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What’s at Stake for Post-Brexit British Fashion

British fashion has been unambiguous in its condemnation of Brexit, with 96 percent of fashion workers voting to remain in 2016. But when Boris Johnson won his landslide election four months ago—standing in front posters emblazoned with the words, ‘Get Brexit Done’—the entire industry knew the game was up. Remaining was no longer on the table, but unfortunately a no-deal Brexit still was.

The very real fear that the U.K. and EU will fail to sign a trade deal by December 2020 continues to give designers and manufacturers nightmares. If this is the case, the U.K. could lose $6.5 billion in apparel exports and British brands could struggle to stay afloat as tariffs hit the industry.

“The biggest impact at the moment is the lack of certainty about what’s going to happen,” said Adam Mansell, CEO of the UK Fashion and Textile Association. “We faced a cliff-edge last year, and still don’t know what the situation will be from next year, but all I do know is that duty-free access to the EU market is Moderately critical given we have £10 billion worth of exports going there a year—which is around 76 percent of our total exports.”

The entire British fashion industry was built on the easy assumption of tax-free access to Europe, so it is understandable why British manufacturers are so highly reliant on the EU for exports and their supply chain. The UK government has said they are aiming for a zero-tariff, zero-quota deal, but EU negotiators have stated numerous times they will only agree to that if Britain aligns with the bloc on issues like welfare, international aid and climate change.

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As a result, the right-wing press and Eurosceptic side of the Conservative party—who have often said that they want Britain to be a rule-maker, not a rule-taker post-Brexit—are urging the U.K. government to walk away, or agree to an Australia-style deal, which means tariffs of 10 to 12 percent. If the U.K. and EU revert to that or to WTO rules, i.e. 12 percent tariffs on any British goods going into the continent, the industry could lose $6.5 billion a year. Add to that, non-tariff measures (NTMs) could cause major fractures in post-exit trade relations and knock up to $32 billion, or 14 percent, off of U.K. exports.

“It turns out to be an awful lot of money if you look at it that way,” Mansell said. “Europe provides us with a huge amount, and we need to protect that. If we add in non-tariff measures, it becomes even more destructive. The industry, of course, wants a zero for zero tariff deal—we can deal with administrative burdens, but zero for zero is what we want.”

The burdens he is discussing are the unexpected costs that occur when free trade is no longer an option. Leaving the customs union means that exporters will likely have to fill in declaration forms, which come with administrative costs—British retailer Next has said that they are expecting to spend nearly $200,000 per year under a no-deal scenario.

While the worry is widespread, few brands or manufacturers have left the country yet—largely because nobody knows what the result of these trade talks will be. However, Caroline Rush, CEO of the British Fashion Council, has warned that businesses will move soon if the UK doesn’t negotiate well. “Maybe not all of their warehousing, but they will make sure that they’ve identified facilities within the EU where they can hold goods and ship within the EU,” she said.

Mass-market British brands tend to make their goods outside of Europe, but they are still at risk. The EU’s Generalised Scheme of Preferences (GSP) removes import duties from products coming into the EU market from vulnerable developing countries, including Bangladesh, Vietnam and Cambodia. This helps developing countries to alleviate poverty, and Britain will need to urgently replicate that deal so British fashion brands that source out of Southeast Asia can stay afloat.

Equally important is Turkey, which enjoys a free trade deal with the EU and where brands such as Marks & Spencer’s and Topshop manufacture many of their goods.

“Turkey is our third largest supplier: the infrastructure in Turkey is brilliant for vertical manufacturing, and having duty-free access there has been so important,” Mansell said. “Once we leave the customs union, we run the risk of of 12 percent custom duty on goods from Turkey, which means importers will have to urgently look for other sourcing opportunities close to home.”

Luxury goods, by contrast, are far more likely to manufacture goods within the EU, and they will face the challenging question mark around “rules-of-origin”—a lengthy process that determines if enough of a product has been made in a country to allow it to qualify for preferential tariff rates. To ensure luxury goods do, Britain will most likely be removed from any European luxury supply chains.

And then there is the question of Ireland. While the Common Travel Agreement means British and Irish people can work on both sides of the border, trade between the two countries will be blighted by difficulties.

“The situation in Ireland is pretty unclear,” Mansell added. “Ireland is our largest export market, because so many of our big retailers have stores there—and things could become very complicated, as there are factories on both sides of the border and goods are constantly shuttled between the two countries.” The UNTD report suggests that in a no-deal scenario, Ireland’s exports to the U.K. could drop by 10 percent.

In a small silver lining, Brexit could help the U.K. manufacturing sector. It already makes $11 billion worth of products and employs 120,000 people, and that could grow if brands consider the extra costs that may arise with supply chains in the EU or third party countries. However, British manufacturers are weak on volume manufacturing, and are mostly at capacity.

Tamara Cincik, the founder and CEO of lobbying group Fashion Roundtable, said a shortage of workers means there is no realistic way for the British manufacturing sector to grow. “We spoke to a number of different manufacturers,” she said, “ and nearly all of them said they had jobs available that nobody had applied to, particularly since Brexit had deterred EU workers from coming to the country. They also said that they felt there was a lack of domestic skill and, more importantly, interest from British workers to fill the spots.”

To overcome some of the general anxiety, British brands are looking to grow their customer base in other non-European countries, specifically Japan and the US, which are both key markets. The U.K. will need to urgently renegotiate a deal with Japan – which, as of 2018, has free trade with the EU. But most of all, it is hoping that a protectionist US will look kindly at its equally protectionist sibling across the sea.