Before the end of 2020, there was a focus on how Brexit was going to lead to problems at the border; in Dover and Calais in particular. But, something that has now come to light is the issue being caused for UK based distribution centres.
The trade deal that was agreed allows for zero tariffs on goods between the UK and EU member states, but it states that these goods must originate in the EU or the UK to qualify.
This provides a bit of a problem for companies that use the UK as a distribution centre. For example, if a company exports from the EU to their UK distribution centre, they will get zero tariffs. But then if they want to distribute these goods back to the EU without making any changes to them, for example if they’re going to Ireland, the goods will then be tariffed. This is because they don’t count as originating from the country exporting them.
This is all down to the Canada-style deal that was fought for. It doesn’t take into account how interconnected the supply chains are between the UK and the EU, unlike Canada who don’t operate in that way with the EU due to the proximity.
Being as interconnected as they are, the UK has many trade hubs for the EU and these tariffs now put doubt on how long that’s going to continue for. No one wants to incur extra costs or end up with their products being more expensive than competitors. It’s wiser for them to stop using the UK for their distribution.
An EU official was reported as saying "You can’t expect Brexit not to have consequences...The UK won’t be a distribution hub for the EU any more. EU businesses will need to stop relying on UK hubs.”
So, any companies that use UK facilities to store and re-distribute goods back to the EU, including Ireland, could take a hit as companies re-assess their options. This is particularly an issue for importers in Ireland, alongside food and drink exporters, since they have some of the highest tariffs.
The Financial Times reported that for some companies, such as Ashton Chemical that imports and exports cosmetic chemicals, they have completely ditched cross-border trade with the EU from their UK hub. Instead they are opting to split their UK and EU supply chain. And this is not a unique situation.
In the short term it’s unlikely to have a major impact. But, alongside other costs and bureaucracy companies face, longer-term it will shift the way companies do cross-border business, particularly small and medium sized ones.