INSIGHT: Chemical industry talks priorities with Brexit-preparing government

By Nigel Davis

LONDON (ICIS)–“There is a lot of uncertainty. This is on everybody’s mind, everybody’s agenda,” a senior UK chemical industry executive said earlier this month.

The pro-Brexit vote surprised most sector participants. Now, the many questions about what a Brexit might look like and how it will be achieved occupy a great many minds.

Through the trade association, the CIA, UK chemical companies were quick to set out their priorities and concerns following the Brexit referendum vote result.

A poll of CIA member companies immediately after the referendum result showed they had little appetite for the leave decision. That poll is on-going.

There is an understanding that the industry’s position on Brexit has to be put to government before Christmas if its voice is to be heard clearly in the clamour expected in the run up to the UK triggering Article 50, its formal request to leave the EU.

The British government says it is working on a new industrial strategy and the CIA has led discussions with ministers in the new Department for Exiting the EU and the Department for International Trade. That possibly renewed focus on industry at the sector level and maybe across similar sectors will prove to be vitally important.

At a London conference on Thursday, organised by the trade group, some 130 delegates expressed their concerns about a Brexit. Their priorities were shown in an electronic poll to be dominated by continued free trade with EU countries.

Some might envisage a trade-off between free trade and the free movement of people but the industry’s priorities encompass both these critical aspects of the Brexit debate.

“Our latest survey of member companies shows the very real concern that companies have. We want to ensure that we do all we can to continue and grow investment. While much of this is dependent on getting the right future EU deal, our industry is responding to Brexit, taking the opportunity wherever possible – be it Europe, North America or Asia, to maximise new opportunities,” said CIA chief executive Steve Elliott before the meeting.

According to Tony Bastock, a CIA board member and chairman of mid-sized UK producer Contract Chemicals, there will be clear signs that business want to invest and growth their UK operations if four key industry targets are achieved. They are tariff-free access to the single market, the continued ability to recruit talent from around the world to key jobs – and that is for temporary as well as for longer-term appointments, secure energy and a policy framework that encourages science and sustainable growth. Smaller company take a somewhat different view of Brexit challenges.

Bastock expressed concerns about a post-Brexit reach “iceberg” for UK companies. Companies like Contract Chemicals are worried about future customs and shipping arrangement and waste disposal.

It remains to be seen which of the CIA’s targets might be hit. Executives are deeply concerned and they expect politicians to do a good job. But there is little confidence that that might be the case.

Some in the industry see this as a time to press for real political effort to arrest the decline in UK manufacturing and for a more business friendly energy policy. Stronger, clearer policies on both fronts are a priority for chemicals.

Businesses will have to get on with it, in the words of one senior industry figure speaking at the conference. But they would welcome an environment that is more conducive to good business and one which helps attract investment and create more jobs.

The industry was urged by one speaker, a senior economist, to research the links between chemicals and downstream user industries and how added value is created across sectors. That could be part and parcel of a push to encourage government to implement a stronger industrial policy and the sort of regional strategies that would encourage growth.

There is said to be serious intent at the heart of government to push for a favourable Brexit but at the moment nobody really knows exactly what is going to happen.

Negotiations with Brussels are expected to be tough. The consensus view appears to be shifting towards a so-called hard Brexit which would mean the UK losing tariff free access to the single European market and stepping out of Europe’s customs union.

This would be bad news for chemical companies across the EU. Europe will become even less competitive if tariff free access with the UK, a major trading partner, is lost. It would jeopardise whole economies across the continent as well as sector jobs.

Brexit could present a legal nightmare and a tangle of laws that become mired in the UK’s unwritten constitution. But the government appears to have pulled off something of a coup with its Great Repeal Bill which would bring everything EU into UK law apart from a few items.

If the British government has little or no control over the Brexit process, from a UK and from an EU standpoint, then companies have to be prepared for a rough ride.

“You should be planning on the basis that you will be subject to WTO tariffs,” Ros Kellaway, a partner with law firm Eversheds said.

She advises that companies “work out where the cost are and [how to] pass them on”.