Sean Milmo, European Editor 07.29.16
Ink producers, raw material suppliers and the rest of the UK printing sector face what could be a lengthy period of uncertainty following a 52/48 percent referendum vote in favor of the country leaving the European Union (EU) after 43 years’ membership.
The result of the referendum on June 23 also came as a shock to other industries in the country because polls had indicated that a majority – although a small one – of the population would vote to remain in the EU.
Instead, just over 17 million backed leaving the EU – dubbed Brexit – and about 16 million for staying in. A large proportion of the Brexiters tended to be in low income groups, the elderly and from areas with lower than average proportions of university graduates.
The outcome sent tremors across Europe because of fears that other EU countries would soon stage similar referendums leading to the disintegration of the Union.
For ink producers and raw material suppliers in the UK – a high proportion of them exporters to other EU countries – the main impact in the longer term will probably be regulatory. It is now unclear how long they will have to comply with EU regulations and whether the UK will introduce its own laws to replace EU rules, particularly relating to the protection of human health and the environment.
Tariffs become an issue
Brexit could also culminate in the erection of tariff and non-tariff hurdles between the UK and the 27 other existing EU member states.
These barriers to what is currently a free flow of goods and services between the UK and continental Europe could prompt some multinational ink-making companies to move production from the UK to another EU country, or at least to reduce investment in their UK manufacturing and other operations.
After Germany, the UK is one of the largest ink producing countries in Western Europe, with a growing number of specialty SME producers, particularly at the higher end of the sector, in recent years. At the same time, the UK has a relatively large number of suppliers of ink raw materials, some of them importers and distributors of products such as pigments from China and India.
With the country’s withdrawal from the EU, supply chains within the European ink sector will inevitably be disrupted.
The extent of the changes will depend on the outcome of the negotiations on a Brexit agreement between the UK and the European Union.
These will start probably early next year, after the UK has officially notified the EU Council, representing EU governments, of its intention to leave under Article 50 of the 2007 Lisbon Treaty, which for the first time allowed member states to withdraw from the Union.
Once Article 50 has been triggered, the exit negotiations have to be completed within two years unless the 27 member states agree unanimously to extend the period.
Since the UK is the first country to make use of Article 50 to depart from the Union, there is a lack of clarity about when the country can start negotiating its own free trade deals not only with the EU itself but also non-EU countries.
Under the present rules, no EU countries can reach trade deals with other member states nor with non-EU countries with which trade by individual EU states is covered by EU-negotiated free trade agreements.
Officially, the UK ceases to be an EU member only when an exit agreement has been approved by the EU Council and the European Parliament.
However, UK industry is hoping that the future will become much more transparent once the withdrawal negotiations have started.
“The sooner we know what sort of deal we are likely to get the better because business always needs some certainty,” said Tom Bowtell, chief executive of the British Coatings Federation (BCF), whose members include ink producers.
The inks, coatings, chemicals and other industries in the UK want an agreement under which the country can remain in the EU single market. This is one of the world’s most advanced free trade areas, with tariffs not only being eliminated but also non-tariff barriers through the harmonization of national health, safety and environmental regulations and standards.
Non-EU countries like Norway and Switzerland have access to the EU single market. But in return, they have to comply with single market regulations in whose approval they have not participated while they also have to contribute to the EU budget. Above all, they have to accept a basic EU principle of the free movement of people across their borders.
In the UK referendum, a key issue in the Leave campaign was the ending of free movement so that the country could control immigration. “It will be a big challenge getting access to the single market without agreeing to free movement,” said Bowtell.
Complying with Regulations
If the UK does not gain access to a single market without tariff and non-tariff barriers, ink producers in the country could have big problems ensuring that their exports into the European Union comply with EU legislation. This could in particular be the case with REACH, which will also affect raw material suppliers, and with certain new packaging regulations.
The last phase of registrations under REACH – the EU’s nine-year-old regulation on the control of chemicals – is due to be completed in mid-2018 when safety dossiers on unregistered chemicals and their uses will have to be submitted to the European Chemicals Agency, the EU body responsible for administering the legislation.
Ink makers and their suppliers of chemical raw materials in the UK are being advised to continue registration work on their products to meet the mid-2018 deadline mainly because the country is likely still to be an EU member by then.
However, there are big doubts about what will be the position of companies in the UK with EU legislation after withdrawal. The likelihood is that much of the EU regulations will continue to be enforced in the UK.
“It will be surprising if a UK government decided to drop or even to weaken rules which are seen to protect people and the environment from the effects of chemicals, “ Tom Crotty, president of the Chemical Industries Association (CIA), the UK’s main chemicals trade association, told a press briefing on Brexit.
Nonetheless lawyers are warning that after the UK withdrawal, chemical products being exported from the country into the EU could be classified under REACH as new imports. As a result, all products from the UK registered under REACH since its introduction would have to be re-registered.
In the packaging sector, an important upcoming EU regulation relates to mandatory safety features for medicines packaging to combat counterfeiting of pharmaceuticals.
By February 2019, each medicine pack sold in the EU will have to have a unique identifier consisting of a 2D matrix serialization barcode containing a product code, serial and batch numbers and expiry date, which can be scanned by a pharmacist before being dispensed to the patient.
Ink producers have been developing for the regulation high resolution, durable inks so that the coding remains intact during the five years in which a medicine pack can remain in the distribution system.
With Brexit, UK producers of packaging inks, like those for serialization of pharmaceuticals pack, will be unsure about the potential size of their markets and of regulatory cost burdens.
If the UK is left outside the single market, ink producers and some raw material suppliers in the country will be confronted with shrinking European sales because of EU tariff and non-tariff barriers. They will have try to compensate for this decline by increasing exports outside the EU.
Value of the UK Pound
The many ink makers and raw material suppliers in the UK who are exporters both to EU countries and non-European countries are already being helped by a weaker pound. By mid-July, the value of the UK pound had fallen by around 10% against the US dollar.
Some economists are predicting that because of Brexit, the pound could fall steadily over many months or even a few years by as much as 30%, which will make it par with the dollar. A cheaper pound will help to boost exports but also offset the extra cost of raw materials, new EU tariffs amounting to around 5% to 7% and the expense of ensuring that exports into the European Union comply with EU regulations.
In addition, the ink producers’ downstream customers in the UK will be in a similar position. A survey by the British Printing Industries Federation (BPIF) – UK printers’ main trade association – before the referendum found that more than 80% rely on exports, either directly by selling their products abroad or indirectly by having customers who are exporters.
If printers and their customers are able to push up export sales with the aid of a low pound, ink producers will be in a better position to pass on to its customers the extra costs of raw materials and other Brexit expenditure burdens.
Meanwhile, there could be the more immediate difficulties of a drop in domestic demand.
“It looks increasingly likely that the economy will slow in the short term, with uncertainty causing delay to investment decisions and spending,” warned Charles Jarrold, BPIF’s chief executive.
In the UK there are already signs of weakening consumer confidence and a decline in activities in key sectors like construction.
Furthermore, this short-term economic slowdown will not be confined to the UK but also the rest of the EU. Analysts believe the reduction in GDP growth in Europe will be between a third to a half of that in the UK itself.
European Editor Sean Milmo is an Essex, UK-based writer specializing in coverage of the chemical industry.
The result of the referendum on June 23 also came as a shock to other industries in the country because polls had indicated that a majority – although a small one – of the population would vote to remain in the EU.
Instead, just over 17 million backed leaving the EU – dubbed Brexit – and about 16 million for staying in. A large proportion of the Brexiters tended to be in low income groups, the elderly and from areas with lower than average proportions of university graduates.
The outcome sent tremors across Europe because of fears that other EU countries would soon stage similar referendums leading to the disintegration of the Union.
For ink producers and raw material suppliers in the UK – a high proportion of them exporters to other EU countries – the main impact in the longer term will probably be regulatory. It is now unclear how long they will have to comply with EU regulations and whether the UK will introduce its own laws to replace EU rules, particularly relating to the protection of human health and the environment.
Tariffs become an issue
Brexit could also culminate in the erection of tariff and non-tariff hurdles between the UK and the 27 other existing EU member states.
These barriers to what is currently a free flow of goods and services between the UK and continental Europe could prompt some multinational ink-making companies to move production from the UK to another EU country, or at least to reduce investment in their UK manufacturing and other operations.
After Germany, the UK is one of the largest ink producing countries in Western Europe, with a growing number of specialty SME producers, particularly at the higher end of the sector, in recent years. At the same time, the UK has a relatively large number of suppliers of ink raw materials, some of them importers and distributors of products such as pigments from China and India.
With the country’s withdrawal from the EU, supply chains within the European ink sector will inevitably be disrupted.
The extent of the changes will depend on the outcome of the negotiations on a Brexit agreement between the UK and the European Union.
These will start probably early next year, after the UK has officially notified the EU Council, representing EU governments, of its intention to leave under Article 50 of the 2007 Lisbon Treaty, which for the first time allowed member states to withdraw from the Union.
Once Article 50 has been triggered, the exit negotiations have to be completed within two years unless the 27 member states agree unanimously to extend the period.
Since the UK is the first country to make use of Article 50 to depart from the Union, there is a lack of clarity about when the country can start negotiating its own free trade deals not only with the EU itself but also non-EU countries.
Under the present rules, no EU countries can reach trade deals with other member states nor with non-EU countries with which trade by individual EU states is covered by EU-negotiated free trade agreements.
Officially, the UK ceases to be an EU member only when an exit agreement has been approved by the EU Council and the European Parliament.
However, UK industry is hoping that the future will become much more transparent once the withdrawal negotiations have started.
“The sooner we know what sort of deal we are likely to get the better because business always needs some certainty,” said Tom Bowtell, chief executive of the British Coatings Federation (BCF), whose members include ink producers.
The inks, coatings, chemicals and other industries in the UK want an agreement under which the country can remain in the EU single market. This is one of the world’s most advanced free trade areas, with tariffs not only being eliminated but also non-tariff barriers through the harmonization of national health, safety and environmental regulations and standards.
Non-EU countries like Norway and Switzerland have access to the EU single market. But in return, they have to comply with single market regulations in whose approval they have not participated while they also have to contribute to the EU budget. Above all, they have to accept a basic EU principle of the free movement of people across their borders.
In the UK referendum, a key issue in the Leave campaign was the ending of free movement so that the country could control immigration. “It will be a big challenge getting access to the single market without agreeing to free movement,” said Bowtell.
Complying with Regulations
If the UK does not gain access to a single market without tariff and non-tariff barriers, ink producers in the country could have big problems ensuring that their exports into the European Union comply with EU legislation. This could in particular be the case with REACH, which will also affect raw material suppliers, and with certain new packaging regulations.
The last phase of registrations under REACH – the EU’s nine-year-old regulation on the control of chemicals – is due to be completed in mid-2018 when safety dossiers on unregistered chemicals and their uses will have to be submitted to the European Chemicals Agency, the EU body responsible for administering the legislation.
Ink makers and their suppliers of chemical raw materials in the UK are being advised to continue registration work on their products to meet the mid-2018 deadline mainly because the country is likely still to be an EU member by then.
However, there are big doubts about what will be the position of companies in the UK with EU legislation after withdrawal. The likelihood is that much of the EU regulations will continue to be enforced in the UK.
“It will be surprising if a UK government decided to drop or even to weaken rules which are seen to protect people and the environment from the effects of chemicals, “ Tom Crotty, president of the Chemical Industries Association (CIA), the UK’s main chemicals trade association, told a press briefing on Brexit.
Nonetheless lawyers are warning that after the UK withdrawal, chemical products being exported from the country into the EU could be classified under REACH as new imports. As a result, all products from the UK registered under REACH since its introduction would have to be re-registered.
In the packaging sector, an important upcoming EU regulation relates to mandatory safety features for medicines packaging to combat counterfeiting of pharmaceuticals.
By February 2019, each medicine pack sold in the EU will have to have a unique identifier consisting of a 2D matrix serialization barcode containing a product code, serial and batch numbers and expiry date, which can be scanned by a pharmacist before being dispensed to the patient.
Ink producers have been developing for the regulation high resolution, durable inks so that the coding remains intact during the five years in which a medicine pack can remain in the distribution system.
With Brexit, UK producers of packaging inks, like those for serialization of pharmaceuticals pack, will be unsure about the potential size of their markets and of regulatory cost burdens.
If the UK is left outside the single market, ink producers and some raw material suppliers in the country will be confronted with shrinking European sales because of EU tariff and non-tariff barriers. They will have try to compensate for this decline by increasing exports outside the EU.
Value of the UK Pound
The many ink makers and raw material suppliers in the UK who are exporters both to EU countries and non-European countries are already being helped by a weaker pound. By mid-July, the value of the UK pound had fallen by around 10% against the US dollar.
Some economists are predicting that because of Brexit, the pound could fall steadily over many months or even a few years by as much as 30%, which will make it par with the dollar. A cheaper pound will help to boost exports but also offset the extra cost of raw materials, new EU tariffs amounting to around 5% to 7% and the expense of ensuring that exports into the European Union comply with EU regulations.
In addition, the ink producers’ downstream customers in the UK will be in a similar position. A survey by the British Printing Industries Federation (BPIF) – UK printers’ main trade association – before the referendum found that more than 80% rely on exports, either directly by selling their products abroad or indirectly by having customers who are exporters.
If printers and their customers are able to push up export sales with the aid of a low pound, ink producers will be in a better position to pass on to its customers the extra costs of raw materials and other Brexit expenditure burdens.
Meanwhile, there could be the more immediate difficulties of a drop in domestic demand.
“It looks increasingly likely that the economy will slow in the short term, with uncertainty causing delay to investment decisions and spending,” warned Charles Jarrold, BPIF’s chief executive.
In the UK there are already signs of weakening consumer confidence and a decline in activities in key sectors like construction.
Furthermore, this short-term economic slowdown will not be confined to the UK but also the rest of the EU. Analysts believe the reduction in GDP growth in Europe will be between a third to a half of that in the UK itself.
European Editor Sean Milmo is an Essex, UK-based writer specializing in coverage of the chemical industry.