Cheque Mate - Brexit & The Manufacturing Industry

The broad position, outlined at the Prime Minister’s country retreat at Chequers in Buckinghamshire, is as follows. 

1. Zero tariffs across goods, with no quotas
2. No routine requirements for rules of origin between the UK and EU
3. Arrangements that allow the massing of current and future Free Trade Agreement (FTA) partners to preserve existing global supply chains 

This last one means that EU goods will count as being local in UK exports to its FTA partners for rules of origin purposes, and vice versa.

Although nothing is yet agreed, this appears to tick a lot of boxes for supply chains across Europe, but concerns do remain.

The omission of services from the Chequers position of services is potentially troubling, not least because the relationship between goods and services is extremely complex.

Whilst a manufacturer may manufacture ‘goods’, the aftersales service and support, including replacement parts provision, are classed as services.

Aircraft engine manufacturer, Rolls Royce, for example, generates 48 per cent of its revenues from supplying OE equipment, i.e. engines, to civil aerospace, but also generates 52 per cent from aftersales services, such as spare parts and maintenance contracts.

For them, separating out goods and services is a potential headache, as it is for any manufacturer who wants to bundle a service or maintenance contract into the agreement for a new conveyor or machine tool.

I know of one UK manufacturer who exports to Europe, that has a parts hub located on the outskirts of Paris offering a 24-hour service delivery of spare parts to customers across Europe, including the UK.

Under Chequers, this hub would be classified as a service and not part of the agreement, making it liable to tariffs.

The company is seriously concerned about its ability to bring parts into the UK and service their UK customers in the event of a ‘no deal’ and have even looked into turning their parts hub into a bonded warehouse.

Ultimately, Chequers may well fail due to the fact that it cuts across too many EU red lines, particularly in relation to the Customs Union and the Single Market.