UK 4 February 2020 Brexit isn't done: what next for the UK chemicals industry? The second largest manufacturing industry in the UK is chemicals and 70 per cent of its exports go to the EU. What could possibly go wrong? Getty Images A view of the Teesside chemicals industry. Sign UpGet the New Statesman's Morning Call email. Sign-up Not many people arrive home from a long day at work, snuggle up in bed, and open a large book about EU directives in the chemicals industry. But the endless acronyms — REACH, CLP, IED and BREF to name but a few — make for compelling reading. Especially because, as far as Boris Johnson is concerned, the less that people read about the chemicals industry, the better. "It's very hard to understand," says Philip Aldridge, the chief executive of the North East of England Process Industry Cluster (a trade body for chemicals businesses on Teesside). "I struggle with it myself. So public consciousness just isn't there." "Historically we've been a bit frustrated that we haven't had the ear of the public," agrees Stephen Elliott, head of the Chemicals Industries Association. "People tend to think of us as a smelly pollutant industry. But basically society and manufacturing don't work without chemicals." Boris Johnson's Blue Wall Polymers and petrochemicals are not just the random answers to some University Challenge questions. They are the ingredients of inks, medicines, make-ups, paints, plastics and pesticides. They also happen to generate £12.1bn for the UK economy and employ around 99,000 people. Most of these jobs are clustered on the Firth of Forth, on Merseyside and, most importantly, on Teesside. "The chemicals and processing industry in massive for Teesside," says Andy McDonald, Labour MP for Middlesbrough. "It employs directly in the region of 8,000 people. Downstream that extends to 32,000. The incomes of those directly engaged in the industry are good. The average is around £40,000 a year as opposed to a regional and median income of around £24,000. So these are good jobs." The geography of this debate is important. Teesside is no longer a politically innocent part of the country. Boris Johnson won his 80-seat parliamentary majority by transforming one isolated Tory gain in the North East in 2017 into a full-scale invasion. Bishop Auckland, Darlington, Sedgefield, Stockton South, Redcar and Middlesbrough South are all now Conservative seats. A bad deal for chemicals could liquefy a solid section of his carefully assembled "blue wall". And among the new crop of Conservatives there is personal investment in the industry. To much media fanfare, Jacob Young, the new MP for Redcar, returned to work at his local chemicals company on Christmas Day, saying that he wanted to avoid "dropping the lads in it" (Young ignored an interview request). He describes himself in his Twitter bio as a "Teessider and Brexiteer". "I would have hoped that Jacob Young would be standing up and fighting for the chemicals industry," says Alex Cunningham, Labour MP for Stockton North. "These new MPs need to increase their understanding and not just accept what some government minister is saying — because it's very different to what the chemicals industry is saying." "I've talked to Simon Clarke," agrees Aldridge, speaking about the Tory MP elected for neighbouring Middlesbrough South in 2017 (who also ignored an request for interview). "He doesn't get it at all. He just does not want to listen." "If we don't get a good trade deal the whole lot will go with the result of thousands of job losses," says Aldridge. "It's not an assumption. It's not a scare story." There is good reason for Aldridge to worry. A leaked Whitehall briefing from 2018 showed that the chemicals industry would shrink by 12 per cent in the event of a Free Trade Agreement (FTA) Brexit — the most damaging prediction for any sector. And overall, the region worst hit by an FTA Brexit? The North East, whose economy could contract by 11 per cent. London, it should be noted, was the least affected region with only a 2 per cent drop. REACH for the stars Why is the picture so gloomy? Well, chemicals are transported across the English Channel a hell of a lot — 63 per cent of the industry's exports went to the EU in 2017 and 73 per cent of its imports came from there. In a sector with very tight profit margins, seemingly small tariffs — like the average of 4 per cent that the EU levies on other countries around the world — would have a disproportionate affect. "Tariffs on raw materials coming in and finished products going out would completely decimate any element of profitability," says Andy McDonald. Fortunately, unless something goes hideously wrong, tariffs are a distant possibility. The FTA Brexit we seem to be heading towards is much more likely to result in endless paperwork, registration fees and other such bureaucratic nonsense designed to make sure that our contintental friends don't end up washing their hair with hydrochloric acid. REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals) is the most important acronym to remember, governing as it does the selling and testing of chemicals for the European market. "We are the authors of REACH," says McDonald ruefully. "We were the driving force of some of those regulatory measures." "REACH is an increasing global influencer," agrees Stephen Elliott of the CIA. "Countries like South Korea, Turkey and Japan (to an extent) are increasingly following the principles of REACH. We want to stick close to it." It seems inconceivable that the UK can diverge from REACH. Even if it did, manufacturers would end up complying in order to get their products onto the European market. The likeliest outcome is a copy and paste job — taking EU chemicals law and replicating it in domestic law. But registration requirements mean that even this type of equivalence might not cut the mustard. "You're looking at duplicating the costs," says Elliott. "It would cost us as a ballpark figure of about half a billion pounds." Soften the blow? There are no two ways about it. The trade bodies of the chemicals industry are pushing hard for alignment. Elliott describes the implications of an FTA Brexit on one fabric softener manufacturer: "The raw material is a petrochemical that originates in France. It comes to the UK where they build an intermediate. That gets shipped to Germany where the active ingredient element is added. It is shipped back to the UK to be formulated and bottled — presumably by someone like P&G or Unilever." "That's an example of a product that needs to respond to just-in-time supply chains. There's three or four border crossings there. Each one of those is potentially going to be slower than it used to be with customs checks." And when supply chains are interrupted in the chemicals industry, bad news can quickly become horrific. Back on Teesside there is the sad case of Ineos to illustrate the danger. Ineos — whose Monaco-based boss Jim Ratcliffe is a fervent Brexiteer — is closing its Acrylonitrile Plant and moving operations to Saudi Arabia. Initially there will be 145 job losses, but the impact on suppliers could result in many more. "For CF Fertilisers, that's the loss of a customer who takes 40 per cent of their by-product," says Alex Cunningham. "The integrated nature of the industry means everything depends on everything else." "Multinationals will assess whether or not individual plants are core to their European and global trade or not," says Andy McDonald. "My fear and apprehension is that those companies will no longer regard the UK as core." This piece is part of the New Stateman's Brexit isn't Done series. › Coronavirus shows why the world must urgently invest in epidemic preparedness George Grylls is the winner of the Anthony Howard Award 2019. Subscribe For daily analysis & more political coverage from Westminster and beyond subscribe for just £1 per month!