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How will the EU referendum affect the manufacturing industry?

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How will the EU referendum affect the manufacturing industry?

It was a hot topic at this year’s National Manufacturing Conference, and with voting on the UK’s membership of the European Union to be held on 23 June 2016, the EU referendum debate is set to rage on for several months. With two surveys carried out in August 2015 showing that growth in the UK manufacturing sector has slowed, with both new orders and output increasing less rapidly than before, will opting out of the EU help or hinder the manufacturing industry? Let’s look at some of the arguments for and against Britain staying in the EU from a trade prospective…

In or out for manufacturers? The UK and the EU referendum

The manufacturers’ organisation EEF, which represents over 6,000 manufacturing companies conducted a survey in August 2015 which indicated that 85% of those polled would vote to stay in the EU, and only 7% would opt to leave. Firms with more than 250 employees were most keen on the EU, with 90% saying they would want to retain membership.

The case for remaining in the EU

EEF state “…being a member of the EU is vital to the long-term interests of the UK’s manufacturing industry. This is why we support a more dynamic EU, focusing on reducing red tape, promoting a competitive market economy and securing key trade deals.”

EEF are not alone in their viewpoint with Damian Green MP, Chairman, Conservative European Mainstream Group stating, “It’s is overwhelmingly to manufacturers advantage to stay in. Just over half of our manufacturing exports go to the EU, so it seems risky at best, perverse at worst, to put that in jeopardy…One of the reasons why so many big companies have come and set up in this country, particularly automotive, is to sell into the wider central market of Europe. It would be absurdly destructive to jeopardise one of our most important sectors by pulling out.”

The government published its official assessment of how the withdrawal process from the EU would look in the event of a vote in favour of Brexit on June 23. The report’s central claim that negotiating the UK’s exit from the EU, the UK’s future arrangements with the EU, and UK trade deals with countries outside of the EU would likely take around ten years – “up to a decade or more of uncertainty”. The Economist says Britain would still be subject to the politics and economics of Europe, but would no longer have a seat at the table to try to influence matters.

Opting out – The best of both worlds?

In the vote to leave the EU, Euro sceptics highlight the achievement of SwitzerlandIceland and Norway. These countries are not members of the EU, but are members of the European Free Trade Association (EFTA) and therefore benefit from the EU’s internal market.

Matthew Elliot, CEO, Business for Britain, “I think people should be reassured by the fact that Canada, for example, has very good trade deals, and there’s no reason why the UK couldn’t receive a similar agreement.”

Roger Bootle stated in his book, The Trouble with Europe: “It would place the UK in the same position as the US is currently in, along with India, China and Japan, all of which manage to export to the EU relatively easily.” The UK would be free to establish trade agreements with fast-growing export markets such as China, Singapore, Brazil, Russia and India through the World Trade Organisation.

An ideal exit-strategy for the trade industry is that the UK negotiates an acceptable exit agreement with the EU, securing EFTA access and reducing red tape. Existing EU trading partners maintain their free trade agreements, while the UK also secures new agreements with several mid-level trading partners such as Australia and Brazil, though negotiations would most likely go more slowly with China, the US and Russia. Britain’s EU bill would be significantly reduced but not eliminated. Stronger trade outside Europe would need to recompense for any decrease in trade between the EU and the UK.

Manufacturing requires certainty in any trading environment

Whilst it is thought by the pro-leave campaigners that a move away from EU membership will cut red tape, British manufacturers and distributors may conclude that it is easier to continue with the status quo; implementing EU regulation, especially since the EU will remain Britain’s largest trading partner.

The greatest uncertainty associated with leaving the EU is that no country has ever done it before, so no one can predict the exact result, which in itself is a major headache for both sides of the argument.

Whatever the outcome of the EU referendum in June, manufacturers and distributors must maintain their own supply chain management and ensure that their business can flex according to the wider environment in terms of regulations and processes.

As a Microsoft Gold Partner, Prodware helps many international organisations in multi-site, multi-currency operations with future-proof business management ERP software.  Talk to us today about ensuring your supply chain is robust and flexible.

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