Small UK firms struggle with post-Brexit hurdles to doing business in Europe | Business | Economy and finance news from a German perspective | DW | 02.06.2021

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Business

Small UK firms struggle with post-Brexit hurdles to doing business in Europe

For Britain's small and medium-sized businesses, trading with European nations used to be easy. After Brexit, that's no longer the case with the emergence of obstacles that didn't exist before.

Employees at UK firm Forageplus

British exporters wrestle with a mountain of documents on rules of origin and VAT when sending stock to Europe

It was billed as the rebirth of British business — a chance to build a brighter commercial future, free of costly bureaucracy. But Brexit is proving far from profitable for many UK small and medium-sized enterprises (SMEs). 

 Swamped by paperwork, taxes, and eye-watering additional costs, some are having to shutter their EU operations indefinitely. Others, unwilling to cut off European customers, are simply upping sticks, and moving to the Continent. 

Antos, a Scottish dog chew producer, is one such firm. 

"We've had to move the whole export side of our UK business to within the EU," says owner Antoon Murphy. "We simply weren't able to efficiently provide for our European customers from Britain anymore, with all the extra health certificates and documentation that's required."

Big changes

Prior to leaving the EU, trading with the Continent couldn't have been easier. Shipping orders to the likes of Belgium, the Netherlands, and France was often cheaper than servicing remote parts of the UK. Now outside of the bloc, British exporters must wrestle with a mountain of documents on rules of origin, customs, and VAT when sending stock to Europe. If the item contains animal products, as Antos's dog chews do, the paperwork is particularly onerous. 

With this in mind, Antoon decided to partially relocate to France, acquiring a warehouse two hours east of Lyon. Having recruited a small local workforce, he's recently resumed barrier-free business with continental Europe, where the company makes around a quarter of its overall sales. Though it's early days yet, he has no regrets.

"There was an option to just walk away and fold that area of the business, but we'd worked for the last six or seven years gaining those customers through going to trade shows and engaging with them online. I didn't want to give them up."

British entrepreneur Antoon Murphy in front of his warehouse

Antoon Murphy sas his firm wasn't able to provide for European customers from Britain anymore

Non-tarrif barriers

It's a conundrum that confronts many British businesses. Though the UK government secured an eleventh-hour tariff-free trade with Brussels, massive non-tariff barriers have emerged since the start of the year. Exports to the EU fell by almost 20% in the first quarter of 2021 compared with the final free months of 2020, official figures show, while goods traveling in the other direction — Europe to the UK — dropped by over one-fifth.

Much of the pain has been felt by Britain's small businesses. In the first 12 weeks of the year, close to a third had lost consignments in transit to the Continent, an industry survey revealed, with 70% suffering some sort of shipment delays. As a result, almost a quarter said they had temporarily stopped sending goods into Europe.

The British government has remained bullish throughout the post-Brexit period, promising that these early setbacks are simply "teething problems" that'll ease with time. But some experts aren't convinced.

"With the changes to VAT, rules of origin, customs paperwork, these are related to the UK leaving the customs union and single market, and us undergoing such a huge change to our trading relationship with the EU," James Sibley, head of International Affairs at the Federation of Small Businesses (FSB), told DW. "These changes are not going away," he added.

Looking on the bright side

There is, however, optimism around the flip side of Brexit — Britain being able to broker its own global trade agreements. More than two-thirds of FSB members trade with non-EU countries, and though new markets such as Australia, New Zealand, the US and Japan might not entirely mitigate commercial losses in Europe, it is an exciting prospect, said Sibley. 

In the meantime, the government has launched a £20 million (€23.2 million, €19 million) fund to support EU-exporting SMEs struggling with post-Brexit barriers — an acknowledgment of the breadth of the issues they're facing.  

The money is only available to businesses that solely trade with Europe, however, excluding the likes of Forageplus, a Wales-based seller of nutritional horse supplements.

Forageplus employee

Fees slapped on Forageplus's products in the destination country have impacted the firm's European sales

"In a lot of the European countries now things are running smoothly," said General Manager Kieren Brownhill, who had to overcome huge logistical hurdles in the first weeks of 2021. "It's very expensive for the customer to receive the goods, however — they're being charged anywhere from 20% to 40%, and it seems totally random what the charges are."

These fees, slapped on Forageplus's products by customs authorities in the destination country, have put the firm's European sales into reverse. Brownhill and the team now plan to double down on their domestic customer base, noting that a move to the EU just isn't viable.

Moving to Germany?

For SMEs that can consider relocating to the Continent, Germany is among the most promising destinations, officials say.

"Germany is a hugely important market, 83 million consumers," said Dr. Ulrich Hoppe, director general of the German-British Chamber of Industry & Commerce in London. "There's an established trading relationship and profitable business to be done across the Channel."

German and British flags on a table

Many UK firms have contacted the German-British Chamber of Industry, keen to learn more about setting up in Germany

It's a message that's resonating with UK businesses — around 250 have contacted the chamber over the last year, keen to learn more about setting up in Germany. Those who do make the move will be employing EU citizens and contributing to European coffers, money and jobs that Britain will miss out on. 

As for Antoon Murphy, he's enjoying the best of both worlds: Half of the year will now be spent in the beautiful French Alps, overseeing the growth of the European and UK businesses. There is, however, a rather sizable hurdle on the horizon.

"From October 1, there will be a requirement on our suppliers in Europe to provide export health certificates for all goods entering Britain," said Antoon. 

"We've asked the UK's Animal Plant Health Agency for assistance in identifying and creating new health certificates for our products, but so far they are yet to assist."

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