British Retail Faces Further Risk on Its Revival If No UK-EU Trade Deal Reached

  • Jul 11, 2020 BST
  • Team Kalkine
British Retail Faces Further Risk on Its Revival If No UK-EU Trade Deal Reached

Summary

  • The erstwhile European Union tariff structure, in effect till December 2020, is a short-dated relief for the British retailers
  • The UK-EU trade deal is necessary as it will ensure the tariff-free movement of goods between the two blocs, ensuring British retail sector remains cost competitive
  • Should the deal not take place, the sector will come under additional pressure which is already witnessing a slow revival due to the social distancing measures imposed by the government

British Retail Consortium (BRC) the industry body of British retailers have urged upon the British and European Union negotiators to arrive at an agreement at the earliest regarding the tariff-free movement of merchandise between the two blocs at the earliest. The industry body has warned that given the fragile situation that the industry is right now, a failure to arrive at a deal will make the post lockdown recovery for the industry even more difficult. The erstwhile European Union tariff structure which is still in effect till December 2020, is a short-dated relief British retailers still have, and its future is squarely dependent on how much urgency negotiators on both sides show, to arrive at an amicable arrangement.

Retail sectors dependence of EU suppliers

The retail industry in the United Kingdom is badly dependent on the European Union for the supply of merchandise. Over the forty-seven years, it had been part of the Union; it had developed sources from other smaller countries that were able to make things at a lower cost and helped British retailers become more competitive. This arrangement over the years resulted in the manufacturing base of these commodities being depleted in the country, and workers gradually losing their skillsets. When the country decided to part ways with the EU, this became a major challenge that the retail industry came to face.

Developing of new sources of supply and training people with the required skillsets is possible in the medium to long term, but in the short term, stop-gap arrangements would have to be made so that the industry does not suffer losses. The British and the EU sides thus decided to extend the existing tariff arrangements by 11 months more, while both parties formally parted ways on 31 January 2020.

The pandemic, however, made matters much more complicated for the industry. The British retail industry has now shrunk significantly with several small and large retail companies already falling into bankruptcy. Thousands of their staff are now under furlough, and its recovery severely hampered by the strict social distancing measures that have been imposed by the government. Given what the situation is right now, industry observers do not believe that a full revival can be expected before the year-end; hence any imposition of new tariff would only make life difficult for the retailers.

Other sectors which are similarly dependent on EU suppliers

United Kingdom has benefited a lot with its association with the EU, and not just the retail industry but several other British industries were able to make themselves competitive by associating with other EU countries. EU was a major source of skilled manpower that came to the UK and worked on lower wages and helped numerous industries control their costs. The largest beneficiary of the EU association was reaped by the British car industry. Over the years, British car manufacturers developed high-quality sources of components in other European countries which were able to produce them cheaply. These components, which were then brought into the UK for final assembly, helped the industry become so competitive that it was able to export nearly 85 per cent of the cars it produced in a year.

As the UK came out of the EU, it was now difficult for British companies to hire EU labour and the automobile components arriving from other smaller countries of the EU Bloc would now attract enhanced tariffs. Thus, a tariff deal is a very important arrangement that both sides must urgently arrive at if sudden business disruption shocks are to be avoided on both sides.

The tariff negotiations that were scheduled to happen between both sides smoothly since 31 January 2020 were badly hampered because of the arrival of the pandemic and the subsequent lockdown in the UK as well as most countries in the EU. The engagement though has restarted between both parties via teleconferencing, but industry representative from both sides are canvassing to push forward the negotiations so that the tentative date is not missed.

The governments long term plan to reduce dependence on the EU

While coming out of the EU, the British government had made promises that it will make investments in retraining Britons in essential skill sets that are required in the British industries. It will enter into trade deals with other economic blocks around the world, and simultaneously it will more than compensate for the market access it lost due to its parting ways with the European Union. British negotiators have been holding negotiations with EU as well as other countries like United States of America, Australia, New Zealand and Japan among others since the beginning of the year and its hopes that despite the challenges that have come up because of the coronavirus pandemic it will be able to secure appropriate deals that will bring in new opportunities for its companies and people.

The British retail industry would be benefited by these negotiations to the extent that it will be able to develop new and cost-effective sources of supply from non- EU countries and would also get more opportunities to expand their businesses outside the UK.

Conclusion

The British retail industry is currently plagued by many problems. The industry is not able to bring back many of its employees from furlough because of low football in retail stores. Online retailing, on the other hand, has been eating into the market of traditional retailing rapidly. During the lockdown online, retailing has registered a phenomenal growth in the United Kingdom and is also expected to score over traditional retailing in times to come.

However, despite this transition taking place in the retail industry, the sources of merchandise have not changed. Be in online retailing or traditional shop floor retailing; both are dependent on supplies from the EU. It will be interesting thus, to see how this industry copes with this problem in the mid to long term time span, should getting supplies from outside becomes difficult or expensive.

 


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