Industry faces customs burdens and duplicate compliance costs
WHILE the UK Government has lauded its eleventh-hour agreement with the EU for a zero-tariff, zero-quota trade deal, businesses and industry groups have warned about a raft of issues that require further negotiation and clarification, and about new, costly administrative burdens that are impacting businesses and remapping supply chains.
On 24 December, in the wake of news that the EU and UK had avoided a no-deal Brexit, there was a wave of relief that importers and exporters would avoid tariffs. Trade group Make UK said a no-deal outcome would have caused catastrophic damage to manufacturing in Britain. The Chemical Industry Association (CIA) estimated it would have hit the sector with an extra £1bn in annual costs.
But relief quickly passed to concern: “Today’s vote [to pass the deal] finally ends more than four years of uncertainty and dispute, during which investment has ground to a halt,” said Make UK CEO Stephen Phipson. “However, businesses must now manage their way through one of the biggest changes to trade ever seen, which takes effect in just 48 hours. There will be new customs paperwork, arrangements at the border and significant additional red tape.”
Phipson said the UK Government must move quickly and work with both UK business and EU partners “to address a wide range of issues such as rules of origin, recognition of professional qualifications and chemical registration systems where the new arrangements are likely to be most challenging”.
New administrative burdens for those trading across the English Channel include completing customs declarations and providing details on supply chains to avoid tariffs under rules of origin obligations. This extra cost of compliance will erode competitiveness for the UK chemicals sector which relies on the EU for 60% of its exports. It is a risk to low-margin chemicals trade and it is already reshaping UK-EU supply chains.
In January, Aston Chemicals, a medium-sized chemicals importer and distributor said it had ceased exporting to the EU from the UK. To avoid extra costs, it has separated its supply chains, using a subsidiary in Poland for its EU distribution while reducing UK warehousing staff, the Financial Times reported.
Robinson Brothers, a manufacturer and exporter of fine chemicals and rubber accelerators that employs 300 people in the UK, told The Chemical Engineer that the most noticeable impacts since the deal passed are delays at ports and having to complete additional documentation.
“There has been a significant increase in red tape and cost,” said Adrian Hanrahan, Managing Director of Robinson Brothers. “This provides zero benefit to our employees, our company, our customers or UK PLC but is a great potential benefit to our competitors in the EU who do not have these same costs.”
Hanrahan is thankful that many customers have remained loyal, though he has noticed uncertainty among others, and said some potential business has been lost to EU competitors.
“And I have not talked about the opportunity costs. We could be using the cash tied up in these new burdens to add value within the business, not detract value.”
One of the key concerns in the lead up to and in the wake of the deal is how the UK will regulate chemicals. There had been calls from industry and environmental groups that in the interests of environmental protection and cost savings the UK should negotiate an agreement to remain wedded to the EU REACH chemicals regulation.
Instead, the UK opted to create a shadow UK REACH, requiring chemicals companies to duplicate their efforts to work in both markets. UK companies seeking to sell into the EU had to transfer their REACH registrations to the EU by 31 December. In January, the European Chemical Agency (ECHA) said 20% of registrations in the UK had not been transferred and will be revoked.
Conversely, chemicals companies must now register their chemicals with UK REACH. This effort will be hampered by that fact that a deal has not been agreed to share REACH data held by ECHA with the UK.
“Failure to secure access to what has been a decade’s worth of investment by UK chemical businesses in data for EU REACH will leave the industry facing a bill of more than £1 billion in unnecessarily duplicating that work for a new UK regime,” CIA CEO Steve Elliott has warned.
Elliott has said that the CIA will work with industry and government to try and resolve the data issue. Appearing on a webinar hosted by the chemicals data service ICIS, he said one possibility is having UK REACH focus only on new or additional substances. He described it as a tall order, but one worth pursuing.
Hanrahan said: “Again there is zero benefit of this duplication to our employees, our customers, or the environment, but it could easily precipitate totally unnecessary animal testing, which would be a travesty and unethical given that the information already exists.
“The UK Government accepted the rulings of ECHA under the old system, and accepted that I had the data or I had access to the data when we were members of the EU. The data is still there. It is the same data. I just can’t access it due to the failure of politicians on both sides to agree.”
DEKRA, a consultancy that provides chemicals compliance services, issued a guidance note advising that companies have until 30 April to submit a basic dossier to UK REACH. Depending on the volume and toxicity of the chemicals involved, companies have two, four or six years to submit a completed registration. The Northern Ireland Protocol means Northern Ireland will not face the new barriers established for GB businesses and EU REACH still applies there.
Chemicals advocacy group CHEM Trust said it hopes ongoing negotiations will help the UK achieve a closer relationship with EU REACH.
“This may become easier in the future if the UK political focus moves away from ‘sovereignty’ and towards a more pragmatic consideration of what businesses need in order to be able to trade effectively with the EU – and the level of protection that the people of the UK will expect,” said Executive Director Michael Warhurst.
Both the CIA and Make UK said future success following Brexit will require the UK Government to set out an ambitious industrial strategy.
Now that the UK has left the EU, the framework for recognition of professional qualifications, established under the Mutual Recognition of Professional Qualifications Directive no longer applies to the UK. The impact this will have on the recognition of IChemE members’ qualifications varies, depending on the countries that individuals are providing services to.
“Prior to Brexit, the EU Directive facilitated the recognition of professional qualifications including Chartered Engineer, but now that it no longer applies, individuals will need to comply with the requirements of each EU country,” said David Lloyd-Roach, IChemE’s Director of Qualifications. Fortunately, in most EU/EEA countries registration is not compulsory.
There is hope that mutual recognition with EU countries could be re-established. Lloyd-Roach said that engineering institutions will be discussing the possibility with the Engineering Council, which could facilitate any future negotiations on behalf of the wider engineering profession. These negotiations would have to be bilateral with individual EU nations. The EU-UK trade deal sets out a framework for establishing these.
“On a positive note, we continue to have good relationships with our counterparts in the EU,” said Lloyd-Roach. “And IChemE, through the Engineering Council, awards the EUR ING title so this is an option for members seeking recognition in Europe.”
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