Introduction
The impact of Brexit on SME manufacturers has been enormous and many would argue extremely detrimental. In this blog I look at some of the most significant issues.
Food and Drink
The first point to make is that British producers of food and drink related goods (known as sanitary and phytosanitary products) have been at a significant disadvantage to their EU counterparts because they have had to complete hugely complicated customs paperwork and have their products certified before they can be exported to the EU whereas we are still allowing EU food and drink into the UK without any of these requirements. The time and investment needed to complete the documents correctly, much of it in several languages, is out of the reach of many SMEs so they have stopped exporting to the EU even though there is strong demand for their products. For perishable items, a delay at the border due to a mistake on the paperwork often results in the entire consignment being destroyed because it wouldn’t be viable by the time it reached customers. The playing field needs to be levelled urgently, preferably by a relaxation of EU customs regulations for imports of these products. Whilst the Border Operating Target Model demonstrates good progress in this area, the further delays to introducing controls means British producers continue to be at a disadvantage and don’t have the confidence to plan and invest in exports to the EU.
Resource
The additional costs of customs paperwork for imports and exports is also relevant to manufacturers of non SPS goods. Huge amounts of time and money have been invested by SMEs in training their staff on commodity codes, incoterms, rules of origin etc. but understandably mistakes are still made which result in costly delays. What many people fail to understand is that the 27 EU member states have different regulations governing imports so you may need to provide one type of safety certificate when you sell something to France than you do to Germany or Italy. When we were signed up to the rules and regulations of the EU this wasn’t a problem but now our products are scrutinised like those of any other third country. Keeping track of and complying with the different requirements of each country can also be prohibitively expensive for SMEs.
CE/UKCA Mark
Many manufacturers have spent time and money finding an EU company to act as their Authorised Representative and on getting their products tested by an EU approved laboratory. The implementation of the UKCA mark has been delayed again which leads many manufacturers to question whether we will end up simply accepting the CE mark in which case UK companies have been put at a disadvantage unnecessarily.
Supply Chains
Mistakes on customs paperwork have caused huge numbers of delays at borders which in turn disrupt supply chains. There was a lot of talk after Brexit and during the pandemic about reshoring but the fact remains that many manufacturers need to import at least some of the raw materials, components or parts that they need. In the past they could operate on a just in time basis but have now had to move to a just in case scenario whereby they keep higher levels of stock of the things that they need. This has implications for running costs because more warehouse space is needed, and cash flow because money they could use more productively is tied up in stock.
Rules of Origin
The subject of rules of origin was covered extensively in the media recently in relation to the automotive industry but it equally applies to SMEs who are often suppliers to the huge multinationals and so part of their supply chain. The amount of resource required to determine the origin of where something was manufactured, rather than just where you bought it from, is immense and beyond the capabilities of many SMEs even assuming they realise this is something they need to do. Once they’ve done this we expect them to read the Trade and Cooperation Agreement to find out which rule of origin applies to their product and then work out whether their product complies. When you consider the number of suppliers, materials, parts, components and end products each manufacturer represents it’s an incredibly complex calculation that may need to be repeated many times. I would urge the UK and the EU to look at simplifying rules of origin at the very least.
Export Licenses
The requirement for dual-use export licenses to the EU has been a huge problem for some SME manufacturers. The process of determining whether a license is required, what type of license and then actually applying for it is complex and time-consuming. The time currently taken to grant licenses is often over 90 days which means British manufacturers are losing orders to competitors from China predominantly and often licenses are refused even for innocuous items that in a sane world wouldn’t need one anyway. The industry absolutely accepts the necessity of export control licenses but the system in the UK is broken and British manufacturers are going out of business or being bought by foreign companies, including all of their intellectual property as a result.
Conclusion
These are some of the specific customs related problems that were caused by Brexit. I could also have mentioned trade with Northern Ireland and the difficulties of recruiting and retaining EU workers which are both huge challenges for SMEs. But the overarching backdrop to all these issues is what feels like a lack of coherent strategy. The goalposts are always moving, manufacturers have been told on numerous occasions to prepare for new regulations or controls only for the deadline to be pushed back several times or the idea abandoned altogether. So much time and money has been wasted in this way. You can’t expect companies to invest and innovate to increase productivity when the rug might be pulled out from under them in 6- or 12-months’ time. British SME manufacturers just want to get on with growing their businesses and most people accept that this is the new reality and that we must adapt to make it work. But we need clarity and certainty from government. And some funding wouldn’t go amiss either.