs — 5 percentage points more than what automakers and the U.K. wanted.
  • Electric vehicles and hybrids will need 40% local content, 10 percentage points more than what the U.K. had asked for.
  • Until 2023, batteries can have as much as 70% overseas content, and EVs and hybrids can have as much as 60% foreign content.
  • From 2024 to 2026 — when European battery production is expected to be much more advanced — batteries can have 50% overseas content and EVs and hybrids 55% content.

The terms for electric and hybrid cars are more lenient because the region is still in the early stages of localizing battery production. However, the 40% local content requirement for EVs and hybrids may be difficult to meet for companies that source parts mainly in Asia, Bailey said.


Producers are responsible for about 10% of U.K. gross domestic product, and have been spared the threat of new tariffs. But they face a raft of paperwork and new standards regulations which could create substantial pressure across the country on its first day outside the single market and customs union.

On standards, there is no mutual recognition of conformity assessments in the deal, meaning manufacturers will have to get their products approved separately by regulators in both markets. They may also have to run two separate production processes if U.K. and EU specifications differ, adding costs.

And at the border, the prospect of trucks turning up without the correct post-Brexit forms raises worries about serious traffic snarls. For example, as many as 10,000 trucks per day carrying everything from German car parts to Spanish lettuces, as well as U.K. exports to Europe, pass through Dover. This key port on the south-east coast has warned of 17-mile (27-kilometer) lines of vehicles on both sides of the English Channel if its average customs clearing is slowed by just two minutes.

Disruption is a nightmare for manufacturers because their years of investment into digitizing their operations have left them reliant on just-in-time supply chains. This helps them avoid the expense of stockpiles, but means that any delays in shipments spell trouble for the entire production process and the whole industry.

Also read: How Brexit trade talks overcame suspicion, resentment, and fish


The thorny issue of tariffs had been British retailers’ biggest concern as higher import costs in a low-margin sector would have had to be passed on to consumers during a recession. This was particularly important for supermarket chains such as Tesco Plc and J Sainsbury Plc as the U.K. produces only about half the food it consumes, and the vast majority of imported food comes from the EU.

British wine merchants will be relieved that wine traveling between the U.K. and EU will require only simplified paperwork. In a no-deal scenario wines from the EU would have required expensive laboratory tests and other documentation, adding costs.

However, retailers still face a raft of new non-tariff barriers stemming from costs and staffing needed to manage extra customs paperwork which, in time, could filter down to the prices paid by shoppers at checkouts. Any upheaval could aggravate the impact the pandemic has had on consumer spending. The timing may mean additional pain — January is normally a dire month for retailers given that consumers usually pull back spending after their surge of shopping for Christmas.


The pharmaceutical industry has long called for a mutual recognition agreement to protect the sector from unnecessary duplication and cost. The deal has achieved this at least in part, with inspections of drug manufacturing facilities to be valid in both regions.

However, the text doesn’t mention another industry request — mutual recognition of batch testing. This suggests U.K. safety tests on medicines may need to be conducted again before they can be sold in the EU, which would add time and cost burdens.

The pharmaceutical sector, like others, will also have to get to grips with customs and border checks. Coronavirus has given the issue extra weight and highlighted the need for the smooth passage of drugs and vaccines –- about 45 million packs of medicines move from the U.K. to the EU every month, with 37 million going the other way.

The U.K. and EU have agreed to a one-year phase-in period for implementing regulation in Northern Ireland to give companies time to prepare to adjust packaging and distribution routes.


This heavily regulated industry contributes 20 billion pounds a year to the U.K. economy, and has long dealt with standards where the slightest change in a design or machine used to make an aircraft component can spark a safety reassessment. The Brexit agreement includes an accord on safety that maps out an approach based on mutual recognition and cooperation. This is essential as some parts criss-cross the English Channel multiple times during the process of building a plane. Companies like Rolls-Royce Holdings Plc know that any major break with the status quo risks substantial disruption.

After year-end, the U.K. will oversee its own aircraft safety regime. That means handing the responsibility to the Civil Aviation Authority for the first time in decades. There’s a question of whether it will be able to take on so much work quickly enough to avoid disruption.


Both sides agreed to explore a liberalization of rules that limit the operations of airlines outside of the territory where their ownership is based. Before the split, U.K. shareholders counted toward EU ownership requirements, but now they don’t. This threatens the rights of airlines like IAG SA and EasyJet Plc to operate within the bloc.

IAG, the owner of British Airways, Iberia and Vueling, is incorporated in Spain but has significant U.K., U.S. and Qatari ownership. EasyJet has had difficulty keeping its EU share of ownership above the required 50% threshold. Both have said they’ll address their shareholder structure, but under the current set-up their status as EU-controlled could be tested. Future changes to the rules could help insulate them from challenges. The U.K. and EU have agreed to consider making changes to the rules within 12 months.


Hauliers face new restrictions when moving goods between the U.K. and the EU. Previously, U.K. drivers could do unlimited trips between EU countries, and as many as three deliveries within a single country in the bloc. An extra delivery within a country is known as a “cabotage” trip.

Now, British operators can only do two extra journeys when they move goods to the EU, and can only make one cabotage trip.

The restrictions are a major blow to the U.K. concert industry, which has relied on being able to move instruments and sound equipment on multiple trips between European countries without having to return to Britain.


This is the U.K.’s biggest manufacturing export sector, with annual turnover of about 31.5 billion pounds. While the deal document contains signals that cooperation will continue, Britain’s access to a full spectrum of chemicals may still be at risk.

Chemical makers have yet to be told how aligned the U.K.’s new standalone regulatory framework will be with Europe’s Registration, Evaluation and Authorization of Chemicals regime, considered the gold standard for the safety and control of more than 22,000 substances and fluids that are key in industries from aerospace to electronics. Based on a “one substance, one registration” principle, it’s taken companies years of investment to put together all the dossiers containing data on the properties and hazards of each chemical required by REACH.

The Brexit agreement includes a commitment to cooperate on sharing this data. However, the lack of a firm arrangement means companies may yet face having to repeat the time- and money-consuming process of repeating all that paperwork to operate in both markets.

If ensuing talks fail to achieve regulatory alignment, the industry could face a 1 billion-pound bill to repeat all the safety documentation, according to Neil Hollis, BASF SE’s regulatory affairs manager.


Services make up 80% of the U.K. economy and comprise a breadth of activities including IT, law, accountancy, insurance, consulting and architecture.

The EU is Britain’s largest export market for services, so the lack of automatic recognition for professional qualifications is a setback. It means firms will have to jump through extra bureaucratic hoops to have the right to provide services in an EU member state.

Short-term business travel between the U.K. and EU will continue unimpeded, but U.K. business visitors will only be able to travel to the EU for 90 days in any 180-day period.


Movement of data generates 174 billion pounds of value in the U.K., according to the Confederation of British Industry, but the legal framework for this activity was in doubt because Britain is about to exit the EU’s data protection regime. The Brexit deal provides an interim solution that protects current data flows until a separate legal agreement is reached.

The temporary accord saves thousands of businesses from having to find alternative certifications before Jan. 1 to continue transfers, and postpones the risk of fines for violating the bloc’s strict privacy laws. This is a relief for any business which transfers data across the frontier from big tech platforms to airlines to banks.

EU officials said a so-called data adequacy decision, which would certify that U.K. data protection standards are comparable to the bloc’s, could be made in early 2021. Until then, the bridge offered by the Brexit deal leaves the existing rules place for as many as six months after Dec. 31.


British farmers welcomed the deal on tariffs, which will help products from barley to lamb remain competitive in the EU, the destination for more than 60% of the nation’s agricultural exports.

Still, even with the deal, there will be trade friction and the National Farmers Union called on the government to ensure cargoes of perishable foods aren’t left “languishing in queues at the border” in the new year. The British Meat Processors Association has also lamented that fresh-meat shipments won’t be prioritized in queues at the border, which may require traders to switch to trading lower-value frozen supply instead.- Bloomberg

Also read: Temporary Brexit terms to keep EU-UK data flowing for 6 months


Subscribe to our channels on YouTube & Telegram

Support Our Journalism

India needs fair, non-hyphenated and questioning journalism, packed with on-ground reporting. ThePrint – with exceptional reporters, columnists and editors – is doing just that.

Sustaining this needs support from wonderful readers like you.

Whether you live in India or overseas, you can take a paid subscription by clicking here.

Support Our Journalism

Most Popular