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Brexit - UK companies start preparing EU bases

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In the last week, a number of UK companies have spoken out about the threat to jobs in the event of a hard Brexit. The June summit was going to be the place where the EU and the UK signed off on a transitional arrangement, however Theresa May has not yet published her white paper, which is now due in July. With time is running out and no deal on the table, businesses are getting nervous.

Regulatory compliance

UK businesses eager to maintain access to the single market have said that regulatory compliance is a big concern. When we look at the EU’s Toy Safety Directive as an example of regulatory compliance we can get an insight as to how important the area of regulatory compliance is.

UK based educational toy manufacturer Polydron manufactures its toys in China and India. They sell their products worldwide, including across the EU 27. Given that Polydron are the importers, the EU’s regulatory compliance makes Polydron check that their imported products meet the safety standards of the EU.

Richard Hardstaff, Managing Director of Polydron, notes that if Britain does leave the EU single market, then their EU customers will become the importer, rather than Polydron. Mr Hardstaff fears that such a situation could have detrimental effects on his relationships with his EU customers.  

“There could be a hundred different interpretations, which splinters our supply chain and adds costs,” Mr Hardstaff said. This situation has led Polydron to open a German branch to act as its EU importer. He went on to say that this move was a direct result of Brexit. 

Other Industries

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The situation will affect a huge number of UK businesses that are involved in heavily regulated sectors. And not just toy companies. Pharmaceutical companies, medical companies, car manufacturers and aviation companies such as Airbus will all be affected. Faced with the uncertainty of what’s going to happen, many are preparing to move their business to the EU.

The Chemical Industries Association has warned that were the UK to leave the EU’s Chemical legislation REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) it could have serious consequences. Their chief executive Steve Elliott said, “it would seriously bring into question 10 years of investment, as registrations and authorisations that permit access to the EU single market would suddenly become non-existent on exit day.”

Large multinational companies like BMW and Airbus have highlighted the risk of tariffs and delays in customs as reasons for potentially leaving the UK. For BMW, 90% of the components used are imported from the EU and arrive on site just 6 hours prior to use. Due to this fact, delays in customs could have huge consequences for assembly line production times. The car industry association SMMT has attributed access to the EU single market and “complete regulatory convergence” as being the foundation of their success. Undoing this could be the undoing of an industry.

Another example is UK based Dental products company Kemdent. The company needs to have the EU’s quality mark (CE) on its products if they are to be sold in the EU single market. In order for Kemdent to comply with the EU’s Medical Devices Regulation, they must be registered with a notified body in an EU member state, which is monitored by the official regulator of that country. The uncertainty of UK's positioning the EU single market has resulted in the company opening an office in Ireland. 

According to Jenny Perkins, Kemdent’s sales director, if the UK is not in the single market, Kemdent would face difficulties in acquiring new customers with the EU. The company says it plans to continue to manufacture its products to meet EU compliance standards. “If the UK has different rules, we might have to change the packaging, but I can’t see us changing the product,” said Ms Perkins. 

No one knows how long it could take for the UK to strike a deal with the EU. Aside for the time required for trade talks, implementation times could take even longer. This could leave UK businesses stranded in limbo while their competitors based within the EU move in on their customers. Companies like Kemdent and Polydron are not going to sit around and wait for this to happen.       

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