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UK and EU chemical associations spell out ‘hard’ Brexit costs to chemical industry

15 November 2017

Failure to secure a transition period and a new UK/EU trade agreement after Britain leaves the European Union could cost the chemicals industry an extra €1.5bn a year, according to the Chemical Industries Association (CIA) and CEFIC, respectively the UK and EU chemical industry bodies. This comes as senior political figures both in the UK and EU talk up the possibility of a failure in Brexit trade talks.

A ‘hard’ Brexit scenario would see the UK assume WTO ‘most-favoured-nation’ status and face the reintroduction of import duties on chemicals trade between the EU27 and the UK, according to a statement issued by the CIA and CEFIC on November 14.

Assuming the UK would take over the same WTO commitments as the EU, this would mean a maximum tariff level of 5.5% or 6.5% on chemicals trade – amounting to roughly €40bn a year.

"An average import duty of 3-4% results in about €1.5bn additional input costs for the chemical industry per year," the statement says. "In a globally competitive industry, it will be difficult to pass on these costs to customers and most of the burden will fall on industry."

Another important concern is retaining duty-free access for chemicals across the future UK border with the EU27, along with terms of trade between the country and the rest of the world being "no worse" than those for the EU27. "Placing additional burden on supply chains will increase production costs, impact negatively on consumers and cause disruption that will put jobs of industrial workers at risk," the statement says.

In addition, new and divergent customs procedures and requirements – such as documentation obligations, customs clearance procedures, or REACH-related verification standards – will add administrative "burden and costs" on companies.

"Considering that cross-channel chemical trade amounts to over €40bn and given the close interconnection of supply chains, we are very concerned about Brexit causing disruption of chemical markets," Marco Mensink, CEFIC’s director general said.

Any agreement on the future EU-UK relationship "must be the least disruptive possible", the chemical bodies said. And they emphasised the need for an "appropriate" and "well-managed" transition that addresses the necessity of commercial reassurance and legal certainty over market access, jurisdiction and dispute resolution.

CIA head Steve Elliott said negotiators on both sides need to make rapid progress so discussions can move to a future relationship that delivers growth for all of Europe. This could be best achieved by the development of an industrial policy that ensures Europe is an attractive place to invest.

Both bodies have also repeated calls to ensure duplication of regulation and its associated cost are avoided, by securing regulatory consistency and continued collaboration with the relevant EU agencies, such as Echa. Social, safety, health, environment standards should remain at equally high levels, they say.

Cefic and CIA also support the grandfathering of substances that have already obtained a registration or authorisation under EU legislations. The free trade of these products should be guaranteed under the same conditions as is the case now, they say, and this should apply after March 2019 until the REACH authorisation has to be renewed or the registration updated.

Another high priority, they add, is the continued free movement of skilled labour between the EU27.

The UK chemicals industry is heavily dependent upon trade with the European Union, which itself benefits substantially.

Last year the UK imported €22.6 billion from the other 27 EU states – equal to some 4.5% of all EU chemicals sales. An estimated €19.3 billion worth of chemicals are exported from the UK to the EU27. Overall the UK chemicals industry accounts for 7% of total EU sales from all 28 member states.

“The chemical industry and its suppliers and customers are part of highly integrated European and global industry value chains, with complex supply chains often crossing borders on many occasions both inside the EU and across the external EU border,” the statement says.

“Chemicals may cross the EU27 and UK borders several times, either in the form of final chemical products or integrated in (intermediate) products made with chemicals (e.g. car parts). Even in the case of the most advanced trade agreement, customs procedures will be much more complex and costly than in the single market of today.”

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