The thriving fashion industry in the UK has come under severe strain since the new UK/EU free trade agreement has come into force. This industry is a vast, complex and internationally connected web, which strongly contributes to its success and creativity. Therefore, it is also more exposed to restrictions in the movement of people and goods.
74% of UK fashion and textile exports goes to the EU. The fashion and textiles industry is the largest component of UK creative industries, growing 11% annually, bringing vital jobs and innovation to the UK.
Although the UK/EU free trade deal allows for trade without tariffs or quotas, there are several restrictions, conditions and border controls which create substantial frictions in trade flows. Unlike Covid-19 related constraints, which should be lifted at some point (the sooner the better!), Brexit-related hurdles are structural: they are here to stay, and companies will have no other choice but adapt to them. There is always a possibility that the UK and the EU eventually decide to loosen some of these new limitations, but businesses should not count on that at this stage if they wish to avoid being cut off from EU markets.
Understanding Brexit restrictions
The crucial problem for the fashion industry probably relates to “rules of origin” enshrined in the UK/EU deal: for each product, a maximum authorised percentage of “non-originating material” (ie. Components that originate neither from the UK nor from the EU) is specified. If that rule is breached, then the product cannot be exported to the EU tariff-free. That means UK companies can no longer simply import goods from Asia, repackage them in the UK and then re-export them to the EU. If they do, these goods would have to pay VAT and tariffs twice, first when they arrive in the UK and then at their arrival in the EU. This is likely to have a massive impact on the supply chains of all industries relying on importing and exporting goods.
The return of border controls
Another critical hurdle relates to the return of controls at the border, whether for customs or sanitary and phytosanitary (SPS) reasons, created new detailed procedures which many companies are struggling to fulfil. Besides, the marking of products is also likely to be problematic: from now on, all products made in the UK will bear the new “UKCA” marking, which is distinct from the European “CE” marking.
Products can carry both markings, but only until UK and EU regulations start diverging, which is likely to happen very soon if the UK government genuinely intends to make heavy use of its newly conquered “regulatory freedom”. This poses considerable risks for UK-exporting companies: their products made in the UK (and therefore with a “UKCA” marking) can only be exported to the EU if the EU considers UK regulations as equivalent.
Complexity of workforce access
The UK retail industry is already under severe strain, for structural reasons but also as a result of the Covid crisis: 176,718 jobs have been lost across the industry during the past year in the UK. In addition to these challenges and new Brexit-related physical hurdles, access to European talent will also be limited for UK companies: freedom of movement will give way to a new – more restrictive – immigration system which the UK government wants to set up.
This means that even if a company can recruit someone in Europe, that will come at a significant extra cost, primarily due to red tape. Similarly, UK nationals contemplating to travel to Europe for business for a few days, weeks or months, are potentially looking at administrative difficulties related to work permits, which are likely to limit their ability to operate freely across Europe.
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How to ensure continued trade with the EU
The UK exported almost £6 billion worth of clothes and accessories to the EU in 2019.
What can companies do to adapt and keep their EU clients? There are several solutions that companies in the UK fashion industry can adapt to overcome these hurdles:
- You can set up a company in the EU, for example in the closest neighbouring region to the UK – the Hauts-de-France. From where you can easily access the European and global market thanks to its logistical hub.
- You can recruit skilled talents locally in the EU, to avoid work permit obstacles.
- You can start using components and materials from the EU in your production processes. Components coming from the EU, then transformed in the UK before being re-exported to the EU do not face any tariffs related to rules of origin.
- You can adapt your supply chain using new transport, distribution, and logistics services, from the internationally recognised companies in Hauts-de-France, to keep your clients satisfied.
Source: Nord France Invest
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