Mitigating EU Regulatory Divergence
Background
The Government wants a more constructive trading relationship with the EU. As well as the negotiations on revising the Brexit deal to ease border controls on food imports it is considering how closely it aligns our legislation on product safety, customs and environment with new EU legislation. In some cases that will mean aligning our legislation, such as through the new Product Regulation and Metrology Act which gives it new powers to quickly align product safety regulation. It is also aiming to give UK businesses more visibility of EU changes and what they mean for companies trading in the EU and supply chains.
Department for Business and Trade (DBT) is leading this work and is liaising with BRC and other organisations to understand which areas of EU legislation should be prioritised, in terms of alignment or guidance. We have fed into the process highlighting EU deforestation regulations, sustainability reporting and packaging as key areas for you and your supply chains.
This report is from the latest DBT industry meeting.
New Ministers
DBT outlined the changes in the Department from the recent re-shuffle. They said their new Secretary of State, Peter Kyle has a keen interest in the importance of trade in growth and business investment, and has already visited China and the US. The Trade Minister, Chris Bryant is also new in post and, as a former Minister for Europe, DBT feels he is well placed to secure the new deal with the EU as well as understanding the need for UK businesses to have a stable relationship with it.
Prioritisation
DBT explained how it is prioritising EU legislation for consideration. It is primarily considering legislation in its remit, such as product safety but working with the Cabinet Office and other departments it is looking at legislation outside its direct remit such as deforestation and sustainability reporting.
DBT is analysing new and emerging EU legislation to understand its impact on UK businesses. It is using several factors to determine how much of a priority these are based on the economic interest of UK businesses, including whether it impacts on the Northern Ireland Windsor Framework and its cross over with domestic policy, It is using the BRC and others to help.
Its focus is more on exports and businesses themselves. I suggested it should consider the impact on imports and through that UK consumers as well as understanding how our supply chains, which are often EU based, might be affected as well as direct impact on business. It accepted these as important and is aiming to include them in its prioritisation.
We should see a full list of prioritised EU legislation shortly, but we know deforestation, CBAM, sustainable reporting and the EU Union Customs Code are high on it. There will be a further discussion on deforestation at the next meeting and the Customs Code and CBAM were discussed on this call.
EU Union Customs Code
You will be aware the EU is taking forward a major reform of its customs system. It is aimed at simplifying the system, increasing efficiency by use of a customs hub and quicker data handling, greater responsibilities for online businesses and the removal of the low value imports de minimis threshold of €150.
DBT said under recent Presidencies the reform was moving quicker than before and they are aiming to finish primary legislation by the end of 2025, although detailed implementation under it will be dependent on secondary legislation introduced from 2026.
The discussion was primarily about the impact on SMEs, particularly the potential for greater financial representation in the EU, fees, the loss of de minimis and increased tariff payments. Some felt it would also drive SMEs towards platforms than direct trade with customers. There was also concerns raised about ensuring systems worked effectively and data was controlled. A question was also asked whether changes to trusted trader and AEO would actually make a difference. I also raised the point about the UK review of low value imports, that it was important we were not left behind by the EU and US in removing the de minimis.
DBT acknowledged the need for greater guidance, particularly for SMEs as there is more clarity on implementation. They said it would be a priority area for support over the next couple of years. It also said they were considering the EU changes as part of the UK’s trade strategy, in terms of digitilisation. They also acknowledged the point on de minimis, but said UK policy is currently being reviewed by the Treasury.
CBAM
The new EU CBAM taxes will apply from January 2026 on goods such as iron and steel, aluminium and fertilisers. Businesses said there were two main problems. Firstly, the complexity of analysing the data on emissions to calculate and justify and tax. Secondly, the de minimis threshold for imports, which is 50T pa by importer not exporter.
DBT said it was planning more information and webinars at the end of the year to ensure compliance. It also said it would seek to clarify how the de minimis threshold would work and its impact on UK SMEs.
I asked about UK CBAM (due to come into force in 2027) and its links to the EU legislation. Treasury officials said they were drafting primary legislation to be agreed in Parliament by the end of the year, with secondary implementing legislation in 2026. They said the Government was clear it wanted to remove any burdens in EU supply chains, and was planning to do this by aligning with the EU emissions trading scheme. It also said the UK would take the same approach to other countries (eg Switzerland) who also align to the EU ETS.
Next Steps
You can hear more about the DBT work in removing burdens of EU divergence at our Trade and Logistics Community meeting on 17th September 2pm more details here
The DBT officials will meet us and other organisations in December to review priorities for action, with a focus on EUDR.
