Bush fallout will hit UK business

The US Government’s decision last week to scrap the previous administration’s commitment to tackle climate change has caused alarm among UK manufacturers.

The US Government’s decision last week to scrap the previous administration’s commitment to tackle climate change has caused alarm among UK manufacturers, who see the move as a further threat to their international competitiveness.

As UK companies begin to pay the Climate Change Levy, they point to President George Bush’s action as yet further evidence that the UK Government was too precipitate in introducing such a measure.

‘We always thought it was premature to bring in the CCL in the form it’s in,’ said Jeremy Nicholson, economic adviser to the Energy Intensive Users’ Group.

While the Bush Administration said it would come up with alternative proposals to tackle the problem of global warning, the concern is that the UK will now be seriously disavantaged in the international arena.

Increased uncertainty

This is because the US move has increased uncertainty over the timing and impact of measures to encourage companies to clean up their environmental act not only in the US but also in the rest of continental Europe.

While European leaders were virtually unanimous in their condemnation of the Bush adminstration’s move, there is real concern that they will not now act with any great expedition to put their manufacturing industries at a competitive disadvantage to the US.

‘It really depends on how the rest of Europe responds,’ said Nicholson. ‘But I think both those assumptions [that the US and other European countries will act rapidly on the issue] are cast into doubt in the current climate.’

The Engineering Employers’ Federation – most of whose 23,000 members face a 15% surcharge on their energy bills as a result of the CCL – said the US action was a clear threat to its members’ exports, about 20% of which currently go to the US.’Quite clearly now UK companies are not operating on a level playing field compared with competitors in the US,’ said a spokesman. However, he said it was too early to identify which sectors would be hit the hardest.

The UK chemicals sector – for which the US presently accounts for 10-15% of all exports – is one that is in no doubt it will be adversely affected.

‘We’re certainly concerned about it,’ said David Wey, chief economist at the Chemical Industries Association. ‘There are very significant competitive implications in all this.’Wey added that it was not simply British exports to the US that were under threat, but those to all international markets in which UK companies faced American opposition.

‘It’s the international aspects that are truly significant,’ he said. ‘ If we go it alone [on climate change measures], we’re really shooting ourselves in the foot. You might as well kiss goodbye to a lot of heavy manufacturing activity in the UK.’

The steel industry is another in which US companies now seem certain to enjoy a new cost advantage against UK rivals.

‘They’re obviously not picking up the environmental costs that we are,’ said David Fletcher, chairman and chief executive of Sheffield Forgemasters. ‘One looks at the Bush adminstration with some concern.’

Fletcher said that his company’s sales to the US had risen to 20% of total exports over the past year, as the growing strength of the dollar against sterling had improved the competiveness of UK steel companies in the US.

This had to some degree compensated for the deteriorating position in continental Europe, where the euro’s decline against the pound had in many cases eroded the UK’s ability to compete.

Advantage eroded

However, Fletcher said this advantage was now likely to disappear as UK companies had to meet the burden of complying with environmenal legislation and paying the Climate Change Levy, while their US rivals would be free from any such obligations. Asked if the if the US abandonment of its Kyoto commitments would have a direct impact on Sheffield Forgemasters’ sales over the next year, Fletcher replied: ‘It is bound to.’

Yet while UK manfacturers have been been almost unanimous in criticising the Bush administration for renouncing its predecessor’s commitments at Kyoto, there is some measure of sympathy for the new president’s stance.

New parallels

The EEF, for instance, drew parallels between the principal reason that Bush gave for his decision – a refusal to risk damage to the US domestic economy by attempting to set an example on a problem that could only be solved by concerted international action – and the arguments the EEF itself has advanced, so far unsuccessfully, to the UK government.

‘George Bush’s reasons are exactly the same as the ones we’ve been arguing for avoiding punitive legislation for manufacturing in this country,’ said an EEF spokesman.