British companies face tariffs despite Johnson’s promise of a “tax-free” agreement

British companies come to the hard realization that Boris Johnson’s “duty-free” Brexit trade agreement does not really do what it says.

While the predicted scenario of long truck queues around ports in Dover as soon as midnight on January 1 did not succeed, companies in the EU and the UK are facing more bureaucracy just to get their goods across the border.

By the end of the first week of 2021, some British companies have suspended exports to the EU and left empty shelves in the Marks and Spencer stores in France, and orders with European customers have not been fulfilled.

Soviet shortage in my local @marksandspencer in Dublin with some fresh vegetables or fish to get. My mole says it’s all Brexit-related with trucks that have been delayed since Friday by further paperwork. That food will be spoiled soon.

– Jason Corcoran (@jason_corcoran) January 6, 2021

The British department store Debenhams has closed its website in Ireland due to “uncertainty about trade rules after Brexit”. Another department store, John Lewis, has also said it will no longer offer international delivery, although the retailer reportedly told the BBC that this was part of a strategic decision to focus operations on UK customers.

When the real disturbance begins

Some pro-Brexit experts have argued that hassle-free traffic around the border proves that Brexit has not actually caused so much disruption to supply chains.

One week after Brexit and Dover harbor worked well. Still no excuses from the Project Fear commentators and media forecasts.

– John Redwood (@johnredwood) January 7, 2021

But industry leaders are warning that the real test will come later in January, as stocks such as companies built to mitigate Brexit logs begin to run out. The UK Road Haulage Association said there were around 2,000 trucks a day causing Dover-Calais to cross in both directions during the first week after Brexit – compared to a normal day when around 5,000-6,000 trucks make the journey.

Michael Gove, the British Prime Minister responsible for Brexit logistics, warned on Friday: “The real challenge and potential for significant disruption will begin next week.”

He added: “We have always been clear that there would be changes now that we are outside the customs union and the internal market, so full compliance with the new rules is crucial to avoid disruption.”

The new rules involve much more paperwork, such as customs declarations, and logistics companies report that their UK customers are regrettably unprepared.

The courier service DPD has temporarily stopped its European delivery service and says that 20 percent of the packages could not be delivered due to “incorrect or incomplete information attached”.

An account manager at a logistics company told Bloomberg that the logistics of getting goods across the border had turned into a “nightmare” and said: “Customers are massively confused about what is needed.”

It seems that the reality on the ground is far from Boris Johnson’s statement on 24 December that the agreement “above all means security for business”.

In addition to the extra paperwork, many companies are now also warning that they may have to pay customs duties on certain products due to new rules of origin in the UK and EU trade and cooperation agreements.

What are the rules of origin?

In its statement of 24 December following the announcement of the post-Brexit trade agreement, the British Prime Minister said that the agreement would allow “goods and components in the UK to be sold duty free and without quotas” in the EU and would “if anything” allow British companies to “do even more business with our European friends”.

British companies are now quickly realizing that they can actually get extra tariffs if they re-export goods to the EU. According to the Brexit deal, a product can be struck with extra tariffs if more than 40 percent of its components do not “originate” in the UK. But the meaning of “originating” here is complicated: for example, 44% of the components of the average car manufactured in the UK come from UK suppliers, but only about one-fifth of the components themselves are manufactured in the UK, disqualifying the car from duty-free trade.

Zero customs goods arriving in the UK will accumulate customs duties if they are re-exported to the EU – unless they have been altered in any way, which would change their status to ‘UK origin’. This means that certain foods and agricultural products can attract high external EU tariffs.

The British brand Marks and Spencer has struggled to fill the shelves of its EU stores and has even temporarily closed some of its stores. Earlier this week, French office workers and British foreigners took to Twitter to complain about the lack of ready-made food, curry boxes and cheddar cheese.

Now the company has said that about 2,000 of its food products may be affected by the rules of origin and cause additional charges.

“Duty-free does not feel like duty-free when you read the fine print,” says Steve Rowe, the company’s CEO.