First Brexit, then Covid-19, and now proposed changes to product marking. This triple threat of challenges could add significant cost to manufacturing. Here, BEAMA outlines the potential pitfalls and what it is doing to help.
The Covid-19 crisis has had a severe effect on the electrical and energy-related manufacturing industry, just as with almost every aspect of business and life. For many sectors, business was almost wiped out during April and May and has started to recover from June onwards, but with varying depth and speed. What has enabled the manufacturing side of our industry to keep going and continue to supply customers has been:
- The close working relationships with both suppliers and customers, meaning that all parts of the end-to-end supply chain have communicated and worked together to keep UK infrastructure and construction going during the worst of the crisis;
- Resilience built-in to company practices, including judicious building up of product stocks in anticipation of previous Brexit ‘no-deal’ outcomes;
- Rapid communication with Government through trade bodies to clarify the sometimes confusing guidance and messaging received;
- Government support, mainly through the use of furlough and flexible job retention practices to allow staff to be kept on despite cash-flow being brought to near-zero in some cases.
Clearly we hope that the worst of the crisis is over and that now we are embarking on the recovery phase, progress will be steady to get back towards previous activity levels by the end of 2020. In some sectors, of course, the recovery may be much slower and more fragile.
The one thing all industry sectors must avoid is that the challenge of the reduction and removal of financial Government support is then compounded immediately after by the addition of unnecessary burdens, arising from the choices made at the end of the UK’s transition period from its EU exit.
Some of these burdens will be an inevitable consequence and any company exporting to or importing from the EU will need to be prepared regardless of whether it is ‘deal’ or ‘no-deal’. These will include having to make customs declarations for any products traded between the UK and EU so, if you’re not used to dealing with those, talk to your freight people about the requirements and the registrations you may be able to make now.
If there is a zero-tariff Free Trade Agreement struck between the UK and EU, as everyone wants, then to take advantage of tariff-free trade all products exported will need declarations of the national origin of the product to prove that what’s called a UK product actually qualifies. Depending on the rules of origin chosen, manufacturers will need to know the source, national origin and exact value of every component and raw material used in manufacturing.
Also, if the FTA agreed between the UK and EU includes a structure for close regulatory cooperation, it should be possible for manufacturers to continue to make products for both the UK and European markets to the same design, the same standard and with the same testing. If there is no cooperation on regulatory and standards issues, we run the risk of having to make UK-only products with the consequential loss of competitiveness in export markets with much reduced choice for UK customers.
There are, however, other issues which are not dependent on FTA negotiations and are not an inevitable result of Brexit, but where the implementation could be made easier for UK business, avoid severe additional costs and avoid disruption of supply for UK customers. This includes the proposed UKCA product marking.
UKCA is the intended replacement for CE marking in the UK market to indicate regulatory compliance of products. Although manufacturing industry fully supports clear regulation that is subject to strong market surveillance, having a separate UK product marking is not essential and it is certainly not required to be in place from day one in January 2021. This, however, is what the Government are currently proposing, having previously indicated that any UKCA marking would be introduced only after full consultation and subject to a reasonable time period for implementation.
For trade from, to or through Northern Ireland the position is even more complicated, and some manufacturers will need to apply a special UK(NI) marking from January 2021, alongside CE and UKCA. In the future, if UK and EU regulatory demands diverge, products that meet UK regulations may not be compliant for sale in Northern Ireland, where EU regulations will still need to be followed.
BEAMA has surveyed members on the costs and timescales that would be involved in implementing a new product marking system. Remember that this is not simply a question of putting a new sticker on a box or packaging: the rules for product marking would require the marking to be on the product itself, not to be able to be removed, and subject to an array of paperwork, technical testing and legally enforceable commitments subject to criminal penalties.
The clear message from manufacturers is that 12-18 months would be required to implement UKCA marking, with many products requiring it to be embossed using product moulding, requiring significant changes to production lines. Costs involved, including for most companies the assignment of dedicated staff to the adjustment, were assessed at £440 million in the next six months alone, and would involve a significant proportion of product costs over the first period of implementation.
Bear in mind too that these timescales are from when clear rules and guidance is received from Government and these have not yet been made available. Clearly then, if this new marking is made mandatory from January 1, 2021, it could render a large proportion of products on the UK market non-compliant due to lack of time to implement. For many products due to be placed on the market in January 2021 the orders have already been placed, of course.
BEAMA and GAMBICA have written to Boris Johnson, Michael Gove and Alok Sharma warning of escalating regulatory compliance costs at the end of the transition period for the UK exit from the EU and calling for derogations and transitional arrangements for specific regulations to allow manufacturers in the UK time to prepare and to limit the financial burden this will incur. This letter was co-signed by the CEOs and senior officers of over 90 major manufacturers.
As well as UKCA, the UK replacement for the EU chemical regulatory system REACH will need to be created from scratch but no guidance is yet available and other changes are in the pipeline such as a UK plastic packaging tax.
All of these proposed changes will add cost to manufacturing, in most cases very significant costs, and many are entirely avoidable. We are hopeful of a positive response from the Prime Minister and Cabinet to allow for some derogation period and transitional arrangements for these new UK systems, but in their absence, UK manufacturers will need to work in the dark to prepare for uncertain burdens to be placed on them at the very time they are hoping to reach for recovery from the Covid crisis.