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21 March 2017

Small firms reveal trade deal wish list post Brexit

New research from the Federation of Small Businesses (FSB) reveals the trade deals smaller firms want to see struck first post Brexit. FSB’s latest report, ‘Keep Trade Easy: what small firms want from Brexit’ shows the top priority market for small firms is still the EU single market (63%). It also reveals the importance of other markets, with nearly half (49%) of FSB members selecting the US as a priority market and one in three (29%) choosing Australia. Other key markets include China (28%) and Canada (23%).

The research reveals the potential impact of tariffs being introduced to UK-EU trade. One in four (27%) exporting small firms would be genuinely deterred from trading with the EU should any tariff – no matter how low – be introduced. Should the UK find itself trading with the EU under World Trade Organisation (WTO) rules alone, exporters would face the EU’s most-favoured-nation tariffs. One in three small business exporters say they would be deterred from trading with the EU if a tariff rate between two and four per cent (the range within which the EU’s average applied tariff tends to have fallen over the past few years) was introduced.  Crucially, small business exporters and importers also find non-tariff barriers (such as administrative burdens in dealing with customs) to be as equally important as tariffs.

The new research also discovered that over half (58%) of smaller firms find the EU single market easier to trade with than non-EU markets (6% find it harder to trade with the EU single market). Nearly half (45%) of current exporters and over half (53%) of current importers find trading with the EU single market cheaper than trading with non-EU markets. While only nine and eight per cent, respectively, find it more expensive.

Mike Cherry, FSB National Chairman, said:

“This new FSB research reveals the true small business wish list for future trade deals. Small firms trade with countries based on ease, cost and value and any future trade deal must deliver on these key aspects both with the EU single market and non-EU markets.

“The top non-EU countries of choice for trade deals include the US and China. However, the reality is that the EU single market is still a crucial market for smaller firms and cannot be undervalued. Compared to larger companies, small businesses typically work to tighter margins with limited resources, meaning changes to the trading landscape will hit them disproportionately hard. We call on the Government to ensure that a sensible phased implementation arrangement is put in place to avoid a cliff edge, once we have left the EU.

“The impact of potential tariffs and non-tariff barriers to trade with the EU is shown to be a real concern for small businesses trading overseas, at the very time that the UK economy can least afford to see a slowdown in exports. FSB calls on the Government to secure the easiest and least costly access to the EU single market in the Brexit negotiations. This includes a new customs arrangement with the EU that allows for frictionless cross-border trade. And we call for greater support for small businesses to gain full benefits from future trade deals with non-EU markets. A small business chapter to cater to our member’s specific needs in all future trade deals is crucial.”

Brexit is likely to change the export destinations of many smaller firms, with 32 per cent of exporting small firms expecting to export less to the EU. At the same time 26 per cent expect to export more to non-EU markets. The Government needs to provide much needed support to small businesses to ensure there isn’t a lull in trade if the UK is to increase the numbers who export.

Any new trade deal that impacts exporters, must also take into consideration the impact on importers. Our new research has found that seven out of ten (69%) small business exporters are also importers. This means that any new policy on trade must take into consideration the impact on them both.

Mike Cherry continued:

“The entire trading journey and each cog of the supply chain needs to be taken into consideration when negotiating any new trade agreement. Trade support needs to be tailored to what small firms really need, from the type of priority markets that would have the greatest traction with small firms to specific support measures such as small business trade missions. FSB is also keen to explore with Government the role financial incentives such as export vouchers or export tax credits could have on small business exports.”

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