Navigating post-Brexit trade compliance: challenges and adaptations for UK businesses
The UK’s departure from the EU has ushered in a new era of trade compliance, marked by the introduction of the Trade and Cooperation Agreement (TCA). This agreement, signed on 30 December 2020 and formally entering into force on 1 May 2021, establishes a zero-tariff, zero-quota framework for trade between the UK and EU but introduces significant regulatory and administrative changes for businesses.
Key impacts on trade compliance
1. Customs and regulatory checks
Post-Brexit, businesses face increased administrative burdens due to customs declarations, regulatory checks, and border delays. The departure from the EU’s single market necessitates robust logistics strategies to manage these complexities.
2. Rules of origin
To qualify for tariff-free trade under the TCA, goods must meet specific rules of origin requirements. This involves rigorous documentation and verification processes, which have proven challenging for exporters.
3. Regulatory divergence
The UK has established independent regulatory frameworks such as UK REACH for chemicals. Businesses must now navigate dual regulatory systems to comply with both UK and EU standards, significantly increasing compliance costs.
4. Conformity assessments
The UKCA (UK Conformity Assessed) marking replaced the EU’s CE marking for goods sold in Great Britain from 1 January 2021. While the technical requirements largely mirror those of the CE mark, businesses must manage dual conformity processes if they operate in both markets. The UK government extended recognition of CE marking indefinitely in August 2023 to ease this transition.
5. Trade documentation
Exporters now require more extensive documentation to prove compliance with EU standards, impacting operational efficiency and increasing costs.
Sectoral impacts
- Financial services: The TCA provides limited provisions for financial services, reducing access to EU markets and complicating cross-border operations. For example, UK-based financial institutions no longer benefit from passporting rights, requiring them to establish subsidiaries in EU member states to serve clients. Additionally, professional qualification recognition remains a challenge, affecting 27% of firms trading services.
- Goods and services trade: Brexit has led to a sharp decline in goods exports to the EU — particularly among small firms — due to increased trade costs under the TCA. However, strong growth in services exports has offset these losses. Services now account for a larger share of UK exports than goods. Large firms have adapted better than SMEs by leveraging advanced compliance systems.
Adapting to new compliance challenges
Businesses have adopted various strategies to navigate post-Brexit trade complexities:
- Enhancing internal compliance systems: Many firms have upgraded their systems to handle increased documentation and checks.
- Diversification of trade partners: UK businesses are exploring markets beyond Europe, such as Canada and Commonwealth countries, where cultural and administrative similarities reduce barriers to entry. However, replacing EU trade volumes remains challenging due to geographic proximity advantages. For instance, stalled trade negotiations with Canada over agricultural disputes highlight the complexity of securing new agreements.
Ongoing challenges and adaptations
1. Northern Ireland protocol and Windsor framework
The Northern Ireland Protocol aimed to avoid a hard border on the island of Ireland but created barriers for goods moving between Great Britain and Northern Ireland. The Windsor Framework, agreed in February 2023, introduced easements such as simplified customs processes and governance mechanisms like the “Stormont Brake.” While these measures improve trade fluidity, unresolved issues persist, including VAT rules and agri-food product checks, which continue to affect businesses operating in Northern Ireland.
2. Evolving trade compliance costs
Rising compliance costs remain a significant issue for businesses post-Brexit, particularly for SMEs that lack resources to adapt.
3. Leveraging technology
Digital solutions are increasingly essential for managing customs processes efficiently, reducing delays, and ensuring compliance with evolving regulations.
4 Sanctions screening
Post-Brexit, businesses must comply with both UK-specific sanctions regimes and those imposed by other jurisdictions like the EU or US. For example, the UK’s sanctions on Russia differ from EU measures, requiring firms to screen transactions against multiple lists to avoid penalties. This complexity is particularly challenging for SMEs without dedicated compliance teams.
Struggling with post-Brexit trade compliance? Contact our experts at 24hour-ar.com for tailored advice on navigating these challenges efficiently.
