Brexit and Fashion: Can the British Fashion Industry survive?
The end of the Brexit transition period on the 31st of December 2020 and the signing of the EU-UK Trade and Cooperation Agreement (TCA) put an end to the UK’s membership in the EU, but the impact of this on the UK’s fashion industry has been slowly unfolding itself ever since. It is estimated that the UK fashion industry is worth around £35 billion, and it provides employment to about 1 million people, but Brexit is likely to impact both of these figures. As of the 1st of January 2021, the industry is faced with the serious risk of losing its biggest trade partner, the EU, due to increased trading costs and the end of the free movement of persons.
According to the CEO of the UK Fashion and Textile Association, the most important issue the British fashion industry faced as a result of Brexit was the possibility of tariffs. Being part of the EU meant that the UK could enjoy tariff-free trade with EU countries. However, Brexit meant that the UK would no longer be able to enjoy this benefit, and the British fashion industry would be left with no choice but to face heavy taxation when trading with the EU.
Currently, an estimated 75% of UK fashion exports are sent to the EU, while the UK imports clothing and accessories that are worth an average of £14 million per day from the EU. These numbers make it clear that maintaining zero tariffs was, rightly, a priority for a post-Brexit deal with the EU. Members of the UK Fashion and Textiles association include reputable brands such as ASOS, Burberry and Ted Baker, and for these brands, the EU is by far their biggest market. Therefore, maintaining tariff-free trade between the UK and the EU was highly important for the UK fashion industry.
Tariffs would not just impact exports to the EU but would also impact imports of raw materials into the UK. The manufacturing processes of many British fashion brands are highly dependent on EU products. The CEO of luxury British fashion brand, Mulberry, argued that UK retailers should not be required to pay taxes on the raw materials they source from the EU since that could have an impact on the prices of their products and hurt both consumers in the UK, and the ability of the British fashion industry to compete internationally.
These fears were eventually allayed when the EU and the UK announced that they had reached a free-trade agreement, the TCA, in December 2020. Under the terms of the TCA, the trading of goods between the EU and the UK would not be subject to any tariffs or quotas, allowing UK fashion businesses to continue trading with their EU customers without the threat of direct taxation.
Another issue pointed out by representatives of European fashion retailers would be the possible divergence of the UK from several standards and regulations. In the post-Brexit industry, all products manufactured in the UK and then exported and sold to the EU would have to comply with certain regulations and standards imposed by the latter, and vice versa. However, the UK has said on several occasions that post-Brexit, they intend to be “rule makers” and not “rule-takers”. As a result, EU fashion representatives fear that the UK will fail to comply with EU regulatory standards in terms of consumer rights, environmental protection and tax transparency, amongst others.
These regulations and standards mean that whilst the TCA prevented the imposition of direct taxation, trading costs may still rise. British manufacturers of fashion items may soon have to comply with a dual regulatory system, whereby their goods will need to abide by the potentially diverging standards of both the EU and the UK. This would increase costs for the UK fashion industry, and many of the industry’s leaders have argued that such divergence should be avoided.
Questions also arise in terms of the “rules of origin”. This is a measure that determines if enough of a product has been manufactured in a certain country, potentially allowing it to qualify for a lower tariff rate. This measure may be difficult to prove for goods such as clothing, whose supply lines often stretch across several countries. For example, Norway, which is a member of the EU single market but not of the customs union, often prefers to pay tariffs rather than going through the process of trying to prove the origin of certain products in order to benefit from lower tariff rates. This evidences that the process of proving the economic origins of a product in exchange for lower tariffs is not a simple one and UK businesses may find it difficult to resort to that process.
Such processes require extensive administrative work, with businesses having to complete forms and declarations to export to the EU. These administrative costs have already impacted the profit margins of the businesses operating across the EU-UK border, and smaller UK fashion brands are being disincentivised from exporting to the EU. Even at this early stage, the trade of fashion items between the UK and the EU has suffered, with UK fashion brands recording an almost 50% drop in sales to the EU over the first few months of 2021.
Additionally, luxury British brands were, and still are, concerned about losing some of their intellectual property rights post-Brexit. The TCA is meant to preserve the existing IP system in place, but it does not oblige either party to refrain from making changes. At the same time, the UK has opted out of the unitary system of EU-wide trademark registration, meaning that fashion businesses will have to register their IP through the different systems of the UK and the EU.
While this is not a trade issue, the free movement of people is vital for the British fashion industry. Post-Brexit, the British government plans to introduce a new migration system, ending the freedom of movement of people that was enjoyed when the UK was a member of the EU. This would also mean that British nationals will no longer have the right to freely work and live in EU member states.
The UK fashion manufacturing sector is working at capacity due to the shortage of garment workers that Brexit has caused, and UK manufacturers doubt that there are enough domestic skilled workers that would be interested in filling the gap. On the other hand, Brexit supporters have expressed that if the salary for such jobs was higher, more British workers would be willing to take up such jobs.
If the government goes ahead with its new migration system, the British fashion industry fears that this would be very damaging to a lot of brands due to the shortage of experienced workforce that would be created. Several fashion associations in the UK have expressed their desire to work with the UK government to find a solution that would help British fashion brands cope with the changes brought by Brexit in the short term until a more permanent solution can be found. As part of the EU, British designers were allowed to pack samples of their products and travel abroad to other EU countries for fashion events and trade shows.
However, without any clarity on the new rules, British fashion retailers fear that this may no longer be possible and are worried about how they will be able to showcase their designs. Freedom of goods and people is also vital for London Fashion week. If models, photographers, and brands cannot travel at short notice and goods cannot simply be transported in a matter of days, then London Fashion week may become a less attractive environment for EU-based brands, and this could reduce the importance of this high-profile fashion event.
It is evident that post-Brexit, the UK fashion industry will be faced with difficulties that could prove damaging to the industry as a whole. The TCA was welcomed by the fashion industry, but many more challenges remain. The end of the Brexit transition period coincided with the store closures and economic hardship of the Covid-19 pandemic, making it hard to assess exactly how much Brexit has presently affected the UK's fashion industry. Yet, most businesses have realised by now that the TCA alone will neither preserve their exports to the EU, nor safeguard their survival.