For many UK manufacturing businesses, the must-have corporate accessory for the past 5 years has been a crystal ball.
All over the country, businesses have been trying to operate in an environment where the future was unknown and unknowable. It has sometimes felt a little like sitting at a poker table, watching the cards turn over, and not knowing if you have a good or bad hand until the final card falls.
Now, with the UK-EU Trade and Cooperation Agreement in place, UK manufacturing businesses can at least see what those cards actually are. It may not mean you have a winning hand, but the key thing is that most of the information is now on the table. This means that businesses can finally start to plan for the future.
How We Got Here
The UK stopped being an EU Member State on 31 January 2020. At that point, a Transition Period was put in place until 31 December 2020 which effectively kept the existing rules in place.
For UK manufacturing businesses, this meant the impact of withdrawal remained largely unknown throughout the difficult and turbulent year that was 2020. Without knowing what permanent arrangements would replace the Transition Period, it was difficult for manufacturing businesses to plan or invest, particularly coupled with the disruption caused by the COVID-19 pandemic.
That period of deep uncertainty has now passed, with the Trade and Cooperation Agreement (TCA) agreed and ratified by both sides at the end of 2020.
The TCA means that the cards are now face-up on the table. Some people will like it, some people won’t, but that debate is now over. The Agreement is in place, and UK businesses need to understand it as the foundational basis of how they will work in the post-Brexit landscape.
What the TCA Says
The TCA is a whopping 1200 pages long, so it says a lot of things. However, the key headline for UK manufacturers is that the TCA agrees that there will be no import tariffs or other customs duties or quotas on imports of EU-origin goods into the UK or of UK-origin goods into the EU.
Securing tariff free trade is very much a manufacturing issue, but one with massive implications for the wider UK economy. Although manufacturing accounts for only around 10% of the UK economy, it provides almost half of UK exports and the EU is the UK’s largest trading partner, accounting for 46% of UK goods exports and 53% of goods imports. Getting an agreement in place mattered more for UK manufacturing than any other sector.
Given the potential cliff-edge of no-deal, this was a huge relief for manufacturers, particularly in sectors such as automotive and aerospace, where the lack of a deal would have made both the sourcing of parts and the selling of goods much more difficult. These are both sectors too which operate as part of highly integrated EU-wide supply chains, with intermediate goods criss-crossing borders many times during the process of manufacture
That is why companies like Nissan were so quick to welcome the deal when it was announced. It meant that cars made in the UK could still be sold in Germany or France without the need for additional import duties to be paid.
In terms of the poker game, no tariffs or quotas is an unambiguously good card – an ace or a king. It is what UK manufacturing companies wanted to see. It gives them options.
A much trickier card to read is the one around what are known as ‘Rules of Origin’. Rules of Origin may sound like an episode title from Game of Thrones, but in all seriousness, it is where we begin to see the complexity which sits behind the headlines.
In basic terms, what rules of origin means, is that to benefit from the no tariffs provision, a product must originate in the UK or the EU. That sounds straightforward enough, but it really is not. There is a whole welter or rules and regulations around this which businesses need to understand.
This isn’t the time to unpack how all of this will or won’t work – suffice to say that it is complicated, it will be time-consuming, and the administration surrounding the process will present a significant cost to businesses.
The Supply Chain for UK Manufacturers
The new rules will also undoubtedly encourage UK manufacturers to think carefully about their supply chains and where they are sourcing components from. Products manufactured using components from outside of the UK/EU, may well end up falling outside of the no-tariff rules.
This means that, moving forward, UK based manufacturers will need to be crystal-clear about their supply chains. For both import and export, businesses will have to provide a statement of origin with supporting documentation. It will be the responsibility of individual businesses to be able to demonstrate that their goods meet the rules.
For some businesses, including ENL, this is potentially a good thing. Many firms will need to start sourcing UK or EU based companies for components which will allow final goods to be exported with no tariffs. This trend towards onshoring is something which we have written about previously. Fortunately, there is a strong and growing sector of UK companies that are able to supply high-quality components. As a leading plastic injection moulding company, ENL sees these new rules as a potential opportunity to start to make the UK much more self-sufficient when it comes to the end-to-end manufacturing process.
This is not just self-interest. As we have seen with recent issues around vaccine manufacture and PPE for COVID, being in control of supply chains makes the whole country more resilient and able to deal with any challenges that arise. A strong UK manufacturing sector needs depth – we need to be more than an ‘Ikea economy’, simply assembling parts which come to us with a set of instructions.
Time to Re-Set
It is clear that post-Brexit, and post-COVID, that the time is now right for a reset to UK industrial policy. The early signs from the recent Budget is that Government is listening, and beginning to make changes to strengthen the UK manufacturing base.
However, this is not just about what Government does. As a sector we also need to be ready to step up to the challenge. We need to be ambitious and bold in the individual business decisions that we take, to help build a post-Brexit manufacturing sector for tomorrow as well as today.
About ENL Group
ENL Group is based in Portsmouth, UK. Established in 1958, we have been servicing UK-based and European companies for decades. Working with a secure supply chain, ENL provides quality components for quality-driven customers. Operating 24/7, we design, manufacture and deliver critical components for our customers across the UK and Europe.