For almost a century, the company Teal & Mackrill in the port city of Hull, in northeastern England, has made paints for special applications, such as fishing trawlers and factory floors. It produces marine paint, for example, with ingredients to prevent barnacles from becoming embedded in the hull.
Now, in a little-noticed consequence of the new Brexit trade deal, the company is facing real concerns about its future. Geoff Mackrill, the third member of his family to run the company, said the rising British regulatory burden on chemicals could mean that eventually he won’t be able to get some of the additives that make his paints distinct.
“The concern is that some of the materials we use,” he said, “may be unavailable because of these costs.”
It is a concern that spreads across the British chemical industry at £ 33 billion (or about $ 45 billion) a year.
Prime Minister Boris Johnson, when he announced the trade agreement on December 24, said Britain would now be free “to set its own standards, to innovate any way we want”. Entrepreneurs like Mackrill were relieved that Britain had avoided a chaotic exit and that products made in Britain continue to cross into Europe without tariffs.
But some companies, especially in the chemical industry, are finding that business has become more complex rather than easy. The EU’s complicated and costly regulations may no longer apply in Britain, but they remain a fact of life for British companies like Mackrill’s, who want to continue selling their products in Europe.
To increase the burden, the British government is creating its own demanding set of chemical regulations, a mirror of EU laws. An industry group said the cost for chemical companies to recreate European regulations, which require extensive documentation, could amount to £ 1 billion, potentially a big burden for small businesses and those with narrow profit margins.
Regulatory changes, plus the fact that chemicals can have long supply chains, have led some companies to rethink their activities in Britain.
Before Brexit, Aston Chemicals, a company based in Aylesbury, about 50 miles northwest of London, imported chemicals from around the world, did the necessary paperwork, paid all import duties and shipped them on trucks to manufacturers European moisturizers or dandruff shampoos.
Using Britain as a center “worked incredibly well,” said Dani Loughran, the company’s managing director. But after Brexit, that doesn’t happen.
Trucks in Britain bound for Europe now face lengthy customs procedures at the border. And while products manufactured in Britain can still enter the European Union tax free, this is not the case for products originating elsewhere.
Therefore, an importer like Aston Chemicals needs to pay tariffs on products made in the United States or Asia and, again, when distributing them to the European Union, effectively doubling the rates, said Loughran.
Consequently, the company will now supply Europe from a base in Poland, a member of the European Union. It reduced the number of employees in the British warehouse from three to one.
These new obstacles are not just an obstacle for the chemical industry.
“I think everyone who is using the UK as a distribution center for Europe will be affected in the same way,” said Loughran. They “will find it very difficult from now on”.
The move will leave Loughran’s British arm primarily serving the local market – but even that outlook has a regulatory cloud hanging over it.
She is used to working with the European Union’s chemicals regulatory system known as REACH, which has a reputation for being strict. Companies are required to send extensive files on each chemical they supply within the European Union, detailing its properties and uses, as well as the potential risks and dangers, to the European Chemical Agency, based in Helsinki. Loughran said REACH was “a headache we feared and cursed”, but at least it covered the entire trade bloc, including Britain.
But the chemical industry hoped that after Brexit, Britain and the European Union would continue to share data filed under REACH, but that language did not enter the December agreement.
Companies now face the prospect of making bulky and largely duplicate deposits on the chemicals they want to sell in Britain with a newly created British agency, REACH. The fees charged and the work required to reconstruct data on product safety and other issues, which is expected to take several years, could reach £ 1 billion, according to estimates by the Chemical Industries Association, a British trade body.
A company cannot simply cut and paste statements and files that were previously submitted to the European regulator because, in many cases, the files are full of commercially sensitive intellectual property belonging to other companies.
Stephen Elliott, the chief executive of the industry group, said that chemical companies operating in Britain could be forced to replicate almost “word for word” the requests they have already made to the European regulator.
“This is a useless use of resources,” he said.
Elliott said the industry continued to lobby for the government to agree to accept requests already made under REACH, but said that, at this point, such a result seemed “a difficult task” because of the government’s aversion to depending on European regulation.
Executives say it makes little sense for chemical companies to incur regulatory costs similar to those of the European Union to sell products in Britain, whose economy is about one-seventh the size of the European Union. Industry executives also doubt that the British chemical agency will have enough staff and resources to match its European counterpart, which employs around 600 people.
“The combination of the UK Brexit and REACH regulations is not very useful when companies are considering where to place new investments,” said Paul Hodges, president of New Normal Consulting, a chemical company. In other words, new investments may go elsewhere.
The souring of the chemical industry in Britain would be a blow to the post-Brexit economy. Chemicals may not be as visible as some other industries, but these substances are essential for a wide range of products, including cars and shampoos. It is an important business in Britain, which accounts for 9% of exports, with almost 60% going to the European Union, and employs about 94,000 people, according to government statistics.
One concern is that companies will decide that the supply of some chemicals that generate low profit margins or sell in small quantities, such as the ingredients that Mackrill buys for his paints, is no longer worthwhile. So far, industry leaders are taking a wait-and-see approach, although they look suspiciously at the new bureaucracy and costs in Britain.
German chemical giant BASF, which sells around 1,200 substances in Britain, estimates that UK REACH could cost the company £ 70 million.
“If the costs of bringing products to the UK market increase to make them uneconomical, we are not going to do that and make a loss,” said Geoff Mackey, director of communications and sustainability at BASF in the UK.
Smaller British companies, however, are more likely to feel the impact. If they want to remain serious players, they need to sell to Europe and comply with European regulations, they say.
Mackrill has already felt obliged to open a company in the Netherlands to comply with European Union rules, where he sends about 10% of his products. He also has up to two people working full-time on the regulatory implications of Brexit, a drain on the resources of a company with 70 employees.
Mr. Mackrill, who is now the executive chairman of his company, seems confident that a company that has existed since the early 20th century can navigate the Brexit shallows, but he says others may think the easiest way is to move its operations to the giant market next door.
“Some of the manufacturers are likely to look at it and say, ‘Why don’t we make it in Europe?’ Said Mackrill. “This is not good for the UK PLC,” he said, referring to British business.