Photo by Marcin Jozwiak on Unsplash

With the UK set to embark on a new era of global trade negotiations for the first time in living memory, the importance of minimising friction in trade and having zero tariffs and quotas is more critical than ever to small businesses across the UK.

A major new report from the Federation of Small Businesses and the UK Trade Policy Observatory at the University of Sussex Business School has highlighted what small businesses need to capitalise upon from Free Trade Agreements (FTAs).

• The US (46%), Germany (38%) and France (36%) identified as top individual country markets for small exporters and importers over next three years.
• The EU Single Market and Customs Union is the most important trading bloc for current small exporters (62%) and importers (55%), compared to the USMCA (48% and 33%) and CPTPP (45% and 25%)
• All future Free Trade Agreements must include a SME chapter and a dedicated SME committee to be set up including private sector representation and must endeavour to reduce non-tariff barriers

The research involved a comprehensive review of recent major trade agreements and identifies best practice for provisions in Free Trade Agreements that will help SMEs achieve their trade ambitions.

These range from supporting e-commerce, protecting intellectual property rights through robust enforcement, and supporting trade facilitation – particularly with regard to customs procedures. Trade facilitation is critical to SMEs because it reduces paperwork and transport costs and delays.

Small businesses’ share of global trade lags behind that of our domestic economies. A key issue will be tackling the low use of preferences in FTAs by SMEs. For example, the compliance costs of stringent rules of origin can mean small businesses choose not to take advantage of preferential terms of trade within an FTA.

Understanding the extent and the nature of, often fixed cost, non-tariff barriers that have a disproportionate impact on small traders (whether in relation to different technical standards, licensing procedures and certification, complex customs procedures, lack of intellectual property rights enforcement) is essential. FTAs should be configured to make it much easier for SMEs to take advantage of the tariff preferences they offer.

Meanwhile 62% of small business exporters and 55% of small importers, identify the EU as their most important trading bloc, ahead of the new United States, Mexico and Canada (USMCA) and the already in force Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

The US comes out as the most important individual country market for small firms hoping to export over the next three years with 46% selecting the country, ahead of 38% who chose Germany.

The report calls for all future FTAs to establish a dedicated SME committee which includes private sector representation. This committee should have a meaningful say in the key areas that will affect small firms whether that is e-commerce or trade facilitation.

It is essential that future FTAs ensure no customs levies are placed on electronic transmissions and prevent discrimination against digital products from other parties. Facilitating trade through introducing Single Window arrangements that allow importers and exporters to electronically complete import and export requirements at a single entry point would also be an important step in the right direction.

Finally, ensuring the enforcement of intellectual property protection is also of key importance to all small businesses.

Federation of Small Businesses (FSB) National Chair, Mike Cherry, said: “Small businesses are already the backbone of the UK’s domestic economy. For our country’s future prosperity, we now need to see their share of global start to catch up, by putting SMEs front and centre of all new trade agreements, especially as we depart the EU.
“It is essential that the needs of smaller firms are at the heart of future FTAs through a dedicated small business chapter in each agreement, and that the Government has the necessary architecture in place, to ensure the small business voice is heard loud and clear.

L. Alan Winters, Professor of Economics at the University of Sussex Business School and Director of the UK Trade Policy Observatory, said: “If the UK economy is to take advantage of the opportunities that are opening up, SMEs will be a central part of the picture. Making sure that trade agreements cater to their needs should be a top priority for Government”.