Brexit For Dummies

Article by Jessica Johnson, Associate Editor, Timber Processing November 2018

Here in North America, while we have all heard about the decision of the United Kingdom to exit the European Union dubbed “Brexit,” we aren’t as looped in as we could be. Indulge me in a current events refresher: The referendum vote was held on June 23, 2016 and according to the BBC, more than 30 million people voted to either leave or remain in the EU.

England voted for Brexit, by 53.4% to 46.6%. Wales also voted for Brexit, with “Leave” receiving 52.5% of the vote and “Remain” at 47.5%. Scotland and Northern Ireland both voted to stay in the EU—Scotland by 62% to 38%, and Northern Ireland by 55.8% to 44.2%.

However, as with all things political, the actual “exit” part of Brexit is extremely complicated. While the vote was cleared in 2016, the actual date for Britain to leave the EU is not until March 2019.

For a “deeper” dive into the issue, I turned to Irish TV channel RTÉ’s extremely informative “How To Explain Brexit To Your Children.” The EU has a Single Market, which means products (like sawn lumber) travel around the EU without any checks or regulations. Obviously, Britain still wants to be part of that after Brexit. Unfortunately, goods traveling freely also means people traveling freely—and Britain doesn’t like that part.

I ran into Brexit first-hand in Ireland for better or worse earlier this year. GP Wood’s Managing Director (and co-owner) Niall Grainger gave me a down and dirty of the entire situation. An Irish citizen and proud member of the EU whose sawn lumber is marketed heavily to the U.K., he obviously is well-versed. One of the biggest global concerns relating to Brexit is the stability of sterling (the British currency).

Grainger says there’s one big positive in this whole situation: The U.K. is a net importer of timber. The supply cannot satisfy the demand without import. “Time is going to sort out the currency flux,” he adds. However, Brexit will have a huge impact on the wood processing industry in Ireland overall, he believes, though not in the same way it will affect other industries. All indications point to a 0% tariff on sawn timber products—which is great for Grainger. Grainger notes that some of the tariffs will effectively kill those agricultural industries in Ireland where tariffs discussed are as high as 68% on honey and dairy products.

Border crossings, where little hassle is brought to a truck carrying a load of lumber currently, could mean customers waiting an additional two to three days for orders to clear customs if a “hard” border is put in place. Additionally, with talk of varying VAT (value-added tax) Grainger is concerned that his loads of lumber are going from VAT-free to requiring resale agents to carry a 1 million pound bond. “It’s going to gobble up cash flow,” he says.

To try to combat the issue, and give EU negotiators some idea of what the actual industry would like to see, Grainger and others, including the state-owned forestry company Coillte (which also operates MDF and OSB plants on the island that market to the U.K.), joined together to produce some documents. “We’ve tried as an industry to do a little bit of the work for them,” Grainger explains. “Sort of like, this is the way we think a customs border should look.”

In an already extremely competitive marketplace, Grainger is also worried about how much staff he’ll need to add and cost he’ll have to absorb during the “transition period.” Those costs will be difficult to pass along to customers in the U.K.