BCC RESPONSE TO INTERNATIONAL TRADE Committee inquiry INTO The COVID-19 pandemic and international trade

About the British Ceramic Confederation

1.       As a trade association, BCC represents the collective interests of the UK ceramic manufacturing industry. We have over 90 member companies that operate from 160 sites across the country. Our membership comprises a range of mostly SMEs operating single manufacturing sites (~75%), through to larger UK-based and multi-national organisations operating multiple manufacturing sites.

2.       Approximately 20,000 people are directly employed in the industry (including suppliers), and with annual sales of around £2 billion and an active exporter (around £650 million including china clay and ball clay) the sector is critical to a number of applications across society. The ceramic sector is extremely diverse, spanning both foundation industries and advanced manufacturing. Durable clay construction products[1] have been manufactured and used on the British Isles for over two thousand years, and today we have some of the most advanced and energy-efficient manufacturing operations in the world. These products are essential to building the homes we desperately need in the UK. Our ‘whiteware’ manufacturers past and present are a roll call of some of Britain’s most iconic brands. The ‘Made in England’ back-stamp remains sought after by discerning consumers around the globe. Our membership also includes advanced ceramics manufacturers which supply numerous other sectors (including automotive, electronic, medical, aerospace, environmental, military and structural applications) cutting-edge refractories (vital in all high-temperature process industries), as well as suppliers of raw materials to the sector.

3.       Many of our members export all over the world and around 55% of all ceramic exports in 2019 went to the EU. The second biggest market for ceramics is America which accounted for over 15% of exports in 2019. For some members including some refractory and technical members exports account for over 90% of their annual sales.

4.       There is however a negative balance of trade in ceramics (code 69, excluding kaolin and ball clay) with approximately £1bn more imports than exports as shown on the below graph.

5.       The large increase of imports in the last 20 years has severely damaged our domestic industry. There are currently two EU trade remedies in ceramics against Chinese tableware and tiles which are needed to allow our companies to trade on a level playing field. The remedies have been transitioned to the UK, and we will need to undergo some costly UK reviews presently. We are concerned that the trade remedies system which will be in place after we complete the transition period will be weaker than the EU system and potentially too costly for our members to run new cases which could result in this type of protection being weaker in future. Despite the tableware measures having only just been renewed in 2019, together with extra measures on circumvention of duty, there was an increase of tableware imports from China. 

6.       In the crisis some parts of our sector have been supplying to industries which are helping in the fight against Covid-19 and have seen a strong increase in demand:

• Technical ceramics are supplying to the medical sector e.g. one member makes heating elements which are needed for many applications including ventilators, and another makes ceramic seals used in blood testing. Members also supply to the energy, waste and food industries.
• Refractories – supplying to the energy, waste and glass hollowware (medical and food / drink), for one member the surge in demand is so strong across the world they have had to limit orders temporarily.
• Construction – some high demand from new hospital construction including our sanitaryware members who have been supplying the new Nightingale hospitals.
• China clay- not just used in ceramics but in pharmaceuticals e.g. pharmaceutical formulation and packaging production.
• Many other members are doing their bit during the crisis including running NHS fundraising competitions to design a mug, offering discounts to NHS staff for craft clay supplies, switching to hand sanitiser production and developing innovative ceramic coatings to help fight against Covid-19. 

7.       Unfortunately much of the rest of our construction members’ production is closed for now and for tableware and giftware global demand has slumped as much of this is sold to hotels and restaurants.  Overall we estimate about 60% of our member factories have been closed during the past month.

Evidence

What impact will the global COVID-19 pandemic have on UK businesses trading internationally, in the short-, medium- and long-term?

8.       We are commenting on behalf of UK manufacturers in a fiercely competitive global market. All sectors are subject to competition from imports. 

9.       In the short term, the emphasis is on our members’ survival. On an ongoing basis we will continue to need access to essential raw materials supplies that we do not have in this country. This is particularly important for the technical ceramics and refractories sector who need a wide variety of non-indigenous minerals of adequate quality.

10.   In the medium term, in 2020, as UK production restarts, from a trade perspective, UK manufacturers will have to compete with rapidly surging imports from around the world into the UK market. We will be relying on the EU to enact safeguards where there are sudden import shocks, and implement anti-dumping and anti-subsidy measures where there is unfair trade very quickly. However, the UK needs to start thinking about how these measures, particularly the ongoing investigations will be transferred to the UK after the transition period. We believe it will be necessary for HMG (TRA, DIT, HMRC etc) to monitor imports rather than place the onus and expense on a fragile UK industry to have to provide evidence and funding to initiate trade remedy investigations.

11.   As chair of the Manufacturing Trade Remedies Alliance we had already called on the DIT SoS to strengthen the trade remedies system in the UK considerably (Jan 2020). MTRA letter to DIT Secretary of State. This is even more important now.

12.   In the longer term, much will depend on the attitude of the UK Government to UK manufacturing. We would be looking for a reset here that demonstrates that Government is very much more supportive of domestic manufacturing and wants supply chains and manufacturing to re-shore where possible. This creates jobs with strong GDP multipliers (e.g. CBI LEK study 2009, every £1 spent on construction leads to GDP growth of £2.84. https://www.lek.com/press/construction-investment-provides-significant-benefit-uk-economy-reveals-new-report)

How effectively has the Government responded, both in the UK and in overseas posts, to the short-term negative impact of the pandemic on UK businesses trading internationally? What further steps could be taken to mitigate this impact?

13.   We are currently writing to the PM which we will be copying separately to the committee chair and clerk as soon as it is finalised.

14.   Our sector appreciates that Government has reacted swiftly in providing the Coronavirus Job Retention Scheme and access to loans (CBILS, CLBILS, CCFF) and improving the offering on 3rd April. It is essential the cash support from Government is now delivered into businesses promptly otherwise some businesses in our sector simply will not survive beyond the end of this month or next month. None of our members has yet received a loan, as far as we are aware. Some have tried several lenders and are being rejected either because they were not profitable last year due to Brexit preparations, and despite turnaround plans being in place and orders having picked up in late December / early January; or because they had a stronger balance sheet are being pushed towards commercial loans at much higher interest rates. 

15.   The deferment of VAT is a simple and effective measure and has been welcome. Further concessions of this nature would increase the resilience of companies and we urge Government to take further steps by deferring employers’ National Insurance contributions, Corporation Tax and Business Rates over the next 3 months.

16.   From a trade perspective, our members have appreciated the strengthening of the UKEF offer, and in particular the expansion of the scope of its Export Insurance Policy (that covers up to 95% of the costs incurred if an export contract is terminated by events outside of your control) to all major markets. This policy covers transactions with the EU, Australia, Canada, Iceland, Japan, New Zealand, Norway, Switzerland and the USA with immediate effect. Previously these markets, which account for 74% of all UK exports, were considered to be ineligible for export insurance as being too low risk.

What medium- and long-term negative impacts could arise from the pandemic for UK businesses trading internationally? What steps could the Government take to mitigate these impacts?

17.   For our sector, one essential measure is retaining the current EU Common External Tariff as the future UK Global Tariff and not reducing this at all.  Our members were adamant that import tariff reduction will damage our domestic manufacturing and we advocated accordingly in the recent consultation response.  This risk to our UK ceramics sector has been raised significantly by the global pandemic making us even more vulnerable to import penetration and destruction of our members’ sales in the UK.

What steps can UK businesses take to mitigate the negative impacts of the pandemic on international trade?

18.   Many of our members feel powerless at present. Some have quite limited safety stocks of imported raw materials. Many customers have effectively had their businesses closed by Governments so there is little, if any, demand globally for some products. This has been particularly acute for the cateringware ceramics, used in hotels and restaurants but the UK measures to help the hospitality sector (business rate holiday) has not been extended to our members making cateringware.

19.   Government should also step in to prevent hostile takeovers. Our listed members’ share prices have plummeted in previously sound businesses so they know they are potentially vulnerable for takeover.  We have had two Chinese takeovers of non-listed companies in recent years and both sites were closed within 2 years. One of these had been growing and had large exports to the USA. We understand Spain and Germany have been legislating for / looking at legislation to stop hostile takeovers (and non-domestic ones). The EU have also now said they will bring forward legislation planned for October to protect strategic European companies weakened by the virus-triggered downturn from “predatory” takeovers, particularly by China.[2] See also for Germany https://www.dw.com/en/whats-in-germanys-emergency-coronavirus-budget/a-52917360. A recent article in the FT mentioned that there is Australian action here too https://www.ft.com/content/53b57e63-9120-367f-b723-e694ffd28f57. 

How best can the UK Government facilitate trade in essential goods during the pandemic?

20.   The key issue is that our members’ factories are supported in staying open, while of course adhering to PHE/HSE guidelines to ensure production can continue safely to ensure employees are kept safe. The BEIS SoS has recently thanked those in the manufacturing sector who are continuing production.

21.   We oppose the splitting of business into essential and non-essential but if Government do split businesses we believe essential industries must be documented. For example, refractories are designated as essential in the USA and several European countries. Many of our companies are making essential supplies that go into the medical and food supply chains, power supply, construction materials etc. We need Government to ensure that refractories, technical ceramics, key material suppliers and construction materials for hospitals and essential home repairs are included in that list. However, it would be completely wrong to reduce tariffs on imports on these products as it damages our members’ production and international competitiveness. See paragraph 17.

How should the Department for International Trade work with the rest of central Government, as well as devolved, local and regional Government, to deliver a coordinated response to the pandemic?

22.   Government needs to recognise that UK manufacturing businesses are essential to meeting UK market demands and needs to ensure they can survive. This requires a reset by Government and working across Departments particularly BEIS, DIT and HMT in a much more joined up way than previously.

How can the UK Government engage with countries at the World Trade Organization and bilateral trading partners – including those with which the UK has a significant trading relationship or one facilitating trade in priority goods – to promote international cooperation and a coordinated global response to the pandemic?

23.   We welcome engagement with countries internationally on the supply of PPE. During the crisis we understand that the issues with PPE, rightly prioritised to the healthcare sector, but also essential to enable our manufacturers to operate, could have been relieved if the UK took part in the EU’s procurement for PPE which the UK was fully entitled to but it is reported may have decided against for political reasons.

24.   We also do not want to lose sight of the current situation at the WTO Appellate Body. We believe, for now, that it would be very helpful for the UK to support the statement by 16 countries and the EU at Davos. The signatories remain committed to work with the whole WTO membership to find a lasting improvement to the situation relating to the WTO Appellate Body. They believe that a functioning dispute settlement system of the WTO is of the utmost importance for a rules-based trading system, and that an independent and impartial appeal stage must continue to be one of its essential features. Meanwhile, they will work towards putting in place contingency measures that would allow for appeals of WTO panel reports in disputes among themselves, in the form of a multi-party interim appeal arrangement based on Article 25 of the WTO Dispute Settlement Understanding, and which would be in place only and until a reformed WTO Appellate Body becomes fully operational. This arrangement will be open to any WTO Member willing to join it https://trade.ec.europa.eu/doclib/docs/2020/january/tradoc_158596.pdf

How might the pandemic impact global trade patterns and international supply chains in the long-term?

25.   Protectionism is never the answer and indeed our members export all over the world but the crisis has proved why the country needs to support domestic manufacturing and re-shore supply chains. This is especially important in strategically important sectors like pharmaceuticals (as outlined in the FT) and where companies are providing essential supplies and valued jobs in economically challenged areas.

26.   There is potential for more dumping and import surges in the UK. This is a particular issue where there is manufacturing overcapacity in some countries (e.g. China for tableware and tiles in ceramics).

The BCC would be happy to contribute further evidence (oral and written) to support this submission. Please feel free to contact us if you require any more information.

Dr Laura Cohen                                          Rachel Timmins             

Chief Executive                            Policy Officer