In January 2017 Prime Minister May delivered the Government’s 12 point plan for Brexit. On 13 March 2017, the UK Government formally triggered Article 50 of the Treaty on European Union and so initiated the process of leaving the European Union and the start of the two-year negotiation period with the other 27 Member States of the EU. More recently, the Government has published a series of position papers for the purpose of its negotiations with the EU Commission.
But what are the key aspects of the UK Government’s Brexit plan and the likely implications for fashion businesses?
This guide:
The UK Government’s Plan for Brexit
1. Leaving the Customs Union
“It is time for Britain to get out into the world and rediscover its role as a great, global, trading nation”
The Prime Minister wants the UK to leave the customs union and to increase its trade with fast growing export markets. In practice this means the Government negotiating new customs agreements whilst seeking to maintain tariff-free trade with the EU. The fashion industry will be concerned that, in particular, deals with China, India, Vietnam and Bangladesh - key countries for production and manufacturing - are achieved. A deal with the US - an important export market - will also be crucial.
Comment
Most favoured nation clauses in existing trade agreements are likely to impact on the UK’s ability to make bilateral deals with various trading partners, and in any event trade deals will take time to negotiate. The longer it takes to negotiate new trade deals, the longer the UK’s period of uncertainty will affect businesses and increase speculation as to what will happen next.
2. Free trade with the EU
“We will pursue a bold and ambitious free trade agreement with the European Union”
This is confirmed by the Government’s position paper. The Prime Minister wants to negotiate a Free Trade Agreement (FTA) and customs agreement with the EU as soon as possible within the two-year negotiation period initiated by Article 50. The FTA could be similar to the Comprehensive Economic and Trade Agreement (CETA) between Canada and the EU.
Comment
CETA took seven years to negotiate. Each of the 27 Member States of the EU must agree on the terms of the FTA and the Prime Minister was adamant that “no deal for the UK is better than a bad deal for the UK”.
It is therefore possible that no deal is achieved by the time the UK leaves the EU. In such circumstances, the UK’s trade with the 27 Member States of the EU would operate under the World Trade Organisation’s (WTO) rules. These are legal ‘ground rules’ for international commerce by which members of the WTO (such as the UK) have agreed to trade. A core principle of the WTO rules is non-discrimination. This means that goods traded between the EU and UK, as well as between the UK and non-EU countries, would be subject to customs tariffs based on the WTO’s most favoured nation (MFN) rates.
In addition, the UK will need to reach separate trade deals with each of the countries with which the EU has negotiated preferential trade deals (over 50 of which have been ratified or are awaiting ratification). Until it does so, the WTO’s MFN customs rates will apply, to the disadvantage of the UK fashion businesses.
The final terms of a FTA with the EU and preferential trade agreements with non-EU countries will determine whether the free trade of fabric, textile and garments will continue between the UK, EU and countries with which the UK, through membership of the EU, had the benefit of preferential trade deals, or whether fashion businesses’ supply chain arrangements will be faced with increased tariffs and customs duties following the UK’s exit.
3. Rules of origin
If the UK does not agree a FTA and a new customs agreement with the EU, British fashion companies will also be concerned that national rules of origin will apply to their products. Rules of origin refers to the criteria which determine the national source of a product. They are used by governments to decide which tariffs and import duties to apply to a product. Generally, the rules distinguish between products which are of single country origin (they have been sourced and produced in one country) and products which have been sourced elsewhere but sufficiently worked or processed in order to qualify as originating from the country from which they are exported. However, the practices with regard to rules of origin vary between different national governments.
Comment
Currently, as the UK is a member of the EU single market, fashion businesses which export their products from the UK are able to apply a “made in Britain” label to their products, even where they have been sourced from other countries. Their products will still be considered sufficiently “British” and can benefit from a reduced or zero rate of duty when exported to the EU and to non-EU countries with which the EU has preferential arrangements as to rules of origin.
Following Brexit, how much of a product is produced in the UK could become very important to determine, having regard to customs duties and issues concerning rule of origin. Fashion businesses which currently use the UK as an entry point to the EU will need to rethink their supply routes and may choose to bypass the UK altogether. The customs checks which the UK Government would need to introduce in order to enforce the rules of origin would also present an administration cost and a burden fashion business may seek to avoid.
4. Immigration
“Brexit must mean control of the number of people who come to Britain from Europe”
The Prime Minister’s proposal means that all EU nationals seeking work in the UK will require a permit. The preference is towards highly-skilled workers and students.
In respect of EU citizens currently residing and working in the UK, the Prime Minister is seeking a reciprocal deal to guarantee the rights of EU citizens in the UK and UK citizens in the EU. In a proposal before the EU Parliament she explained that EU citizens in the UK would be able to obtain “UK settled status” if they have been legally residing in the UK for over five years. The UK Government has since published detailed proposals outlining how it intends to protect the rights of EU citizens in the UK and UK nationals in the EU.
Comment
Despite the UK Government’s published proposals, a deal is yet to be agreed with the EU Parliament. For UK fashion businesses relying on workers from the EU, restrictions on the ease of movement of workers may lead to shortages of labour, and consequently increased labour costs due to demand. This will have an effect on profit margins and operating budgets of fashion businesses.
In addition, as Andrew Groves (fashion designer and Course Director for BA Fashion Design at the University of Westminster) has pointed out, restriction on movement could be career-limiting. He admitted that he has been advising his students who have been receiving job offers in the UK and has often pushed them to move abroad and knock on the doors of French fashion houses; he now fears that he will no longer be able to give that advice.