An SMMT survey of the UK automotive sector has found widespread concern that its future trading relationship with the EU could impose higher costs following the UK’s exit from the EU.
Negotiations between the UK government and the remaining EU trading bloc of 27 member states over the terms of the UK’s EU exit and future trading arrangements have yet to begin (and will likely take a number of years to complete), but the UK could find itself outside of the single market that current allows tariff-free and unhindered trade in goods and services between the UK and the rest of the EU. Analysts say that a number of future trade scenarios for the UK-EU trade relationship are possible, including a customs union, a free-trade agreement or even continued single market access under certain conditions.
The UK automotive sector is heavily export-led, with 77.8% of cars built in the UK destined for more than 100 overseas markets, but the majority of which are headed for the rest of the EU. The sector is also part of a complex, highly-integrated European and global supply chain, and depends on significant cross border trade in components.
The survey of SMMT members shows that the uncertainty over the future trading relationship with the EU is a major concern. Some 57.1% of respondents believe the outcome will have a negative impact on their business, while just 8.3% foresee it being positive. A further quarter (27.7%) are uncertain about the impact at this early stage.
Mike Hawes, SMMT chief executive, told just-auto that respondents in the survey are concerned about the possibility of tariffs and other extra costs applying to trade. “This is an industry with tight margins,” he said. “It is highly competitive and tariffs or other costs applying to cross-border trade between the UK and EU would certainly have a significant impact.”
Hawes notes that the various UK-EU trade scenarios – some drawing on the experiences of other countries, such as Norway and Switzerland – being discussed come with pros and cons. “There are clearly different routes to securing tariff-free trade and there is limited value in looking at existing models,” he maintains. “The UK wants to develop some new trade markets, so there is limited benefit in belonging to a customs union that puts constraints on negotiating with countries outside the EU.
“The UK is a very large economy, with deep supply chains and a high level of integration with continental Europe. If we take an industry like automotive, it is very important to consider the pan-European picture. We need a solution that is in the interests of the UK automotive sector, but also works for the whole European auto industry.
“I think we are looking at a bespoke deal that contains the elements that get the best outcomes – economically and politically – for the UK and also for Europe. There are common economic interests at stake and I expect this to be realised in the lengthy negotiations that lie ahead.”
Some analysts have warned that Brexit places a question-mark over investment in the long-term operations of some OEMs in the UK. The SMMT’s survey today comes as UK car output hit a new high-water mark.