A step into the unknown
07 July 2016
Two weeks after the Brexit vote, it is possible to see some of the major issues facing the UK’s process and high hazard industries over the coming period in closer focus. Overall, the UK exports 40% of its products to European Union countries but this is far higher for some process industries, for example chemicals, where the figure is 56%. A main priority will be to reduce disruption while negotiating an equitable trading regime between the UK and EU.
In a 2015 assessment, the think-tank Open Europe concluded that after an initial period of disruption, manufacturing sectors such as cars, chemicals and food and beverage stood a far better chance of gaining reciprocal EU access than the services and financial sectors. This was partially due to trade flows advantaging EU countries in manufacturing, whereas the opposite was the case for services and finance.
Open Europe also noted potential benefits: “Outside the EU, Britain would be nimbler and would regain control over trade policy and, possibly, a whole range of regulations. The chemicals sector would, for example, hugely benefit from a more cost-effective emissions reduction policy, currently impossible due to EU rules. Car manufacturers could benefit from a trade deal with China (unlikely to happen in the EU). The Scotch whisky industry, accounting for 25% of UK food and drink exports, could really do with a trade deal with India – a big consumer of whisky – where it currently faces a 150% tariff.”
Britain will have to reach a new trade agreement with the EU covering exports and imports, tariffs, issue such as mergers and acquisitions, customs procedures, passport controls for business travellers and regulation on issues such as environmental, health and safety standards. A major issue here is whether the UK government and civil service have the personnel and skills to negotiate deals across all of the above within the two-year deadline.
UK industry associations, although mostly having declared for the remain camp in the run-up to the referendum, were sanguine about the result and emphasised the importance of a measured and orderly exit.
Steve Elliott, Chief Executive of the Chemical Industries Association which represents chemical and pharmaceutical businesses across the UK, said: “This is democracy in action – both in terms of the result and the level of participation. It is not the decision that our sector wanted, but we fully respect the wish of the people for change. Whilst business craves certainty, it is also used to operating in challenging and changing circumstances. We now have to look to the future and I am confident that an important and resilient industry such as ours can prosper in this new situation.
Oil & Gas UK said: “The UK oil and gas industry is at a critical juncture and we need to ensure the UK Continental Shelf continues to attract investment and be seen as a great place to do business. We hope that all those involved will now come together and work constructively to make this transition as smooth as possible and we ask that the UK Government clearly outlines the process which will follow to minimise any potential period of uncertainty.”
Gareth Stace, Director of UK Steel, said: “The decision to leave the European Union will send shockwaves across the UK’s steel industry. It is now more essential than ever to create the right business conditions in the UK that allow the steel industry to survive, invest and thrive. This will ensure that our vital supply chains, such as defence, automotive and construction, can rely on the production of steel in the UK so we are self-sufficient and can never be left at the mercy of others. Government now needs to fully and finally tackle head on the uncompetitive electricity and policy costs that have historically hindered the growth of steel producers and seen thousands of high-skilled jobs lost over the last year. We need to see all major projects, from HS2 to Hinckley Point to airport expansion, all using British Steel instead of procuring from foreign companies that offer no social value to the UK and its communities and economy.
“Government can now match words with actions and take the lead in dealing with subsidised exports, most notably form China, that are slowly destroying steel making in the UK. It must come up with clear and concrete actions to ensure that we can still trade with the EU, while at the same time ensuring that trade tariffs have the teeth to guard against dumping of Chinese steel. An exceptionally challenging ask, but one the whole UK steel industry stands ready to support.”
Terry Scuoler, CEO of EEF, the manufacturers’ organisation, said: “While it is not the result many businesses wanted, it is the democratic will of our country. The Government must now move very quickly to stabilise the economy, reassure the markets and shore-up business confidence. The process of leaving the Union will take some time, and the Government should not rush to initiate Article 50 and the formal exit process, while there is so much uncertainty. Ministers must think carefully about our negotiating position while setting out a clear roadmap for establishing a new deal with the EU which remains our biggest market and trading partner.
“We need a clear vision for a new relationship between the UK and the EU, but we must also avoid throwing the baby out with the bathwater. In the complex task of unpicking the UK from EU regulation and legislation, the Government must tread carefully, maintaining a trading relationship with the single market, and not becoming bogged down to the detriment of making long-awaited and much-needed decisions on projects vital to our future economic prosperity. We must also ensure that the skilled workers we need are still encouraged and enabled to live and work in the UK.”
Much will depend how quickly the political turmoil following the Brexit vote is resolved, and strong and purposeful government is re-established to put in place a framework to ensure both the UK and its erstwhile EU partners gain the best possible outcome from this unprecedented situation.