The recent report issued by the UK’s Chemical Industries Association made clear the concerns that the chemical sector has over its Brexit future. The report was based on analysis made by the British government over the impact leaving the EU will have on UK industry. It suggested that, “after Brexit, chemicals manufacturers could end up having to transfer more than 9,000 registrations to the EU in order to keep selling those chemical products there.”
This has led to UK chemical industry chiefs warning of the impact to the business if trade barriers are put in place. Particularly, as the BBC reports, “The chemical industry is ‘highly reliant on EU supply chains’, and chemicals and components can cross borders several times during processing and assembly.”
However, before anyone starts to panic about the situation chemical companies will face in March 2019 (when Brexit will turn from phrase to fact), it is important to establish some facts. Not only will this remove some of the uncertainty, it will also help chemical businesses plan, and help individual chemical suppliers avoid their own ‘cliff edge’.
What the Chemical Industry Knows about Brexit
One fact that does seem clear is that the UK will no longer be part of the single market. As Politico reported in February 2018, “Downing Street has ruled out staying in the EU’s customs union.” Instead, “The U.K.’s two proposals were either a customs partnership or a highly streamlined customs arrangement.”
As chemical products are highly regulated and face some of the strictest import/export regulations, the lack of completely free movement of goods and services from the UK to the EU will have huge ramifications; mostly money.
As Richard Carter, managing director of BASF UK informed Reuters, “We expect already through possible customs duties and tariffs, changes in duties and delays in the supply chain, to incur additional costs of between €40 to €60 million per year.”
If you would like to learn more about the future of the European chemicals industry, you may enjoy this other article from AG CHEMI GROUP's blog page.
The good news for British chemical companies is that by leaving the EU single market, the UK will be able to make separate trade deals. Trade deals that may specifically advantage the British chemical industry’s products, without having to be concerned or make concessions for Spanish tomatoes or French wine.
As British PM Theresa May told Sky News, “What I want to do is ensure that we have got the best possible trade arrangements with China and with other countries around the world.”
A view supported by cabinet minister, Dominic Raab, when he said, “I do not think that we will be in any form, at least as conceived in international trade practice, of customs union, because … we would have our hands tied while negotiating trade deals with other parts of the world whether it is Brazil or China or India.”
While this trading strategy may prove effective in the long-term, it will cause major turmoil in the short-term. As the ECHA (the European chemical’s agency) advises, “If your business is in any way part of a supply chain that links you to businesses located within the 27 EU member states remaining after the UK’s withdrawal, you will face some fundamental changes.”
Chemical Regulation: The Devil is in the Detail
But while acknowledging the importance of REACH compliance may sound relatively simple to politicians, the nature of chemical industry regulations makes it more complex; and expensive. This is because chemical manufacturers need to register all potentially toxic products by May 2018, and yet that registration will become null and void in March 2019, the final Brexit deadline.
If no deal can be made before that date, then EU companies using British chemical products will have to register the chemicals themselves. As the ECHA warns European manufacturers using British chemicals, “Any buyer of chemicals in the remaining EU or EEA will have to assure themselves that they or one of their upstream suppliers based in the EU has obtained a REACH Authorisation for the respective use of the substance, taking the place of the UK-based business partner.”
For example, the agency has confirmed that, “Rolls-Royce plc has already obtained an authorisation to sell plasticiser DEHP (di(2ethylhexyl) phthalate).”
This increased level of bureaucracy will cost both time and money, and will have an impact on UK chemical manufacturers. As Plastic News Europe explains, “Without question, these changes will cause disruption for the UK plastics and plastics ingredient industry. Maria Cristina Poggesi, scientific and technical advisor for the Italy Federation of Rubber and Plastics (Federazione Gomma Plastica) said that her company members, being small-and-medium-sized enterprises (with few distributors) will most probably end their trade relations with UK suppliers.”
“We think it would be very unlikely that they would afford a re-registration, due to economic and organisation efforts,’ she said.
The BBC agrees that, “New chemicals could end up having to be registered twice - in the UK and EU.” Noting that, “standard registration fees vary from €1,700 euros (about £1,500) to €34,000 euros (about £30,300).”
Meanwhile, Bernhard Reith, purchasing manager for international plastics supplier, Austria-based Lenzing Plastics, also warned Plastic News Europe that, “it will not be a problem to find a continental Europe replacement” to British suppliers of plastics ingredients.
Fortunately, there is less concern over the EU’s CLP (classification labelling and packaging) regulation because it is thought likely the legislation would be included into UK law via the governments so-called ‘Great Repeal Bill’.
Similarly, the UK will still abide by the United Nations’ Global Harmonised System (GHS) and, “Thus, for example, the pictograms will be valid within the UK,” the ECHA said.
It's Not the Hope that Kills, it’s the Uncertainty
Some things will remain the same, both before and after Brexit, and for sure the world will keep on turning and consumers will still require the chemicals they need to live modern life. There was a thriving chemical industry in the UK before the country entered the single market, and no doubt British technological know-how and hardware will leave chemical companies in a good position for years to come.
If the country can make favourable trade deals with other regions and trading blocks, then the UK chemical industry may well benefit from Brexit. But these deals will take years to put in place.
In the meantime, all eyes are looking to how Westminster and Brussels can come to an agreement on what the future relationship will be. Unfortunately, until this is settled it will put a hold on long-term investment and development projects. The chemical industry is struggling under the weight of the unknown.
As Steve Elliott, chief executive of the Chemical Industries Association, said on the 8th March, "What we now need is the negotiators to get on with negotiating. Only when that progresses will we know what's really going to happen.”
This is a view point supported by BASF’s Richard Carter, when he said, “We stand ready to make changes if we know which ones are necessary, but the lack of certainty is restricting us in what we can do now in practical terms.”
Perhaps the European Council summit being held in Brussels on March 22nd and 23rd 2018, will tell us more.
If you would like to learn more about the future of the European chemicals industry, you may enjoy this article from AG CHEMI GROUP's blog page.
Photo credit: SeatradeMaritime, GeeGeeKay, BostonHerald, Breakbulk & EUCommission
