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September 14, 2020

EU auto bodies urge UK Free Trade Agreement

European automotive industry leaders are calling for the EU and UK to secure a Free Trade Agreement (FTA) without further delay with 15 weeks left before the Brexit transition period expires.

By Rhodri Morgan

European automotive industry leaders are calling for the EU and UK to secure a Free Trade Agreement (FTA) without further delay with 15 weeks left before the Brexit transition period expires.

The bodies, including European automotive supplier association, CLEPA and manufacturers body, Acea , say negotiators on both sides must now work to avoid ‘no deal’ at the end of the transition, which according to calculations would cost the pan-European automotive sector some EUR110bn (US$131bn) in lost trade in the next five years.

The lead organisations representing vehicle and parts makers across the EU, The European Automobile Manufacturers Association (Acea ) and the European Association of Automotive Suppliers (CLEPA), along with 21 national associations, including The Society of Motor Manufacturers and Traders (SMMT), German Association of the Automotive Industry (VDA), Comité des Constructeurs Français d’Automobiles (CCFA) and La Plateforme automobile (PFA ), are warning the sector could face severe repercussions.

The associations caution economies and jobs on both sides of the channel are at risk of a second hit in the shape of no deal coming on top of around EUR100bn worth of production lost so far this year due to the coronavirus crisis.

Without a deal in place by 31 December, both sides would be forced to trade using World Trade Organisation (WTO) non-preferential rules, including a 10% tariff on cars and up to 22% on vans and trucks.

Such tariffs, far higher than the small margins of most manufacturers, would almost certainly need to be passed on to consumers, making vehicles more expensive maintain the associations. Furthermore, automotive suppliers and their products will be hit by tariffs.

Before the coronavirus crisis hit, EU and UK production of motor vehicles was running at 18.5m units a year. This year some 3.6m units have already been lost across the sector due to the pandemic.

New calculations suggest that, for cars and vans alone, a reduction in demand resulting from a 10% WTO tariff could wipe some 3m units from EU and UK factory output during the next five years, with losses worth EUR52.8bn to UK plants and EUR57.7bn to those based across the EU.

Suppliers would also suffer from these changes. This combined loss in trade value would harm revenues for a sector employing millions of people, with a combined trade surplus of EUR74bn with the rest of the world in 2019.

Collectively, the EU27 and UK automotive sector is responsible for 20% of global motor vehicle production and spends some EUR60.8bn on innovation per year, making it Europe’s largest R&D investor.

The associations say any deal should include zero tariffs and quotas, appropriate rules of origin for both internal combustion engine and alternatively fuelled vehicles, plus components and powertrains, as well as a framework to avoid regulatory divergence.

Businesses need detailed information about the agreed trading conditions they will face from 1 January, 2021 to make final preparations. This, combined with targeted support and an appropriate a phase-in period that allows for greater use of foreign materials for a limited period of time, will ensure businesses are able to cope with the end of the transition period.

“The stakes are high for the EU auto industry – we absolutely must have an ambitious EU-UK trade agreement in place by January,” said Acea director general, Eric-Mark Huitema. “Otherwise our sector – already reeling from the COVID crisis – will be hit hard by a double whammy.”

For her part, CLEPA secretary general, Sigrid de Vries added: “A ‘no deal’ Brexit would disrupt the integrated automotive supply chain and hit industry at a critical moment. The impact will be felt far beyond the bilateral trade streams alone, translating into a loss of jobs and investment capacity.

“The automotive sector is the EU’s largest private R&D investor with EUR60bn invested each year. We need a deal that maintains the sector’s global competitiveness.”

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