The Fate of the UK Chemicals Industry Outside of the EU Part 1
Since Boris Johnson and his Conservative Party won a clear election victory on Dec 12th, 2019 the debate about whether or not Brexit will happen is over. Remainers are now resigned to their fate outside of the EU, while the government has re-started talks with their European counterparts over their future relationship.
Key to all of those negotiations will be trade, and a key part of trade for both sides is the chemical industry.
As the New Statesman’s award winning journalist, George Grylls, asks, “The second largest manufacturing industry in the UK is chemicals and 70 per cent of its exports go to the EU. What could possibly go wrong?”
In the UK alone, the chemical industry generated £12.1 billion for the UK economy. A vital source of tax revenue and employment, with EU Chemical Industry Council (Cefic) reporting that, “UK Businesses in the chemical industry employed 153,000 in 2018, and around half a million if you include all whose jobs depend on the industry.”
Saving these jobs requires a trade deal because of the way chemical production in the UK is so interlinked with chemical production in Europe. As Stephen Elliott of the UK’s Chemical Industry Association (CIA) explained when he outlined the process of producing a fabric softener.
“The raw material is a petrochemical that originates in France. It comes to the UK where they build an intermediate. That gets shipped to Germany where the active ingredient element is added. It is shipped back to the UK to be formulated and bottled - presumably by someone like P&G or Unilever,” he says.
“That’s an example of a product that needs to respond to just-in-time supply chains. There’s three or four border crossings there. Each one of those is potentially going to be slower than it used to be with customs checks.”
Failure to keep chemical industry trade free flowing could be costly. As a Grylls’ report in the New Stateman makes clear, stating that, “A leaked Whitehall briefing from 2018 showed that the chemicals industry would shrink by 12 per cent in the event of a Free Trade Agreement (FTA) [No Deal] Brexit — the most damaging prediction for any sector. And overall, the region worst hit by an FTA Brexit? The North East [location of the UK’s chemical production hub], whose economy could contract by 11 per cent. London, it should be noted, was the least affected region with only a 2 per cent drop.”
To avoid the worst of this, alignment of rules and regulations between both sides of the border is required. This is something that the customs union achieved, with the single market providing borderless trade. But now that relationship is to end, can we expect something similar in its place?
Maybe not, as the Guardian reported in early February 2020, “Boris Johnson will issue a direct warning on Monday that the UK will refuse close alignment of rules and reject the jurisdiction of the European courts in any trade deal.”
Quoting the British PM as stating, “There is no need for a free trade agreement to involve accepting EU rules on competition policy, subsidies, social protection, the environment, or anything similar any more than the EU should be obliged to accept UK rules.”
Exactly, how far Johnson is opposed to alignment in individual sectors remains to be seen. Consensus among most in the chemical industry is that the UK must continue to follow REACH policy to ensure that chemical products in the UK and the EU meet the same standards.
“REACH is an increasing global influencer,” says Elliott. “Countries like South Korea, Turkey and Japan (to an extent) are increasingly following the principles of REACH. We want to stick close to it.”
“We are the authors of REACH,” agrees Andy McDonald, a Labour MP from the North East of England and in opposition to Johnson’s government. “We were the driving force of some of those regulatory measures.”
The New Statesman’s report acknowledges the power of REACH, stating that, “It seems inconceivable that the UK can diverge from REACH. Even if it did, manufacturers would end up complying in order to get their products onto the European market. The likeliest outcome is a copy and paste job — taking EU chemicals law and replicating it in domestic law. But registration requirements mean that even this type of equivalence might not cut the mustard.”
“You’re looking at duplicating the costs,” says Elliott. “It would cost us as a ballpark figure of about half a billion pounds.”
Faced with a red-tape bill of this size and a hit to chemical businesses if nothing can be achieved before Dec 31st, 2020 it seems that the British chemical industry could do with a little help.
To find out more about the effects of Brexit on the chemical industry, read; The Fate of the UK Chemicals Industry Outside of the EU Part 2.
Photo credit: Chemicalindustryjournal, Tass, Bpf, Thenational, Thetimes, Icis, Chemistryworld, & Chemwatch, Pixabay