UK-EU Trade Deal Is Welcome News – But the Devil Will Be in the Detail
The recent announcement from the UK Government about the UK-EU relationship re-set is likely to be welcome news to Wales' SMEs. The deal set out measures covering a dozen different areas and aimed at an improving partnership with the EU over the coming years.
So what are the key takeaways for Welsh SMEs?
With total Welsh exports to the EU amounting to £10 billion in 2024 and representing just over 60% of Wales's worldwide exports, the EU is undoubtedly our closest trading partner. However, those exports fell by 13.4% from 2023 levels, reflecting the increased friction resulting from our departure from the EU.
Taking a more detailed look at the agri-food sector, which is so important to the overall Welsh economy, the good news is that the new Sanitary and Phytosanitary measures (SPS) should ease trade between the UK and the EU by cutting some of the bureaucratic hurdles that have previously caused issues for our exporters.
75% (£611 million) of Welsh food and drink exports in 2023 were to EU countries, with eight of the top 10 export destinations being EU countries, clearly demonstrating the importance of this trading partner. When we look at the top categories, meat, cereals and dairy and eggs are the top, making this deal important to the Welsh agricultural sector.
With no apparent time limit to the measures, the deal should also provide some much needed stability for our food and drink producers. However, it is unclear when the measures will come into force, and whether or how the measures will be phased in.
In practice, it looks like some routine checks on animal and plant products will be stopped, allowing these types of products to move more easily between the UK and EU. This could reduce both the costs of these checks and the time to move goods through border posts. And of course, speed of transit through border checks is vital for perishable goods and avoiding food waste caused by border delays and the costs of destruction.
The upside of this reduced friction is that our agri-food products will be able to be more competitive in those export markets. Unfortunately, we know that, post the EU Exit, some smaller businesses just couldn't cope with the increased paperwork and costs of compliance and therefore completely stopped exporting to the EU.
A further simplification will the removal of Export Health Certificates which has been a significant cost for businesses. This is particularly good news for those small Welsh food producers who add significant value to primary produce from our farmers.
Of course, there will still remain regulatory differences to navigate, and it remains to be seen how quickly our food and drink producers who were exporting to the EU will be able to boost trade. Sadly, we know that the relationships between exporters and EU distributors suffered when those distributors were unable to reliably and cost-effectively source products from some of our artisan producers and have since found alternative suppliers. These relationships will need to be rebuilt and that takes time.
For Welsh service providers, the package of measures around business mobility and recognition of qualifications should make it easier for service businesses to expand into and trade with the EU. Sectors likely to benefit from these measures include professional services, IT and digital services. And, of course, Wales's thriving creative services sector should benefit from the measures announced as part of the touring artists package.
It was no great surprise that defence and security featured so strongly in the measures announced, given the geo-politics that have become the backdrop to the daily news cycles. This again could provide opportunities for Welsh businesses which support defence supply chains to access the EU's €150 billion Security Action for Europe (SAFE) instrument, which is designed to boost defence production across the EU. Defence supply chains are wide ranging, covering cyber security, advanced materials and manufacturing, aerospace, AI, autonomous systems, precision engineering to name a few and we have businesses in Wales with this type of expertise.
Finally the youth mobility scheme, although yet to be specified, promises to provide opportunities for cultural and work exchange between the UK and EU. Indications are that the scheme will be time limited and a cap is to be agreed, so it is difficult to assess whether the scheme will help to address any particular labour/skills shortages. However, it could potentially mean that SMEs may be able to benefit from a time limited opportunity to attract talent from the EU, perhaps bringing much needed language skills, particularly for those businesses looking to re-build their EU exports, to support short-term projects, or to cope with short-term seasonal demand. And of course, our own young people can benefit from such a scheme, returning to our workplaces with enhanced skills which add value to our economy.
Overall, the measures announced feel like a step in the right direction for businesses, but, as always with trade deals, the devil is very much in the detail. We will be watching carefully to understand the how Welsh businesses can maximise the opportunities from this deal and minimise any risks. And time will tell how long it takes to re-invigorate those business to business relationships between our exporters and distributors and customers in the EU.
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