* PM May wants new customs agreement with EU
* Many British exporters involved in cross-border supply
* Customs barriers among top concerns for British
* Tariffs and customs controls would add cost, time delays
By Kylie MacLellan
BIRMINGHAM, England, Feb 9 In a small factory in
a suburb of Birmingham in central England, family-owned
Brandauer manufactures a tiny metal component used in the
control panel of a car airbag.
From raw material to electrical connector pin in the airbag
of a finished car, it will travel between Britain and the
European continent as many as five times during the production
process -- without encountering any customs barriers.
But when Britain leaves the European Union, and likely the
bloc's customs union, such cross-border supply chains could see
substantially increased costs and time delays due to tariffs and
The EU's customs union allows goods to circulate freely
between member states without facing any duties, quotas or
customs controls, and applies a common tariff at its external
border to goods coming from outside the bloc.
British Prime Minister Theresa May has said she wants to
have some kind of customs agreement with the EU in order to have
trade that is "as frictionless as possible".
"Whether that means we must reach a completely new customs
agreement, become an associate member of the customs union in
some way, or remain a signatory to some elements of it, I hold
no preconceived position," May said in a speech last month
setting out her priorities for upcoming Brexit negotiations.
For the boss of Brandauer, a 155-year-old business which
began life as a pen-nib manufacturer and now makes 8 million of
the airbag components every month, the goal is clear.
"We do need tariff-free trading with the eurozone," Rowan
Crozier told Reuters, speaking over the whir of the large
machines nearby which suck in coils of metal at one end and spit
out tiny precision-cut components at the other.
Crozier, who voted to remain in the EU, says the government
has not provided enough information for him to predict what
impact EU tariff barriers might have on the company, which
employs 54 staff and produces parts used in everything from
plumbing to kettles.
"We have to wait and see, I can't second guess what might
happen. I don’t think we have a plan from the government ...
They have got a wish list. If they get 50 percent of what they
want they will be doing well," he said.
"It is very difficult to plan for that ... It will affect
our competitiveness, or our customer’s competitiveness, which
will then affect people's strategies of buying."
The copper alloy for the airbag part is made in Germany
before being imported to Britain on a large coil where it is
stamped into shape by a press at Brandauer's factory in
Birmingham and then plated in a semi-precious coating at a site
in nearby Coventry.
That material could face an import duty of 4.8 percent under
World Trade Organization rules, if Britain does not agree a more
favourable rate with the EU as part of a free trade deal.
It could then be hit with this duty again when the stamped
copper is shipped back to Brandauer's customer in Germany where
it is assembled into a control box and connector.
That control box part is sent around the world, including to
a subsidiary back in Britain, to be finished off before it ends
up in cars assembled on the European continent, including by VW
Safety airbags and their component parts could face average
duties of 3.7 percent, while the final vehicles they are used in
may then be hit by tariffs of up to 10 percent if they are sold
to consumers back in Britain.
It is just one example of the many complex, cross-border
supply chains which could be impacted by Brexit.
Analysis of the latest available data from the World
Input-Output Database by Credit Suisse last year found that in
2011 around a third of UK exports to the EU were part of EU
exporters' supply chains, a steadily rising proportion.
Future customs arrangements are among the top concerns of
British manufacturers, according to industry body EEF, 80
percent of whose members are small businesses and many of whom
are in supply chains to larger manufacturing firms.
"They are part of integrated supply chains sewn up in the
ecosystem of seamless trade between the UK and EU countries,"
said Fergus McReynolds, director of EU Affairs at EEF, which is
gathering information from its members on what elements of the
current arrangement are most crucial.
"The priority remains as little change to our current
trading relationships and as little disruption as possible to
supply chains that are essential for the sector."
Crozier hopes the specialised nature of his business --
which operates within tolerances less than the thickness of a
human hair -- means customers will pay any extra cost rather
than look elsewhere, at least in the short-medium term.
The airbag connector pin, for example, is 1 millimetre thick
and is made in eight sizes ranging from 20-40 millimetres long.
While day-to-day sales of existing products have remained
busy, in some cases boosted by the weaker pound making them more
competitive, the longer term is less predictable.
There can be a 4-6 year lead time between a customer enquiry
and a product producing meaningful revenue for the company.
"Uncertainty is definitely driving a little bit of a slowing
down," he said. "The half of the business which is about winning
new orders, new customers ... it is those ones that people are
becoming a little bit more cautious about."
One U.S. company who put an order on hold ahead of the EU
referendum last June has not yet come back to say they will go
ahead with it, despite the weaker pound making Brandauer much
cheaper than their current supplier, he said.
Brandauer exports around a third of its 7.5 million pound
annual turnover to China and 15 percent to the United States.
Greater trade barriers in Europe could see it switch its focus
away from trying to grow the 15 percent it exports to the EU.
"I think it is unlikely that it would affect current
programmes but it would affect longer term strategy, no doubt,"
he said. "It is more about down the line ... it affects our
children and our children’s children, who knows what it means
(Editing by Anna Willard)