Ever since the United Kingdom voted to leave the EU back in the June 2016, politicians, logistics experts, and businessmen have been contemplating how smooth trade will flow from Great Britain to the EU.
Now that Brexit has finally happened, analysts are beginning to see exactly how the new relationship is affecting imports and exports.
For the highly interconnected chemical industry, the free movement of goods is very important. Now, that this has largely been removed, many chemical companies are quickly learning how easy business could be done inside the single market. Everyone has found some bumps in the road, while others are considering drastic action.
For example, The New York Times reports of a chemical company that fears for its existence following the restrictions and bureaucracy put in place by Brexit.
“For nearly a century the firm of Teal & Mackrill in the port city of Hull in northeast England has made paints for special applications, like fishing trawlers and factory floors. It produces marine paint, for example, with ingredients to prevent barnacles from encrusting hulls,” the report explains. “Now in a little-noticed consequence of the new Brexit trade deal, the company is facing real concerns about its future.”
One key problem is that British chemical companies are having to cope with no longer being a part of REACH, the EU’s chemical registration system.
Instead, all chemical products destined for the British market (but not Northern Ireland) must register under the new UK REACH system.
Despite having already heavily invested in processing data for the EU system, British companies are now having to start again in registering chemical substances and paying fees to have their products listed in the UK version.
Copy and pasting the data over is not feasible as much of the information is protected under trademarks and copyrights. The result is added expense, with the UK chemical industry trade body, the CIA, estimating that the cost to the UK chemical industry of setting up UK REACH will be £1 billion.
Furthermore, if chemical companies are not willing to pay the fees or handle the bureaucracy of registering a substance due to the small gains to be had in the UK’s market size, then chemical companies like Teal & Mackrill may not be able to source the chemical products they need.
“The worry is that some of those materials that we use may become unavailable because of those costs.” says Geoff Mackrill, who is the third-generation head of the company.
Similar problems have hit Aston Chemicals, a firm based in Aylesbury, just outside London. Their business was based on importing chemicals from around the globe. They would handle all the necessary paperwork, pay any import tax due, and then ship the chemical products onwards to European makers of moisturizers or dandruff shampoos.
Using Britain as a hub “worked incredibly well,” explains Dani Loughran, the company’s managing director. However, things are not working so smoothly now.
“Trucks in Britain bound for Europe now face lengthy customs procedures at the border. And while British-made goods can still enter the European Union duty free, that’s not the case for goods that originated elsewhere,” the NY Times reports.
“An importer like Aston Chemicals needs to pay tariffs on products made in the United States or Asia, and then again when it distributes them to the European Union, effectively doubling the rates,” says Loughran.
The most likely solution will be for the company to open a base in Poland, so that chemical products can be imported there directly, skipping the bureaucracy and fees that would have been incurred in the UK.
The firm has already cut the number of people working at its warehouse from three to one.
“I think everyone who has been using the U.K. as a distribution centre for Europe is going to be affected in the same way,” says Ms. Loughran said. “They are going to find it very difficult from now on.”
Teal & Mackrill, who export 10% of their chemical products to Europe, are following a similar course of action. They have now set up a company in the Netherlands to ease import/export issues between the EU and UK and have assigned two or their seventy staff to work full time on the ‘regulatory implications of Brexit’.
While Mackrill remains confident his company can weather the early hiccups of Brexit, he fears that those that have less experience or those that are ill-prepared may not survive.
“Some of the manufacturers will probably look at it and go, ‘Why don’t we manufacture that in Europe?’,” says Mackrill. “That’s not good for U.K. PLC,” meaning British business.
It is a huge concern, and not just for chemical companies. With the chemical sector adding £33 billion a year in value, the entire UK economy may suffer.
While many sectors may struggle to adapt to the new trade relationship, in some ways the chemicals industry is more likely to be affected. As Steve Elliot, Chief Executive of the Chemical Industries Association, notes, the chemicals sector is a “trade intensive industry that sends almost two-thirds of its total exports to the EU.”
For now, the UK government is offering compensation to those businesses that have been hit the worst by what it sees as ‘teething issues’, but if problems persist into next 2022, then something may have to give.
With the ink still drying on the Trade and Cooperation Agreement that was signed between the EU and the UK in December 2020, it may be best to just wait and see if the hiccups of chemicals trade will pass. For the sake of smaller chemical businesses everywhere, it would be good if this happened soon.
To learn more about this topic read: The Challenge of UK REACH or What Will UK REACH Look Like When the Brexit Dust has Settled?
Photo credit: Ethan Wilkinson on Unsplash, Christian Chen, Nigel Tadyanehondo, Paul Teysen, & Jens Rademacher