Brexit: the hidden costs of no-deal

By Richard North - December 13, 2020

As we drift closer to the unthinkable, sundry newspapers are attempting to paint pictures of what life will look like for “key industries” after 31 December following a no-deal TransEnd. Their reports are much of a muchness, and they’re not doing a very good job of it.

Typical of the genre (with the merit of being paywall-free) is this report for the Observer, telling us which industries will be most affected by a no-deal.

With each sector split into “deal” and “no deal”, the first section deals with manufacturing, from which we learn that the manufacturing sector “is praying for a deal so it can avoid the extra paperwork and tariffs that would follow the UK’s departure without an agreement”.

Car parts and aircraft components, we are told, cross the Channel many times before they are assembled to become the finished article. An agreement would eliminate import taxes, or tariffs, and allow firms to maintain their current supply chains.

As to the “no deal” scenario, we learn that Nissan is among many manufacturers to say that they have “no plan B” should the UK become separated from the EU’s Single Market.

The car industry, we are then told, expects prices to rise for consumers once 10 percent tariffs are imposed. Over the longer term, being cut off from manufacturers based in the EU will limit investment in the UK, especially in new industries such as electric cars.

Finally, we are informed that co-operation across Europe in the aerospace industry, which has fed off the Airbus plants spread across the UK, Germany, France and Spain, is also likely to be damaged.

And that’s mostly it. A deal allows manufacturers to “avoid the extra paperwork and tariffs”, while a no-deal means they have to deal with tariffs and, in the longer term will be “cut off from manufacturers based in the EU”, which “will limit investment in the UK”.

But, intriguingly, the paper also appears to treat separation from the Single Market as if it was an effect of a no-deal scenario. There is most definitely the assumption that a deal keeps us within it.

However, most readers here will know that things are not quite that simple. Once 31 December passes, the likes of Nissan will find that Regulation (EU) 2018/858 on the approval and market surveillance of motor vehicles and their trailers, and of systems, components and separate technical units intended for such vehicles, will cease to have effect.

With a comprehensive free trade agreement, however, the UK could secure recognition of an equivalent regime, which would most definitely involve the adoption of UN Regulations produced by WP.29, and the acceptance of the in-house technical service of the manufacturer, as long as it is accredited by the UK’s national accreditation body and complies with the requirements laid down in Regulation 2018/858.

However, in the absence of a deal, specifically the absence of a bilateral agreement between the Union and the United Kingdom, the existing vehicle type approvals would no longer be valid. Companies such as Nissan would have to re-submit their entire vehicle range to the national accreditation body of one of the EU Member States, for new type approval certification.

However, in the absence of a bilateral agreement, the on-site assessment and monitoring by the manufacturer of vehicle assembly and component production – under the oversight of national accreditation agency – would no longer be allowed.

This would mean that vehicles produced by the likes of Nissan, intended for sale in the EEA, would have to be inspected at the port of entry to the Union, to ascertain whether they complied with relevant standards, and a proportion of the vehicles would have to be subject to physical or laboratory tests to check compliance.

Clearly, there is far more to this process than simply “extra paperwork”. The imposition of an external control regime and the need for EU type approval certification would effectively make it impossible to manufacture cars in the UK for the EEA market.

The tariffs, of course, would not help, but “non-tariff barriers” would be a far more significant burden, essentially making a no-deal scenario fatal to the export prospects of British car manufacturing.

There is little equivocation here. The no-deal scenario would be very serious indeed, yet we do not seem to have any newspapers – or broadcasters – which are able to understand quite how dire a predicament we would be in.

Moving on, the paper then looks at pharmaceuticals, telling us (correctly) that the UK will no longer align with EU regulations on medicines, whether there is a deal or not.

Pharmaceuticals companies such as AstraZeneca and GlaxoSmithKline, we are told, have prepared for this by setting up parallel batch-testing labs on the continent, but this will delay the supply of medicines by four to six weeks.

The industry is pushing for a mutual recognition agreement, which the paper incorrectly tells us means that “the UK and the EU recognise each other’s standards”. This recognition will only apply to batch testing, removing the need for duplicate testing.

However, new medicines will still have to be approved by separate regulators in the UK and the EU, and no products can be sold in the EEA unless they have EU market authorisation. This will be required with or without a deal, but without a deal, parallel batch-testing will become a permanent feature, adding significantly to costs and adding to production delays.

Not mentioned by the Observer is the chemical industry, where – in the absence of a deal – all products will have to be re-certified in the EU under REACH, and product conformity will have to be routinely tested at the borders, when exported to the EEA.

But there are a huge range of other products which are going to be affected, about which the media is largely silent. For instance, the lucrative passenger lift industry will find it almost impossible to do business in the EEA, as sales have a strong service component, which will be very difficult to manage, while product certification will be difficult and compliance testing will also be required at the borders.

Then there are the high-profile issues such as Formula 1 and horseracing, which are extremely valuable to the UK economy, but we mustn’t forget unglamorous but lucrative sectors such as the hazardous area equipment market.

None of these, and many more, are getting any expose in the media, which seems to be treating the whole “no-deal” issue in a superficial, if not frivolous manner, vastly understating the problems involved.

Interestingly, I wrote a detailed piece about the automotive industry in November 2017 – over three years ago, and we’re still, after all this time, getting the media talking about “extra paperwork” and tariffs, with very little appreciation of the practical effects of a no-deal scenario.

With the final act possibly to be announced today (although don’t hold your breath), it is now too late for the media to warn the public and politicians what they are potentially facing.

After the event, though, you can bet that we will be seeing endless “shock-horror-probe” stories, as the legacy media “reveal” tales of woe and complications, of which nature we have been writing for years. But, on the basis that news doesn’t happen until the legacy media reports it, we can look forward to a torrent of “exclusives” telling us what we already know.

The great shame of it though is that of the consequences of a no-deal scenario had been known before the event, we might not have had idiots such as Johnson prattling about how “fantastic” it will be. Too late to influence policy, the media will be simply indulging in voyeurism, failing in its primary duties to educate and inform.

But then, at least we’ll get a ringside seat on the next fish war, while the blame game will notably exclude any mention of media culpability.