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FSB members want to keep EU trade easy

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The potential for tariffs and other barriers when trading with the EU is a real concern for members as the Brexit negotiations get underway, according to an FSB report.

On 29 March, Prime Minister Theresa May triggered Article 50, setting in motion the negotiations to leave the EU and bringing into sharp focus the question of what businesses need from the deal. Released earlier that month, FSB’s latest report, Keep Trade Easy: What small firms want from Brexit, casts much-needed light on the issues.



The research, with responses from 1,758 small companies, shows that the highest-priority market, and largest trading partner, for small businesses remains the EU, with 92 per cent of exporting small firms trading there, and a fifth exporting exclusively to the EU. Indeed, 63 per cent of members believe the EU is the most important market with which to strike a deal after Brexit. Mike Cherry, FSB National Chairman, says: “The Government must ensure its proposed comprehensive free trade agreement with the EU retains the ease of trade currently enjoyed.”

More than half (58 per cent) of smaller firms say they find the EU easier to trade with than non-EU markets (compared with only 6 per cent finding it harder). This ease, along with cost and value, is the most attractive element of doing business with the EU – almost half (45 per cent) of current exporters and more than half (53 per cent) of current importers find trading with the EU cheaper than non-EU markets.
 
While 78 per cent of exporters and  67 per cent of importers deal with non-EU countries, they prefer those that share characteristics with the UK – three-quarters of exporting firms trade with the Anglosphere. So beneficial free trade agreements with these countries are high on the small business wish list. 

Trade with the EU is a geographical as well as a political concern for Northern Ireland’s firms. Wilfred Mitchell, FSB Policy Chairman for Northern Ireland, says: “Securing the easiest and least costly access to the EU includes allowing frictionless cross-border trade.”


Counting the cost

The report explores the economic effects that leaving the EU may have on small businesses. Among exporters, expectations of Brexit’s impact on trade  are split, with 42 per cent expecting little or no change to their volume of trade, and 49 per cent believing there will be change – almost a third (29 per cent) of which expect volumes to drop. Brexit may also shift where Britain exports to: of those who export to both the EU and non-EU markets, the 32 per cent who expect to export less to the EU is roughly balanced by the 26 per cent expecting to export more to the rest of the world. 
Of the non-EU markets likely to see more trade with FSB members, emerging economies are growing in popularity, with 28 per cent of exporters and  27 per cent of importers prioritising China and a fifth of importers and exporters focused on India.

Tariff threat

One concern for small businesses is potential tariffs on UK-EU trade. Tariffs are a factor in deciding where almost half (47 per cent) of small exporters trade. Among potential exporters, 76 per cent expect tariffs to play a role. One in three exporters say they would be deterred from trading with the EU if a tariff of 2 to 4 per cent is introduced.



Non-tariff barriers, such as the red tape of dealing with customs, also affect their decision on where to trade, with more than half of small firms stating that these barriers play a role in where they export (53 per cent) or import (59 per cent).

In light of these figures, the report urges the Government to secure the easiest, least costly access to the EU, with a sensible transition period. It believes those businesses that now trade solely with the EU need particular support to help them adjust to post-Brexit changes, as do those working in sectors that could be especially hurt by high tariffs and customs challenges. “We call on the Government to ensure a sensible, phased implementation, to avoid a cliff edge once we have left the EU,” says Mr Cherry.

Trade deals with accessible non-EU markets need to be foremost on the Government’s list, says the report, while emerging markets are likely to be particularly attractive for more growth-oriented firms. Any trade deal should include a specific chapter to represent the needs of small businesses. 


FSB has also suggested using export vouchers to defray the cost of trade missions and accessing external support such as translation services, along with tax credits to incentivise exports. The many small firms now part of global supply chains that will be disrupted also need to be considered. “Trade support needs to be tailored to what small firms really need,” says Mr Cherry.