U.K. asks businesses to map supply chain ahead of Brexit

The U.K. government has asked business groups to map their supply chains to flag the areas of the economy most at risk if Brexit imposes additional trading costs on exporters, two people familiar with the matter said.

One of the people expressed bafflement that it’s taken so long for the government to ask for the data.

It’s just 10 months until the country formally quits the European Union, and Prime Minister Theresa May’s cabinet — and indeed her Conservative Party — is still procrastinating on what kind of customs arrangements to pursue post-divorce.

The course the government decides on will determine what burden exporters face, and whether it’s still viable for them to trade with the EU and with third countries Britain now has trade agreements with as a member of the bloc.

The belated request is designed to help ministers and trade negotiators understand which sectors and companies stand to lose the most if Britain’s departure from the customs union leads to costly rules of origin, whereby exporters have to prove the proportion of the value of their products that stems from domestic production.

One question is why has it taken this long to ask. The work is highly complex, with some manufacturers using components that cross borders several times during the production process. Some will have to delve not only into their own supply chain, but into their suppliers’ as well.

“The only way you avoid the costs of rules of origin entirely is to remain in a customs union with the EU, but even then you might have some problems in relation to trade agreements with third countries,” Sam Lowe, a trade researcher at the Centre for European Reform, said in a phone interview.

“Absent the U.K. remaining in a customs union with the EU, it’s very difficult to see how in the long run, complex manufacturing in the U.K. remains viable.”

The Department for Business, Energy and Industrial Strategy made the request in February to the country’s main business lobby groups, as well as large companies and trading associations for different sectors, according to the two people, who spoke on condition of anonymity because the work isn’t public.

The department didn’t immediately respond to a request for comment.

May is facing rebellious lawmakers in both the House of Lords and House of Commons who want to keep Britain in the EU’s trade regime — which sets common external tariffs while allowing goods to travel freely within the bloc. She is also grappling with two options on what might replace it.

Her preferred plan is an untested program that would see Britain levying tariffs at EU rates after Brexit, providing refunds for goods destined to British markets if U.K. tariffs are lower.

But members of her Brexit war cabinet favour by 6-5 a second option relying on trusted trader programs and technology.

The EU has started to engage with May’s preferred choice, having previously said neither could work.