For One British Business, Brexit’s Crimson Tape Is Simply Starting

For almost a century, Teal & Mackrill has been manufacturing paints for special applications such as fishing trawlers and factory floors in the port city of Hull in north-east England. For example, marine paints are made with ingredients to prevent barnacles from encrusting their hulls.

In a neglected episode of the new Brexit trade agreement, the company is now facing real concerns about its future. Geoff Mackrill, the third member of his family to run the company, said growing UK regulatory burdens on chemicals could ultimately mean that he will ultimately not be able to get some of the additives that make his colors distinctive.

“The concern is that some of the materials we use,” he said, “may no longer be available because of these costs.”

It’s a problem spread across the UK chemical industry of £ 33 billion (or about $ 45 billion) a year.

Prime Minister Boris Johnson, when he announced the trade deal on December 24th, said Britain was now free to “set our own standards and innovate in the ways we want”. Businessmen like Mr Mackrill were relieved that the UK had avoided a chaotic exit and that UK-made goods could still enter Europe duty-free.

However, some companies, especially those in the chemical industry, are finding that doing business has become more complex rather than simple. The European Union’s sophisticated and onerous rules may no longer apply in the UK, but they remain a fact for UK companies like Mackrills who want to keep selling their goods in Europe.

In addition to the burden, the UK government is creating its own stringent chemical regulations that are in line with EU law. An industry group said the cost to chemical companies of re-drafting European regulations, which requires extensive documentation, could be as high as £ 1 billion, potentially putting a huge burden on small and low-profit companies.

The regulatory changes, as well as the fact that chemicals can have long supply chains, have led some companies to rethink their operations in the UK.

Prior to Brexit, Aston Chemicals, a company based in Aylesbury, about 50 miles northwest of London, imported chemicals from around the world, did the necessary papers, paid any import duties, and then trucked them to European manufacturers of moisturizers or dandruff shampoos.

Using the UK as a hub “has worked incredibly well,” said Dani Loughran, company director. But not after Brexit.

Trucks in the UK heading to Europe are now facing lengthy customs procedures at the border. And while goods made in the UK can still enter the European Union duty-free, goods made elsewhere cannot.

So an importer like Aston Chemicals has to pay tariffs on products made in the US or Asia and then again when it sells them to the European Union, effectively doubling the rates, Ms. Loughran said.

As a result, the company will now instead supply Europe from a base in Poland, a member of the European Union. The British camp staff was reduced from three to one.

These new barriers are not just a burden on the chemical industry.

“I think anyone who has used the UK as a distribution center for Europe will be affected in the same way,” said Ms. Loughran. They “will find it very difficult from now on.”

With the move, Ms. Loughran’s UK arm will primarily serve the local market – but even that prospect has a regulatory cloud over it.

She is used to working with the European Union’s chemicals regulation system known as REACH, which is known for its rigor. Companies are required to provide the Helsinki-based European Chemicals Agency with detailed documentation on each chemical substance they supply within the European Union, detailing their properties and uses, as well as the potential risks and hazards. Ms. Loughran said REACH was “a headache we feared and cursed” but it at least covered the entire trading bloc including the UK.

However, the chemical industry had hoped the UK and the European Union would continue to exchange data submitted under REACH post Brexit, but that language didn’t make it into the December deal.

Companies now have the prospect of filing extensive and largely duplicate records on the chemicals they intend to sell in the UK to a newly established UK agency, UK REACH. The fees and labor of reconstructing product safety data and other matters, which is expected to take several years, could ultimately amount to £ 1 billion, according to estimates by the Chemical Industries Association, a UK trade organization.

A company cannot simply cut and paste statements and files previously filed with the European regulator, as the filings are in many cases full of commercially sensitive intellectual property from other companies.

Stephen Elliott, the industrial group’s executive director, said chemical companies operating in the UK may be forced to repeat almost “word for word” the filings already filed with the European regulator.

“That’s a pointless use of resources,” he said.

Mr Elliott said the industry had continued to lobby the government to agree to accept the documents already submitted under REACH, but said such an outcome at this point was due to the government’s reluctance to rely on Europeans What looked like a “big challenge” regulation.

Executives say it makes little sense for chemical companies to incur similar regulatory costs as the European Union to sell products in the UK, whose economy is about a seventh the size of the European Union. Industry executives also doubt that the UK chemical agency will have enough staff and resources to compete with its European counterpart of around 600 employees.

“The combination of Brexit and UK REACH regulations is not very helpful when companies are considering where to make new investments,” said Paul Hodges, chairman of New Normal Consulting, a chemical-focused company. In other words, new investments can go elsewhere.

A deterioration in the UK chemical industry would be a blow to the post-Brexit economy. Chemicals may not be as visible as some other industries, but these substances are an integral part of a wide range of products, including cars and shampoos. It’s a major company in the UK, accounting for a whopping 9 percent of exports. Almost 60 percent go to the European Union and, according to government statistics, employ around 94,000 people.

One concern is that companies will decide that some chemicals that make low profit margins or sell in small quantities, such as the ingredients Mr. Mackrill buys for his paints, are no longer worth supplying. So far, industry leaders have been adopting a wait-and-see approach, despite seeing the new red tape and costs in the UK askew.

BASF, the German chemical company that sells around 1,200 substances in the UK, estimates UK REACH could cost the company £ 70 million.

“If the cost of bringing products to market increases to make them uneconomical, we will not do it and we will lose money,” said Geoff Mackey, director of communications and sustainability at BASF in the UK.

However, smaller UK companies are more likely to feel the effects. If they want to continue to be serious players, they have to sell to Europe and stay in line with European regulation, they say.

Mr Mackrill has already felt obliged to start a company in the Netherlands to comply with European Union regulations, where he ships around 10 percent of his products. He also has up to two employees working full time on the regulatory impact of Brexit, which puts a strain on the resources of a company with 70 employees.

Mr Mackrill, who is now his company’s CEO, appears confident that a company that has been around since the early 20th century can handle the Brexit swarms, but he says others may judge that the easiest way to go is to relocate their business to the huge market next door.

“Some of the manufacturers will probably look at it and ask,” Why don’t we make this in Europe? “Said Mackrill.” This is not good for UK PLC, “he said, referring to the UK business.

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