Money

UK manufacturers feel heat as EU trade battles loom


From popcorn producers to cloth and cardboard box makers, manufacturers in Britain are reassessing their reliance on overseas markets as they face the threat of tariffs in the wake of Brexit.

Japanese carmaker Nissan has drawn up plans to pull out of mainland Europe and step up operations at its plant in Sunderland if Brexit leads to tariffs on exports. But for other manufacturers in the UK, this course may prove almost impossible.

The problem for many UK-based groups is their dependence on the sourcing or imports of goods from abroad to make their products and the need to sell to overseas markets to bring in enough revenue to survive.

Stephen Phipson, head of Make UK, which represents the interests of British manufacturers, said the industry relied on a global supply chain that meant it was difficult for large companies to source materials solely from inside the UK.

It would also be difficult to ignore overseas markets, even if tariffs were imposed, because some products would always be made abroad. “There is no way we are going to be competitive in consumer electronics against China,” Mr Phipson said.

In the clothing industry, for example, more than 90 per cent of goods bought by consumers are imported, said the UK’s Fashion and Textile Association, an industry body that organises conferences for British designers and manufacturers.

“We don’t have a spinning industry, so we have to import our raw materials,” said Adam Mansell, head of UKFT. For UK manufacturers to shake off their reliance on foreign markets, it would require “a significant investment in infrastructure”, he added.

Even quintessentially British companies, such as textile manufacturer AW Hainsworth that produced the red cloth worn by British soldiers in the Battle of Waterloo and is still used by the Queen’s Guard outside Buckingham Palace, rely on overseas markets.

Countdown to trade talks

Britain’s formal negotiations with the EU on trade are due to start in March.

The UK wants a Canada-style free trade agreement, which wrenches it away from EU rules. But the EU is opposed to anything that it says might unfairly undercut businesses in the bloc to the advantage of the UK.

This means that Britain’s hopes of a tariff-free, quota-free deal on trade with the EU may be fanciful, or at least the UK may have to make some compromises.

The EU trade deal with Canada does not fully eliminate quota and tariff restrictions on some goods.

Brussels has also said Britain cannot compare itself with Canada because of its closer proximity and much larger trading relationship with the region.

Adam Hainsworth, director of the Yorkshire-based group that bears his name, says it makes sense for the company to sell about half the material it produces overseas.

The group, founded in 1783, sells its material for pianos, firefighter uniforms and snooker tables to Asian and European customers. “We supply half the world’s pianos with cloth,” he said.

The company’s imports of yarn to make the cloth also come from abroad as textile manufacturers that once permeated Britain’s northern cities have mostly shifted production to south-east Asia where labour costs are considerably lower.

“We get what we can within the UK but a lot of the time that’s limited by the market itself. We would obviously always favour UK suppliers, but there isn’t the supply. It’s impossible really to source from the UK,” Mr Hainsworth said.

Groups such as Joe & Seph’s, a gourmet popcorn company, moved some suppliers to the UK after the Brexit vote in 2016.

About 80 per cent of the company’s ingredients and packaging are now sourced from the UK, up from about 60 per cent before the referendum.

“Those few months afterwards we did move a few suppliers that we didn’t yet source in the UK. Some of the packaging was previously sourced from suppliers in the Netherlands and Asia, and a lot of that’s come to the UK,” said co-founder Adam Sopher.

“The driver was the exchange rate movement, the fact buying British has become really important to consumers, and the potential impact of tariffs,” he said.

But the raw ingredients, such as vanilla and corn, have to be imported because of Britain’s climate, which is unsuitable for growing the crops and produce.

A graphic with no description

Indeed, about half of the UK’s food is imported, with nearly 30 per cent coming from the EU, according to government figures.

Manufacturers in the steel and chemicals industries also rely on raw materials imported from overseas.

British Steel and Tata Steel produce the metal from blast furnaces using a mixture of iron ore and coking coal, typically imported from Brazil and Australia.

Stephen Elliott, head of the Chemical Industries Association, said: “The isolationist approach doesn’t work for us. I can’t think of a member company who isn’t exporting at least 50/60 per cent of its production.”

Even British companies that could source materials from the UK choose not to.

DS Smith, Britain’s biggest cardboard box maker, could buy some of the starch needed to produce paper for their products domestically, but it imports from abroad because the UK is a small part of its market and it is cheaper to do so.

Cloth maker Mr Hainsworth said: “At the end of the day, it’s supply and demand economics. People will follow the dollar, or the pound.”



READ SOURCE

Leave a Reply

This website uses cookies. By continuing to use this site, you accept our use of cookies.