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No-Deal BREXIT - A Looming Catastrophe for UK Chemical Sector

February, 2019

The vote of 16 January, 2019 has created many uncertainties in the UK chemical sector. The chances of no-deal Brexit have increased multifold with non-acceptance of the deal in the parliament. This scenario can have serious implications on chemical industry in the UK disrupting the supply chain dynamics. The chemicals and pharmaceutical industry, which is one of the biggest contributor towards the national GDP is expected to take a heavy toll on the regulation and control of chemical production standards, employment policies, and most importantly on trade dynamics, which is not limited to the trade with European Union. Let us understand where and how the possibilities of BREXIT is going to impact.

  • Lot More Complexities in Trade - The uncertainty over the trading options has been giving nightmares to the industry specialists and traders all through the last few months. They have not been given any relief with the decisive rejection vote in the parliament and any update from thereon. The industry experts from The European Chemical Industry Council (CEFIC) have cleared that in case of hard Brexit, the UK traders would have to comply with the World Trade Organization (WTO) tariffs of 6.5% for the trade, even in case the product is being supplied to its own subsidiary by the same company barring few painstaking exceptions. Such tariffs would result in increased intra-company trade cost, discouraging the production supply network. On other hand, if the UK negotiates and goes into custom deal with the EU seeking trade relief, it may cause different trouble for the country. The policies dictate that in such scenario, the UK would have to eliminate the tariffs with third parties wherein the EU has free trade agreements (FTAs) by negotiating its own FTA. This can prove even more tricky even considering the sheer manpower needed to consider it as option.

  • Chemical Registration - The chemicals registration would have to take consideration of getting in line with EU REACH. All the companies in the European Union have registered themselves and their products with Reach and now again re-initiating the process may not be welcomed by the industry participants. Consideration of taking the current registration with independent country level body and taking it forward separately may also face some challenges. The fast-changing market preferences and increasing emphasis on the circular economy, have been causing disruption in the industry breaking path for innovation. Any such innovation to reap complete benefit would seek market potential in complete Europe, which may turn difficult for dual registration process, especially within the UK, potentially limiting the market potential for innovative ideas via increasing registration and regulatory cost associated.

  • Employee Safety & Contribution - The chemical industry workers and employees have entrusted the EU guidelines relying for safety measures, contributions, and life support. The change in the regulations caused by exclusion from EU Reach may not be welcomes by the industry participants. The trust gained by Reach, which is revered by industry workers across the Europe, is relatively difficult to match by any new regulation created in relative haste. Such impact on the employee morale, in wake of IT automating causing job security concerns may not set the right direction for industrial growth.

The areas explained above are only three among potential impact areas with hard Brexit deal while there are numerous other areas which are expected to hit the industry both directly and indirectly. The news agencies have notified agencies preparing for no-deal Brexit. Although the chances of it are increasing, for everyone’s benefit, let’s hope the differences can be sorted to reach at agreeable and manageable terms for both sides.

– Ankur Kalra,
Manager – Chemicals & Materials,
Infoholic Research