How Will Brexit Affect the Fashion Industry?

By: Sheila Nsue Nfono

Brexit has been an ongoing subject of the global political debate and widely covered by the media. Since the referendum that put the United Kingdom (the “UK”) in a unique and unprecedented position, as the first Member State to leave the European Union (the “EU”), the British Government has been continuously working to set the terms of the future relationship between the EU and the UK.

By way of background, the UK nationals voted on June 23rd, 2016, to withdraw from the EU with 51.9% votes in favour of the UK exit from the EU under Article 50 of the Treaty on European Union. This article allows any Member State to leave the EU and provides an invocation procedure, which also includes a negotiation period of up to two years between the leaving Member State and the remaining EU countries.

While the actual vote took place in June 2016, the UK Prime Minister Theresa May (who took over the position after the resignation of former UK Prime Minister David Cameron) formally invoked the Article 50 on March 29th, 2017, and kickstarted the two-year negotiation period which should end on March 29th, 2019. By then, we should know the full details of the Brexit deal with the EU, if any, and its effects on all industry sectors.

Most recently, the UK Government voted to block a no-deal Brexit, which should put more pressure to secure a deal acceptable to the Government in time for when the UK is due to leave the EU. However, the terms of the deal are yet to be agreed on and the possibility of a no-deal Brexit still remains.

This uncertainty surrounding the country’s departure from the EU is becoming more worrying for those who are yet to be prepared for a “no deal” Brexit scenario. This would mean that consumers, businesses and public bodies would have to respond immediately to changes as result of the UK leaving the EU.

The British fashion industry has been particularly impacted by the lack of clarity with regard to future relations with the EU. Harrods’ managing director, Michael Ward, said “This continuing uncertainty … is impacting the ability of businesses to plan for any form of Brexit outcome, a situation which becomes more dangerous as we approach March 29th.”

If the no-deal Brexit takes place, this would mean a significant change in the way that companies do business with the EU. Without the current trade agreements in place, the UK will fall under the World Trade Organization („WTO”) tariffs and it will take years to agree on more favourable deals with the EU.

Though, there is more to the effects of Brexit on the fashion industry in the UK than just trade deals (whether a hard deal Brexit or a no-deal Brexit takes place) and I would like to summarize the main concerns in this article. In particular, I will focus on the potential issues in manufacturing, global trade and commerce, education, taxation and migration of domestic and international talent.

The Increase of the “Made in Britain” Products

There has been some positive impact in the apparel manufacturing with more brands seeking to invest in companies that produce clothing stock in the UK. This new trend comes in opposition to the more common practice of outsourcing it to foreign countries (e.g. to India, China, etc.) where labour conditions are cheaper, although less favourable for their workers (as it has been predominant in the media in recent years).

An example of this is Fashion Enter, a not-for-profit manufacturing enterprise based in North London that recently acquired Gloria Fashions. Gloria Fashions was a company established in 1956 that produced garments for high-profile fashion brands such as Mulberry, Whistles and Jaeger. With this acquisition, Fashion Enter seeks to get ahead of the potential demand of more on-shore production amid uncertain economic and political times in the UK post-Brexit.

However, this silver lining may be overshadowed to some extent by the fact that many of the skilled professionals employed in British manufacturing companies are EU citizens. In fact, Fashion Enter’s CEO Jenny Holloway confirmed that some 80% of her stitchers are Eastern European, according to the Evening Standard: “When [the Brexit vote] first happened, two went home immediately — they felt unloved and unwanted. We used to have skilled workers from Bulgaria, Romania and Poland knocking on the door every week — that’s stopped completely.

With new and more complex immigration policies to be put in place after Brexit, it will be important for these new UK manufacturing companies to invest in sponsoring and training more workers in order to be able to expand and develop their investment.

The New “Status” for EU Citizen and Changes in Migration in Fashion

As mentioned before, the fashion and retail industry could be affected by the UK’s new immigration policies that should come in force after Brexit. These policies include a proposed new skills-based immigration system to substitute the free movement of persons which will affect the current EU working force in the UK, as a high number of hiring in fashion is comprised by EU citizens (whether it is by temporary or permanent contracts). This could mean, for example, that employers in high-street stores could see a considerable decline in job applications from EU citizens in the future.

Many EU workers may benefit from the settled (and pre-settled) status scheme, which will allow them to continue working and living in the UK in similar conditions as they currently experience. Yet, those seeking to move into the UK in the near future may be subject to different migration policies.

In any case, it is clear that the end of the free movement of persons is already having a strong impact in the migration of EU citizens. It is estimated that the number of EU citizens living in the UK has declined steadily since the referendum with a lower number of EU migrants arriving to the UK, reducing the small pool of skilled workers.

The fashion community has also expressed its concerns about UK designers and other workers’ ability to live and work in the EU, as it is a necessity to be able to travel for fashion shows, networking events, or photo shoots. Such limitation in the movement of workers will significantly affect the way the British fashion community may interact with the EU market.

Effects on the Diversity of the Young Talent in Fashion

Many people wonder how Brexit is going to affect the number of international students atttending British institutions of higher education. At the moment, universities have not suffered a significant drop in the number of applications, and do not predict that the number of EU applicants may be reduced in the near future. However, other opportunities such as EU funds and the Erasmus scheme (a study exchange program) may not be available after Brexit. If so, EU graduates may not be able to benefit for the experience to study or work as an intern in the UK, as it has happened in the past and vice versa.

To Trade… or Not to Trade…?

As far as the trade is concerned, fashion companies have started to express their worry about the increase of their costs due to a potential increase in taxes and customs. Most of the materials originate from non-EU countries and intermediaries are often based within the EU. For this reason, should the UK leave the EU without a deal, UK manufacturers may suffer from a bewildering array of tariffs and the cost of clothing may increase as a result of this, which ultimately will be for the final consumer to pay.

Nonetheless, there are some advantages of Brexit. The Evening Standard reported that one positive side of Brexit is the increase of international shoppers due to the decrease in the value of the pound, which has made easier for the public to access more expensive and exclusive fashion products. However, it is still early to see whether this trend will carry on after Brexit.

New Taxation Rules

As mentioned earlier, import and export is a significant part of the fashion industry, with materials being shopped and shipped around the EU and many production stages are being outsourced to different countries.

In the event of a hard Brexit deal, the UK will need to decide and negotiate the details of the tariffs on imports and exports. However, in the event of a no-deal Brexit, the UK will fall under international trade rules set by the WTO and the imports and exports between the EU and UK will be subject to Most Favoured Nation tariffs.

According to recent studies by NimbleFins, the price of clothing and footwear imported from the EU could rise by 12%, leaving the consumers to endure the effects of the new taxation policies. Among the countries more affected by these new rules, in the event of a no-deal Brexit, are Italy, Germany, the Netherlands, France, Spain and Belgium.

How Will the Creative Products Be Protected in the EU?

There are also many concerns about how fashion creations and fashion brands will continue to be protected after Brexit. New policies to protect intellectual property creations are still under discussions.

For instance, there is a question whether trademarks aready registered in the EU will be automatically reassigned to a seprate UK trademark registry, or whether they will remain a EU registered mark so that they cover all relevant geographical territories. Owners of UK registered trademarks may need to consider, and if necessary, prepare to apply for EU and UK trademarks separately before Brexit in order to be fully “covered” in Europe.

In terms of copyright, Brexit might also create some complications related to protection, as it would only cover the UK, and that could potentially make designs more vulnerable with regard to the threat of copying and fast counterfeit, especially for smaller brands which may not have the financial resources to put in place expensive brand protection strategies.

Opinions Within the UK Fashion Community

In light of the above, it is not surprising that the fashion industry has been very vocal about supporting the decision of a UK-EU deal. As explained by Caroline Rush, chief executive of the British Fashion Council: “The ongoing uncertainty and confusion that a no deal creates will have a negative impact on our industry, where investment is already impacted by the uncertainty being faced.”

According to the polls, 90% of the designers told the British Fashion Council they voted to remain in the EU, and some even continue to rally against Brexit, such as Katharine Hamnett with the “CANCEL BREXIT” and “FASHION HATES BREXIT.”

Whilst opinions range from supporting a soft Brexit deal (which would imply that the relations between the UK and the EU stay as close as possible) to even calling for a second referendum, the fashion community has made efforts to enter in conversations with the Government to ensure that this £28 billion sector continues to flourish following the March 29th deadline.

Though, what is clear is that a “no-deal” could have severe repercussions, as explained by fashion critic Sarah Mower: “Most of the British fashion talent we have are small, medium and emerging companies. Just the idea of having to deal with the massive complications of extra form-filling, delays in shipping, the stopping of the easy flow of goods and people in and out of Paris, as well as other European locations such as Italy, Portugal and Romania, where fabric is bought and clothes are manufactured, is enough to threaten the closing down of an entire sector of the UK’s £32 billion fashion industry. We are facing a national emergency; the politicians have failed to show they have some concerns to protect jobs in fashion or any other UK industry. A people’s vote needs to be called.”

There are still options for the fashion industry to thrive against any potential setbacks following Brexit – although concerns are still being raised as we get closer to the Brexit deadline, the UK could still enter into favourable agreements with the EU to deal with the main concerns raised above.

Nevertheless, given the lack of consensus in the UK Government that still burdens the industry, only time will tell how the UK fashion community will overcome the uncertainty and be reborn once again… possibly stronger and better.

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Sheila Nsue Nfono is a Spanish qualified attorney. She graduated from the University of Navarra and the London Metropolitan University in the UK. Sheila has gained experience working alongside art, media and IP lawyers in the UK and abroad in companies such as Matters Creative, Trademark Consultants and Gygabyte Technologies Co. Ltd. Currently, she serves as Business Affairs Manager at an IP and brand protection company in London.

 

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