The potential Brexit impact for the automotive industry

Published on

The white paper released by the Government following the Cabinet's recent Brexit summit at Chequers acknowledges the integrated nature of the supply chains the UK Automotive industry depends on. It seeks to sketch out a proposed arrangement with the EU to deliver “frictionless” trade in goods by creating a “free trade area for goods”.

Trade

The white paper suggests that this free trade area (which the White Paper proposes is tariff and quota free as a result of a proposed Facilitated Customs Arrangement) will enable the continued success of “just in time” supply chains by avoiding the need for customs and regulatory checks at the border and for businesses to complete customs declarations. It is also proposed that the Facilitated Customs Arrangement will eliminate the requirement for rules of origin as between goods traded between the UK and EU. 

The white paper proposes that this free trade area will mean that products will only need to undergo one set of approvals and authorisations in either the UK or the EU market, before being sold in both. Despite this, there is no getting away from the fact that being outside of the customs union and the single market will inevitably add barriers in the form of a level of increased bureaucracy (and therefore cost). 

Businesses in the automotive sector know only too well that access to the EU single market is important, not just for the export of vehicles manufactured in the UK and the import of vehicles manufactured in the EU, but also for the vast trade in component parts between UK and EU component manufacturers. 

For 2015, the SMMT statistics show that 57.5 per cent of cars exported from the UK were destined for the EU and almost 82 per cent of cars imported into the UK came from the EU. In addition, huge quantities of component parts cross borders between the EU and the UK multiple times until they are at the point of being used in the manufacture of a vehicle. With these statistics in mind, it isn’t difficult to see the significant impact that any barriers to trade will have on the automotive industry. 

Following the release of the white paper, we’ve seen many Brexiteers within the Government oppose the proposals. One fact remains very clear, the UK crashing out of the EU with “no deal” will have a significant detrimental effect on the UK Automotive Industry. The SMMT estimates that if WTO tariffs were to apply, the UK Automotive Industry will suffer a hit in the region of £4.5 billion for tariffs on cars (made up of £2.7 billion on imports and 1.8 billion on exports). 

Talent

The skills shortage in the UK manufacturing is a well-known challenge for the sector and the UK has a shortage of engineers, scientists and those with a depth of technology expertise. The UK Automotive Industry has depended therefore, to some degree, on the free movement of people to be able to attract those skills from the EU. 

Although the Government is developing, through the Industrial Strategy and its education policies, a range of initiatives to tackle the STEM skills shortage, this is a longer term activity and the benefits will not be felt by the UK Automotive Industry in the near term. 

The absence of free movement of the skilled workers upon which the UK Automotive Industry depends will create challenges. While the government may seek to address this through the transitional arrangements, the mobility proposals within the white paper and its policies with respect to the granting of visas, the fact remains that the UK may be considered to be a less attractive career destination for people with the skills that the industry needs. 

Indeed, recent statistics on net migration of EU nationals to the UK has shown a significant drop in EU nationals coming to live and work in the UK. ONS figures for 2017 showed The ONS figures showed there were 101,000 net migrants from the EU in 2017 and 227,000 from outside the EU. There was also a record number of EU citizens emigrating from the UK, with an estimated 139,000 leaving in 2017. 

Regulatory Framework

Of significant concern to the Automotive Industry has been the issue of regulatory standards, with any divergence of UK regulatory standards from the EU standards being considered to have a significant cost and market opportunity impact. The white paper proposes a “common rule book” for goods. The impact of this would be that the UK would choose which EU regulatory standards it will comply with (presumably on the basis of key EU-UK trading relationships). 

Interestingly, the white paper specifically refers to vehicle type approvals. The proposal is that the UK and EU would “continue to recognise the activities of one another’s type approval authorities, including whole vehicle type approval certificates, assessments of conformity of production procedures and other associated activities…”. 

Similarly, the white paper proposes that there would be continuing recognition of the ongoing role of the type approval authorities, such as the activities related to the monitoring of a manufacturer’s conformity of production procedures. The white paper acknowledges that being outside of the EU, the UK will not have a “say” in the regulatory standards, though it seems to have an ambition that the UK continues to be an “active participant” and its “voice heard” (albeit without voting rights) with respect to the setting and modification of regulatory standards. Perhaps unsurprisingly, the Brexiteer camp has been vocal in its objection to this proposal, arguing that this type of arrangement would render the UK a “vassal state” (Jacob Rees-Mogg). 

Conclusion

While it is of some comfort that the white paper reflects, and seeks to address, a number of the issues raised by the Automotive Industry, it looks like there is a long way still to go. Not only must the internal Government wranglings be resolved, the EU needs to be persuaded that the proposals are in the best interests of both the EU and the UK. 

The practicalities for delivering on some of the proposals (for example, the facilitated customs arrangement) will need to be explored and explained as a matter of some urgency. It is probably reasonable and prudent to assume that a much longer time frame would be needed to put in place all of the necessary systems and practical arrangements than the period of time that we have up to the end of the transition period.

Tags

Mills & Reeve Sites navigation
A tabbed collection of Mills & Reeve sites.
Sites
My Mills & Reeve navigation
Subscribe to, or manage your My Mills & Reeve account.
My M&R
Register or login

Register or login Get all the benefits of MyM&R but registering or logging in ulla vehicula mauris mattis hendrerit fermentum. Etiam placerat hendrerit dapibus. Praesent ligula felis, eleifend sed odio quis, feugiat eros. Aliquam vitae felis fermentum, posuere nulla ut, maximus magna.

Staff intranet
Log in to the intranet
Client extranet
Log in to the extranet