On June 23, British citizens will vote on whether the U.K., the world’s fifth-largest economy, will stay in, or leave, the European Union.
The exit of Britain—dubbed the “Brexit”—could destroy almost 1 million jobs, trigger economic recession, slash U.K. chemical exports, and shrink the U.K.’s science base, detractors claim. Alternatively, according to supporters, a Brexit could bring greater economic and trade independence, while science research could reap a share of the $12 billion per year the U.K. now pays to be a member of the EU.
▸ Sales: $78 billion
▸ Exports: $69 billion
▸ R&D spending: >$6 billion
▸ Direct employment: 158,000
▸ Industrial scientists: 30,000
▸ Academic chemists: >14,000
Note: Includes pharmaceuticals.
The vote will likely be a nail-biter. According to recent polls, about 51% of U.K. citizens say they will vote to stay in the EU; 46% say they will vote to leave. But pollsters say older people tend to be in the “leave” camp—and a relatively high percentage of them actually vote.
The U.K. public debate on whether to Brexit is focused on the economy. But there is also quiet support for a Brexit because it would permit the U.K. government to limit immigration from the EU, which has risen to a record level.
For the U.K. pharmaceutical industry, a Brexit risks causing uncertainty and creating barriers to investment. “It’s vital the U.K. remains engaged in the EU to influence legislative and regulatory policy developments affecting the life sciences ecosystem,” says the BioIndustry Association, a U.K. industry organization. Ninety life sciences firms have stated publicly that the U.K. should stay in the EU.
Additionally, if the U.K. votes to Brexit, two European pharmaceutical institutions currently based in London—the European Medicines Agency and a part of the EU’s planned unitary patent system—would have to relocate to an EU country.
Many chemical companies, meanwhile, are concerned that a Brexit could severely restrict exports to Europe. In an April survey by the U.K.’s largest chemical industry organization, the Chemical Industries Association (CIA), 62% of its 90 members said they want to remain in the EU. The rest declared that they decided not to take a position.
“The fact that none wanted to leave the EU is quite telling,” says CIA’s chief executive, Steve Elliott. “The issue needs to be considered with great care and respect for the facts.” CIA represents companies that generate about 70% of the U.K.’s $78 billion in annual pharmaceutical and chemical sales.
A Brexit could also exclude the U.K. from the Transatlantic Trade & Investment Partnership trade deal between the EU and the U.S., Elliott says. U.S. President Barack Obama has already warned the U.K. that, if it exits the EU, it will go “to the back of the queue” for trade deals. Potential implications for U.K. chemical firms include missing out on cheap U.S. energy, Elliott says.
Large multinational firms are among the companies shouting loudest for the U.K. to stay in the EU. Membership is “fundamental” to the success of Solvay’s U.K. operations, claims Melvin Dawes, U.K. managing director for the Belgian chemical company.
BASF takes a similar line. “We don’t and cannot know the terms that will be agreed, but the political uncertainty will cause volatility in markets and add costs to trade and investment,” says Richard John Carter, managing director of BASF’s U.K. and Ireland unit. Additionally, a Brexit would take up a huge amount of time and energy that could be better applied elsewhere, he says.
Talking to journalists in February about the possibility of a Brexit, BASF Chairman Kurt Bock said he could “think of many reasons why it would be bad.”
▸ Reallocating a share of the $12.2 billion cost of EU membership to fund U.K. science
▸ Reduction in bureaucracy
▸ More agile, independent economy
▸ Faster economic growth
Case against a “Brexit”
▸ Economic uncertainty, market volatility
▸ Job losses
▸ Reduced chemical exports to the EU
▸ Reduced science budget
▸ Reduced access to EU scientists
▸ Possible REACH conflict
REACH = Registration, Evaluation, Authorisation & Restriction of Chemicals.
Just how bad it could get is guesswork because new terms of trade between the U.K. and EU would have to be agreed to. French credit insurance firm Euler Hermes predicts that a Brexit could reduce the U.K.’s annual chemical exports by $10 billion to less than $70 billion. Even if the U.K. establishes a new free-trade agreement with the EU after exiting, the sector still stands to lose $3.5 billion annually, according to Euler Hermes.
But it’s not only the largest companies that consider a Brexit a threat to their business. “The success of many smaller chemical companies in the U.K. is dependent on maintaining and growing their export penetration of EU markets,” says Tony W. Bastock, group managing director at Contract Chemicals. The company, a U.K. specialty chemical producer and CIA member, generates about 80% of its $40 million or so in annual sales from the rest of the EU.
“Even the threat of a Brexit has caused our customers to question placing future business with us,” Bastock says.
The firm benefits from the U.K.’s EU membership by having free access to a wide market and access to raw materials, according to Bastock. “Full exit would certainly destabilize and damage our future growth and the jobs and innovation we support.”
Currently, the U.K. has an open border with the EU and an annual net immigration of about 185,000 EU citizens. “For an internationally exposed industry such as chemicals, the free movement of goods, services, capital, and people … are critical success factors in terms of global competitiveness,” Bastock says.
But U.K. politicians in favor of a Brexit counter the claim that U.K. trade with the EU would be undermined. Currently, the U.K. has an $87 billion trade deficit with the rest of Europe, including deficits with Germany, France, and Italy, the biggest European countries. This position, pro-Brexit politicians and a handful of chemical firms say, will ensure the U.K. can secure favorable trade terms after a Brexit.
Still, few U.K. chemical companies have been making the case for a Brexit. Of 300 business leaders that published an open letter in a U.K. newspaper stating that the U.K.’s “competitiveness is being undermined by our EU membership,” only a handful were leaders of chemical firms.
Most leaders within the U.K.’s scientific community are also railing against a Brexit. Stephen Hawking, the U.K.’s most famous scientist, is one of 150 fellows of the Royal Society to put their names to a published letter arguing that leaving the EU would devastate research.
Without EU funding, the scientists calculate, spending on science in the U.K. would fall by about 3%, or roughly $7.7 billion, annually.
Although pro-Brexit scientists say that figure would be more than offset by an overall U.K. budget savings of $12.2 billion annually, officials at the Royal Society, the U.K. national science academy, don’t trust future U.K. governments to redirect this money into science.
Other key concerns raised by the Royal Society and another anti-Brexit science organization, Scientists for EU, are that the U.K. would no longer have easy access to researchers from Continental Europe and that the U.K. would be excluded from EU research programs, such as the flagship multi-billion-dollar Horizon 2020 program.
Their concerns are countered by Scientists for Britain, an organization representing scientists advocating a Brexit. The group highlights how 16 non-EU countries have joined the Horizon 2020 program.
“This is undeniable proof that the U.K. does not require political union in order to pursue scientific collaboration with the rest of Europe,” Scientists for Britain says. The pro-Brexit group also cites 2012 data from economists at Polytechnic University of Milan, which showed that countries with strict border controls, such as Australia and Canada, have higher percentages of overseas scientists than do the U.K., Germany, or France.
“We are standing up against what is a very large body of people who feel that if we leave the EU it will be a disaster for funding and collaboration—and we completely refute that,” Scientists for Britain member Angus Dalgleish, a professor at St. George’s Hospital, part of the University of London, recently told BBC.
In addition to financial implications, a Brexit could lead to conflict with the EU’s Registration, Evaluation, Authorisation & Restriction of Chemicals (REACH) program, the EU regulation covering the production and use of chemicals.
Following a Brexit, U.K. chemical companies would still have to register their chemicals with REACH if they want to sell them in the EU. However, under REACH rules, companies located outside the EU must have a representative organization in the EU to register their products. In a recent briefing to journalists, the European Chemicals Agency, which is responsible for implementing REACH, couldn’t rule out the possibility that U.K. chemical companies would have to reregister all chemical products via a representative in the EU, a cumbersome process.
If most U.K. chemical firms and scientists are right, a decision to Brexit would blow up in Britain’s face. But the fallout could be far wider. In a recent survey, 45% of more than 6,000 people in Belgium, France, Germany, Hungary, Italy, Poland, Spain, and Sweden said they wanted their own vote on EU membership. A Brexit could not only damage the chemistry enterprise in the U.K. but might catalyze the fragmentation of the entire EU.
“It could send out the signal that ‘if they can do it, then we can,’ ” CIA’s Elliott says.