It feels as though we’ve argued about Brexit until we’re all blue in the face.
If it came to it, there would probably even be heated debate about what shade of blue that should be, depending on your personal views about the EU flag and the ideal colour of British passports.
Despite the growing clamour for a People’s Vote, that may or may not feature Remain as an option, the most likely course of events continues to be that as of 11pm on 29 March next year the UK will cease to be a member of the EU. This will be followed by a transition period lasting until the end of 2020 intended to bring about an “orderly withdrawal”.
Things become much more uncertain once we move on to the terms of the UK’s divorce from the EU27 bloc. At this juncture, it’s impossible to know whether we’ll strike a deal and if so what its shape will be. But as things stand, with agreement proving hard to reach both among politicians domestically and with Brussels, crashing out of the EU without a deal in place is a strong possibility.
So, what are the implications of a Hard/No-deal Brexit – given that the UK print industry imports almost all its paper and many other consumables from Europe? For a start, no agreement would see World Trade Organization trade rules automatically applied to the UK (see boxout for more details).
How is this likely to affect trade?
Would this outcome trigger price increases and hold up deliveries? What are the industry’s hopes and fears? And how are suppliers preparing for the WTO rules scenario?
“The risk of the UK leaving the EU without an agreement is increasing, and businesses should be preparing now for how they will manage in such a situation,” says Andrew Large, director general of the Confed-eration of Paper Industries. “The key issue now is to communicate, with suppliers, customers and employees. It is important that all parts of the supply chain understand that they have a responsibility to manage their Brexit-related risks and to assist others to do so.
“It is impossible to pre-judge what the position will be for individual businesses, but communication is key. Panic action, in an uncoordinated manner, will only make any disruption worse, and may indeed cause unnecessary disruption now.”
In general, Large suggests, businesses in all industries appear to be reacting to Brexit uncertainty in three major ways. “They are carefully building a little more stock in all their supply chains so as to be more robust in the event that lorry movements across the Channel are difficult. They are further identifying specific products and services that, if absent, would cause immediate operational problems and are arranging for stock and/or alternative non-EU suppliers where possible. Some businesses, like BMW Mini at Cowley, are also bringing forward planned maintenance shutdowns so they take place in April 2019, thereby avoiding the worst of any potential disruption.”
In the long term, trading with the EU27 on WTO rules would add costs to business, according to Large, who adds: “It remains to be seen if that competitive drag on UK businesses translates into lower rates of UK economic growth overall.”
Being outside the common market, absent agreement, increases the likelihood that goods will be subject to inspections and delays. “Especially,” says BPIF chief executive Charles Jarrold, “with sanitary and phyto-sanitary products, i.e. food, livestock, meat products and so on. This clearly has implications for the food-packaging sector.”
What other implications are there for the printing sector? “Actually, tariff barriers themselves, while undesirable in increasing the cost of business, and representing a tax levied by the importing country effectively on its own businesses and consumers, aren’t the main issue,” says Jarrold.
“The tariff for paper and board is 0%. Most printed products are also 0% (with the exception of playing cards at 2.7%). However, printing inks have a 6.5% tariff and most printing machinery a 1.7% tariff.
“Delays and inspections would be more of a concern, especially early on. For example, trucks may be held and delayed to ensure that the goods they’re declaring to carry are indeed what is being transported. This could apply even where there is no tariff on the declared goods. The importing country has a legal responsibility to ensure that its minimum tariffs are indeed levied, so, for example a container load of paper at zero tariff is actually that, and not some other product attracting a higher rate of tariff. Of course, it may be possible to streamline all this, but, it’s questionable whether this will be possible by March 2019.”
Mario di Lieto, managing director at Stora Enso Lumipaper says printers are concerned by the prospect of a Hard Brexit and those worries are intensifying as the March leaving date gets ever closer. What can they do to ease their fears?
“The most productive change would be for paper purchases to be placed with the manufacturer earlier. All paper makers appreciate that this change requires effort ‘upstream’ but it is the easiest change that is in the hands of the customers themselves.”
He elaborates that a balance should be struck, however, given that stockpiling hurts working capital for the printer. Moreover, as paper availability is currently tight, stockpiling may not be as easy as it sounds.
“Lead times are currently impossible to judge,” adds di Lieto. “There is little reason for mill production to change, but the additional time spent in transit will come down to the customs arrangements we finally end up with. Will prices remain constant? When have prices ever remained constant! Pricing will be affected by a number of issues. The main one however will probably be currency related.”
Paul Bailey, managing director of Col-Tec, a UK specialist in collating and finishing equipment, is enthusiastically pro-Brexit. His view is that the EU “cannot afford” a no-deal outcome but were it to happen, while “there may be a bump” very quickly, “businesses in the EU and the UK who want to and need to trade with each other will find a way to be competitive and it will be the markets not government that return trading to a level playing field within months, not years.”
Bailey also envisages “fantastic” opportunities arising. He argues that even if it is initially harder for some UK print businesses to trade in the EU, that also means work previously leaving the UK and going to EU printers would more likely be re-directed within the UK.
A problem for all
Fujifilm Graphic Systems Division UK general manager Chris Broadhurst is concerned that a switch to WTO rules may see the imposition of a 6.5% tariff on aluminium goods shipping out of the EU into the UK. This is an issue for Fujifilm as its factory for European goods is in the Netherlands.
“If we crash out into WTO, does that then mean we will receive tariffs on printing plates coming into the country?” he says “Clearly it’s a problem for all of us if costs go up. What does that mean for the wider market? The print industry at the moment is running quite lean. Paper price increases over the years has been a real problem, and clearly if aluminium starts to come in at a higher price, that is a challenge for all of us.”
His other main concern relates to friction at borders and whether Fujifilm imports into the UK will be held up. Fortunately, the company has warehousing in Bedford. “So we are looking now at whether we need to bring more stock for our [most popular] A-line products in over the next few months to try and cover that eventuality.”
That said, he does not believe border hold-ups will be a terrible problem due to the need to address the movement of other items such as livestock and perishable products such as food and flowers. “You can’t leave animals in trailers for two weeks. There is going to have to be some mechanism of movement.”
Nevertheless, there is an issue of cross border recognition of licences. The Road Haulage Association reports that Dover handles 10,000 lorries a day, and predicts customs checks could delay each truck by 45 minutes on each side of the Channel. Moreover, 95% of UK transporters do not currently have the permits to carry goods internationally.
Paper and packaging merchant Antalis says it has “accelerated” a Brexit Programme overseen by its managing director and managed by CSR manager Matthew Botfield, who is well placed to analyse issues relating to regulations, products and the supply chain due to his auditing expertise. Botfield will also coordinate Antalis’ responses to customer questionnaires on Brexit, which are starting to come through.
“This core team is being supported by subject matter experts from around the business on an ‘as and when required’ basis, to ensure Antalis is as prepared as possible for whatever Brexit brings,” says Antalis channel director James Jarvis. “We have also joined forces with the CBI as they have a wealth of resources and expertise on the Brexit topic that we can draw on to ensure our thinking is right up to date with industry and political movements.”
As things stand, it’s important for businesses to recognise that ‘no-deal’ does not mean status quo. In fact, warns Jarrold, the ability of businesses to operate as they do now would be curtailed.
“In a sense, a true ‘no-deal Brexit’, where talks break down and there are no transitionary agreements, represents a worse-case scenario, with very significant risks,” Jarrold concludes. “It is to be hoped the government and the EU can avoid such an outcome.”
Trading under WTO rules
There’s been much talk about trading under WTO rules in the event of a no-deal Brexit. But what does that actually mean? At the beginning of October, the WTO provided the following response to PrintWeek’s enquiries:
“On 24 July the UK submitted its draft schedule of commitments for goods setting out its proposed WTO market access commitments for goods once the UK leaves the European Union. The UK has stated that the draft schedule replicates the concessions and commitments currently applicable to the UK as an EU member. Thus, you may wish to consult the EU’s schedule to find what the applicable tariff is for the products that are of interest: you will need to know the exact CN (EU combined nomenclature) of the product to find the applicable tariff.
The EU’s tariffs can be found here on the Market Access Database.
More information on the UK’s draft schedule is available here.
“It is, however, important to bear in mind that the UK’s future rights and obligations in the WTO – including its final schedule of goods commitments – will be shaped to a very large extent by the terms of the EU-UK separation agreement and subsequent WTO negotiations.
We have no further information to share at the moment. We will have to wait for the result of the negotiations.”