International Business: UK-EU Trade Challenges and Responses

This report examines the evolving trade relationship between the UK and the EU following Brexit, focusing on the challenges and initiatives that have emerged. It begins by providing an overview of the pre-Brexit trade dynamics, highlighting the EU's significance as the UK's largest trading partner. The report then delves into the difficulties faced by UK businesses, including increased costs for manufacturing, trade imbalances, labor supply impacts, and disruptions in services and agri-food sectors. It also explores the decline in trade volume and the effects of border restrictions. Furthermore, the report analyzes the UK government's responses, such as the Trade and Cooperation Agreement (TCA), the implementation of zero tariffs and quotas, support for fisheries, concessionary loans, and efforts to reduce non-tariff barriers. The report also covers government acquisitions, aviation safety cooperation, trade agreements with Turkey, and cross-border services trade. The conclusion summarizes the key findings and the future outlook for UK-EU trade.

Module title: International Business
Table of Contents
Introduction 1
Task 1: Challenges, barriers and Competition to UK-EU trade 2
Heavy cost to U.K. key manufacturing industries 2
EU-UK Trade Imbalance 2
Impact on Labour supplies 3
The Services trade 3
Assessment for conformity 3
Impact on Agri-food 3
Cost and benefits to UK economy 4
Trade fell dramatically 4
Effect of border restrictions on business and trade 4
Task 2: Steps and initiatives taken up by UK government 5
Zero tariffs and zero quota 5
Focus on fisheries 5
Government provide concessionary loans 5
Reduce non-tariff barriers 6
Government acquisitions 6
Aviation safety and security cooperation 6
Trade agreement with Turkey 6
Cross-border services trade and investment 6
Official level engagement 7
Brexit business taskforce 7
Launch of seafood disruption support scheme 7
Extend tax payment deferrals7
Operation kingfisher 7
Conclusion 8
References 9

Module title: International Business
UK and EU Trade Relationship
Introduction
With the Brexit process, United Kingdom left the European Union on January 31, 2020. The
European Union (EU) is the world’s largest trading bloc and rated as the 2nd largest economy in
the world. UK is no longer the part of EU, but it realizes the importance of the member
countries because it have enjoyed strong and free trade relations. The EU is the biggest global
trading partner of UK. It represents the 47% of UK’s total trade. The EU is the source of 51.8%
UK’s total imports, while buyer of its 42.6% total exports. The top three goods that are
imported by UK in terms of percentage includes: Motor vehicles (18%), Pharmaceuticals (7%)
and electric appliances or machinery (4%). Whereas, the top good exports to EU includes
Petroleum (12%), Motor vehicles (10%) and transport equipment (6%) (De Ville & Siles-Brügge,
2019).
In comparison to the global trade, the UK relation with other countries has remained stable as
it have grown its exports with China and U.S by 7% and 4% respectively. While, the country has
a $108 billion trade deficit with the EU and surplus of $67 billion with non-EU countries. The
exact nature of UK and EU trade cannot be traced after Brexit. As both have enjoyed a single
market and free trade for half of the century. In view of evidence collected, it can be seen that
the post-Brexit scenario had huge implications for some regions of UK as well as the EU. (Hix,
2018)
On January 1, 2021 both UK and EU
signed a free trade deal to encourage
trade by making it cheaper either it’s
related to goods or services. With the
end of transition period, this agreement
was concluded after series of long
negotiations for market access and free
trade. So this deal has come up to
negotiate the future trade relationship because EU is the closest trading partner for UK. To
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Source: Department for International Trade (2018)

Module title: International Business
some extent, this deal has introduced the tariff free trade quotas but things are not similar as at
the time before Brexit. In this report, the challenges and barriers to trade has been identified,
along with that some innovative policy options are suggested to mitigate them.
Task 1: Challenges, barriers and competition to UK-EU Trade relations
The UK and EU trade relation has undergone significant changes after the Brexit. The
competitive challenges are being faced by UK by ending the partnership with EU. Most of the
challenges or barriers that have been faced by UK are listed below:
1. Heavy cost to U.K. key manufacturing industries
The companies that once used to have free trade with the market of Europe are now
subjected to number of different costs. The manufacturing industry of U.K accounts for
10% of its economy. The manufacturing industries, most notably the aerospace or
automotive are highly dependent on the supply chain of EU. Brexit has created a lot of
extra costs for the manufacturing industry and an extra hassle such as custom
declarations has been added to the trade process (Abeysekara, Wang, &
Kuruppuarachchi, 2019). It has created a huge impact for the smaller firms and
businesses that are no ready for such trade encounter. A sharpest decline has been seen
in the automotive industry as the companies are force to pay additional costs including
custom duties or tariffs. Therefore, the cost of export of EU has tend to rise in the
aftermath of Brexit.
2. EU-UK Trade Imbalance
The UK no longer follows the trade regulations of EU. The industrial sectors have faced a
downfall in achieving revenues from exports as UK is highly dependent on the market of
EU. In case of manufacturing, the UK export seems to lose the revenue that it use to get
from the trade with EU. The Brexit has created lots of uncertainties among the
businesses of UK, as they have witnessed the shift in potential policy making at the
national level. It has affected the decision making process of the trading companies
(McKenzie, 2017).
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Module title: International Business
This process has not only effected UK or EU, but also adversely effected the global
economy. The businesses have to undergo a new series of paperwork for conducting an
efficient trade which ultimately is more time consuming and hectic than the earlier
procedure before Brexit. In this way, the value of pound has deprecated against both
the US dollar and Euro. The trade has become more hectic due to new regulatory and
custom checks.
3. Impact on Labour supplies
The EU has direct impact on the labour market of UK, as it allowed the free movement
of labour across the border. The process of brexit has indirectly effected the foreign
direct investments and trade flows. The immigration restriction has put a pressure on
the labour supply of UK market. Most of the EU immigrant had been working in the
healthcare industry, food manufacturing and other parts of public or private sector. The
recent years has seen a decline in the immigrant’s employees due to new regulations.
The workforce that comes up from EU are highly skilled and professional in their job.
The trade of human capital has been effected in the context of EU and UK. This is a
concerning situation for UK to lose such a skilled labour team. This has left a significant
gap in the labour supply of UK market, and the government has yet to decide that how
to cover the gap of Labour that has emerged due to immigration control (Frattini, 2017).
4. The Services trade
Regarding the service providing trade, the barrier of mutual recognition has emerged.
The professional qualifications are not recognized in the way that they used to be before
Brexit. The service provision has limited the scope of service providing between the
inter exchange of UK and EU (Dhingra, Ottaviano, Sampson, & Reenen, 2016).
5. Assessment for conformity
Due to the lack of mutual agreement on recognition of products and services, both the
parties will have to assess their conformity with the respective regulatory bodies.
6. Impact on Agri-food
Both the sides have not worked on reducing the anti-septic that require physical check
and balance. In this way, the business based on agriculture will be severely impacted. In
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Module title: International Business
the formulation of TCA, there was no plan related to such indicators of geography and
environmental security.
7. Cost and benefit to UK economy
By the creation of new trading terms, the costs and benefits of the trade has remained
disputed for the UK economy. It will almost need a decade to fully evaluate the
additional costs and practices for conducting the trade. This will be a broader-level
political consequences faced as a result of UK-EU trade agreement.
8. Trade fell dramatically
With the start of year 2021, the UK trade had fell dramatically because the trade flow
recorded in between UK and EU were much lower than the past records. Along with
pandemic, the Brexit has severely effected the export of UK and EU. These factors are
considered to be the driving force behind the lessening of trade (Lydgate, Rollo, &
Wilkinson, 2016).
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Module title: International Business
9. Effect of border restrictions on business and trade
The process of Brexit has directly and indirectly effected the business and trade. With
the hard Brexit being imposed and collectively with the COVID border restrictions, the
trade has undergone significant challenges in the import and export sector. The sates
are reluctant to trade freely and openly across the border that has added to miseries of
already present aftermaths of Brexit. The trade industry has faced the trouble in two
fold, as both the challenges has erupted at the same time for UK government as a result,
the commerce has been effected to a great extent with recorded decrease in annual
start of the trade of UK with its EU and non-EU partners (Tetlow & Pope, n.d.).
Task 2: Steps and Initiatives taken up by UK Government
With the end of transitional period of Brexit, the UK government has concluded an agreement
with EU called as Trade and Cooperation Agreement (TCA). To tackle with the process of Brexit,
this agreement was signed to access free trade and European market. The provisions of the
agreement deals with provisions of trade, transport, fisheries, law enforcement, and social
security. By analyzing the above challenges that is being faced between, UK and the regional
bloc EU, the Britain government has come up with different strategies to deal with them.
Following are some of the policies adopted by the UK government to ease the flow of trade
between both parties.
1. Zero Tariffs, zero quota
With the TCA, the UK has been successfully able to gain the ‘zero tariff, zero quota’ trade
with its largest trading partner EU. Although UK has officially left the custom union and
5
Source: Institute for Government Analysis (UK Trade, 2021)

Module title: International Business
single market of EU, but with this deal there will be no restrictive quotas or tariffs imposed
(Morris, 2020).
2. Focus on Fisheries
In the negotiations with EU, the UK came up with the decision that they will get greater
share of fisheries from their waters. The EU vessels can be given access for up to the year of
2026, but after that they have to withdraw. Also, the EU exports will undergo the food
safety and customs check by the independent coastal body of UK. The quotas assigned to
both the entities will be followed for the upcoming years. Afterwards, the UK has the power
to remove the EU completely from their waters (Tetlow & Stojanovic, 2018).
3. Government provide Concessionary loans
The UK government is providing the concessionary loans as guarantees with reliable and
generous terms. These loan are designed to help the smaller firms to tackle from going
under a shortfall in cash flows. It has temporary application but may help in mitigating and
stabilizing the business environment for time being. The trading industries, mainly
manufacturing have found help in the form of these loans. These loans are different from
the other schemes introduced by the government. It has ensured the business to come up
with a credible plan to recover from the losses of trade (Kalaitzake, 2020).
4. Reduce non-tariff barriers
In the agreement, specific annexes were considered in which both the parties agreed for
reducing the technical barriers to trade. It was agreed to minimize the tariff barriers for
products such as chemical, medical, organic or automotive.
5. Government acquisitions
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Module title: International Business
Both the parties agreed to allow the access to bid for each other’s government
achievement. Despite of the fact it goes against the Procurement agreement of WTO, they
decided to bid for each other’s governmental contracts.
6. Aviation safety and security cooperation
It was agreed that the air transport for cargo and passengers will continue the operation. In
regard the security cooperation, both sides will acknowledge the safety certificate of each
other’s’ passengers or goods.
7. Trade agreement with Turkey
With the onset negotiations on TCA, the UK reached a beneficial trade agreement with
Turkey. As UK has relied on EU for very long, so finding another supply chain can help in
expansion of its investment and trade (Owen, Stojanovic & Rutter, 2017).
8. Cross-border services trade and investment
The cross border service trade includes the specific provisions on the financial and legal
services. The initiative has been taken up to ensure the market access for suppliers and
investors. Along with that, both sides have achieved the digital grade platform that can help
facilitate the cross border trade. The digital trade includes commitment over the protection
of privacy, personal data and consumer protection.
9. Official level engagement with business
The government has come up with a joint commitment with its business owners and service
providers. It has officially engaged with the industries and stakeholders to tackle with the
emerging issues related to trade and partnership. The government has been involved in
giving a framework for understanding the new shortcomings in the trade process (Razzaque
& Vickers, 2016).
10. Brexit Business Taskforce
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Module title: International Business
The government has been able to consider the options for business and other public or
private sectors by formulating a task force. This has enabled them to reach out and
communicate with different service providing sectors (Wilkes, 2019).
11. Launch of ‘seafood Disruption Support scheme’
In response to the challenges faced by specific sectors, the UK government has launched
the services and schemes accordingly. In case of the losses that incurred during the trade of
fisheries, the government has announced £100,000 to help the firms for tacking with the
issue (Marshall, Jack, & Etherington, 2020).
12. Extend tax payment deferrals
To ease the constraints of cash flow, the UK government has allowed the businesses to
delay the payment of Value Added Tax (VAT). It will help to ease the liquidity of cash flow
and the payments could be deferred for the time being to tackle the shortcomings of trade
due to Brexit (Tetlow & Pope, n.d.)
13. Operation Kingfisher
The UK government launched the plan for Brexit named as ‘Operation Kingfisher’ to deal
with the businesses sin the time period of transition. It helped the businesses including
manufacturing sectors and construction that were identified by the government in need of
support. (Pandzic, 2021)
Conclusion
The revival of healthy trade between UK and EU lies in the shape of their newly signed
agreement ‘TCA’. Both sides will have to implement this agreement against the vast range of
issues including trade. In the aftermath of Brexit, the trade deal in shape of TCA has been
considered beneficial as whole. This has provided another platform to revive the future
negotiations between both the trading blocs. This deal is determinant of the future relations of
EU and UK, after the long negotiations of elven months. In the post-Brexit era, this deal is
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Module title: International Business
critically very important for UK as it will strengthen the security and economic interdependence
of both the parties. It is clear that the economic integrity is not possible today, as it used to be
in the earlier period. The removal from the custom union and single market has bought number
of restrictions and barriers for trade between UK and EU.
Government has already come up with suitable negotiating terms with the EU but still it’s a long
way to go on after withdrawal from the regional bloc. The UK government should look for
various policy options to help mitigate the after effects of Brexit on the manufacturing industry.
It should focus on investing more into the UK manufacturing industries.
 It could be done by the collective effort of government and manufacturers to analyze
the opportunities and challenges
 By altering the reliance on EU markets and exploring new supply chains
 By integrating the industrial skills
 Equal power distribution to the institutions of industrial policy making
 Technological advancement of the form, so it can work more efficiently and up to the
mark.
 Formulate a supportive trade deal with EU that can help compensate the additional
costs for manufacturers.
The government has been taking efficient policy measures and options for the smooth run of
business, but the future of UK trade lies in the hand of third countries. Finding markets abroad
is the way out of the challenges in this situation. The companies have to follow the open-
growth strategies to seek more market for its trading purposes other than relaying only on the
EU. Its free trade agreements with Canada, Singapore and US will not only help boost up the
trade, but also bring new investment and trade opportunities. This will widen the choice for
consumers as the UK market will be given the chance to explore the new markets. The revenue
loss faced due to the EU markets can be compensated by having potential trade with third
countries, which will help boost the revenues of export.
References
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Module title: International Business
Abeysekara, N., Wang, H., & Kuruppuarachchi, D. (2019). Effect of supply-chain resilience on
firm performance and competitive advantage. Business Process Management Journal.
De Ville, F., & Siles-Brügge, G. (2019). The impact of Brexit on EU trade policy. Politics and
governance, 7(3), 7-18.
Dhingra, S., Ottaviano, G. I., Sampson, T., & Reenen, J. V. (2016). The consequences of Brexit
for UK trade and living standards.
Frattini, T. (2017). Evaluating the labour market integration of new immigrants in the
UK. Social Policy and Society, 16(4), 645-658.
Hix, S. (2018). Brexit: where is the EU–UK relationship heading?. Journal of Common Market
Studies.
Kalaitzake, M. (2020). Brexit for finance? Structural interdependence as a source of financial
political power within UK-EU withdrawal negotiations. Review of International Political
Economy, 1-26.
Lydgate, E. B., Rollo, J., & Wilkinson, R. (2016). The UK trade landscape after Brexit. Royal
Institute of International Affairs, Chatham House.
Marshall, J., Jack, M. T., & Etherington, H. (2020). Preparing Brexit.
McKenzie, B. (2017). The Realities of Trade After Brexit.
Morris, M. (2020). The agreement on the future relationship: a first analysis.
Owen, J., Stojanovic, A., & Rutter, J. (2017). Trade after Brexit. Options for the UK’s
relationship with the EU. Institute for Government, 1-54.
Pandzic, L. (2021). IMPACT OF BREXIT ON UK-EU TRADE RELATIONSHIP. Ecoforum
Journal, 10(1).
Razzaque, M. A., & Vickers, B. (2016). Post-Brexit UK-ACP Trading Arrangements: Some
Reflections.
Tetlow, G., & Pope, T. Brexit and coronavirus.
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Tetlow, G., & Stojanovic, A. (2018). Understanding the economic impact of Brexit. Institute
for government, 2-76.
Wilkes, G. (2019). Bailout for business in a no-deal Brexit. Institute for Government, 16.
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