The next hours will be decisive for the future relations between the U.K. and the European Union. Meanwhile, many foreign companies in the footwear sector and others have been gearing themselves up for the worst scenario of a possible immediate exit of the U.K. by the previously set deadline of March 29, in case of a “no deal' with the EU.
In particular, they have been building up warehousing capacities for their products in the U.K. For example, Skechers, Timberland and other companies are said to have signed agreements to use in that case a bonded warehouse near Luton airport for goods imported into the country via UPS, which would be taking care of customs clearance and other related paperwork. Anyhow, logistical delays and higher customs-related costs would be inevitable in case of a break-up with the EU, in addition to the departure of many foreign people employed in design, logistics and the retail sector.
Conversely, Britain's exit from the EU would pose many problems for the few remaining shoe manufacturers in the country. While the U.K. may negotiate a bilateral trade agreement with the EU, they will not be able to take advantage of the free trade agreements that the EU has signed and plans to sign with other countries. For example, Japan is a major market for Joseph Cheaney, which would not benefit from the EU's new FTA with that country.
Last night, the British Parliament rejected for the second time an agreement negotiated by Prime Minister Theresa May with the European Commission. The Parliament is set to decide today whether the country will go for a full withdrawal from the EU – a so-called “hard Brexit” scenario – or remain open for further negotiations. In the second case, it will be asked tomorrow to request an extension of the negotiating period. There is also the possibility of a new referendum.
Meanwhile, European shoemakers will have other things to worry about in other parts of the world, including Turkey, which is apparently not respecting its customs union with the EU, and Russia. For instance, they will have to cope with new and complex labelling regulations imposed by the Russian government on imported footwear. For a set fee, each SKU will have to carry a QR code to identify its origin when they enter the country, starting on July 1.
Russian analysts expect price hikes of 50 to 100 percent at the retail level because the entire customs clearance procedure is going to become more expensive. Prices of fur coats went up by nearly 50 percent after their compulsory tagging was implemented in 2016.
An effort to stimulate domestic production is one of the aims behind the new regulations. On the other hand, the new requirements are expected to wipe out all counterfeit production from the Russian shoe market, benefitting branded imported products. This has already been seen with fur coats, where the turnover for authentic coats jumped by a factor of 13.
The issue of intellectual property protection is also on the table of the heated discussions being conducted between the U.S. and China, the world's largest shoe manufacturer. U.S. importers have been showing growing interest in other sources of footwear in Asia and elsewhere, including Brazil and Western Europe, following the imposition of new import duties on Chinese products by the administration of President Donald Trump.
A bilateral summit is scheduled for March 27 to settle the matter. According to the Wall Street Journal, there is hope that Trump's hardball stance will end up producing a reasonable compromise, resulting in the elimination of retaliatory duties on both sides. In the meantime, some U.S. companies are considering building up their own manufacturing capacities in China, or forming joint ventures with local producers, in order to better service the potentially huge local market.
There is also some lingering trade turbulence in Latin America, where a possible trade agreement between the EU and Mercosur may be jeopardized if the present liberal government in Argentina is not re-elected in September. The new, pro-business Brazilian government seems to be open for such a deal – under certain conditions – and for a decrease in import duties and taxes. On the other hand, Brazil's anti-dumping duties on Chinese footwear are supposed to remain in place until at least until March 2021.
These and other trade issues will be debated at the World Footwear Congress in Naples early next month, which should be an interesting forum for many of our readers.