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September 19, 2018

SMMT wants ‘no-deal Brexit’ ruled out

As negotiations between the UK and EU reach a final stage for the UK's 2019 departure terms, the SMMT has said that it would like a 'no deal' Brexit to be ruled out. A 'no deal' Brexit would likely mean a resort to WTO rules and the imposition of new tariffs (10% for cars) on UK exports to the EU customs union area (new EU import tariffs likely to be reciprocated by the UK). In addition, new border checks on goods shipments could disrupt 'just-in-time' pan-European supply chains.

As negotiations between the UK and EU reach a final stage for the UK’s 2019 departure terms, the SMMT has said that it would like a ‘no deal’ Brexit to be ruled out. A ‘no deal’ Brexit would likely mean a resort to WTO rules and the imposition of new tariffs (10% for cars) on UK exports to the EU customs union area (new EU import tariffs likely to be reciprocated by the UK). In addition, new border checks on goods shipments could disrupt ‘just-in-time’ pan-European supply chains.

The UK’s trade association has long warned of the dangers to the auto sector if trading arrangements between the UK and EU move away from the current ‘frictionless’ borders that come with EU membership and membership of the EU’s customs union and single market. The UK is scheduled to leave the EU at the end of March next year, with uncertainty over future trading arrangements still a concern for many manufacturers who export or import vehicles and parts both ways between the UK and EU.

The SMMT warns that time is running out, and negotiators on both sides of the Channel must prioritise the agreement of terms for a managed withdrawal and ‘status quo’ transition as soon as possible. ‘No-deal’ would undermine the industry’s ability to operate and cannot be an option, it says.

The UK trade body will today meet with EU representatives in Brussels to highlight the economic importance of the integrated European automotive industry and set out the repercussions for businesses, economies and jobs if a deal cannot be struck.

New SMMT analysis suggests that no-deal and the resulting tariffs on light vehicles alone would add GBP5bn to the collective EU-UK auto trade bill.

The SMMT also says that if passed directly on to consumers, import tariffs would push up the cost of UK-built cars sold in the EU by an average GBP2,700, and that of light commercial vehicles by GBP2,000 – affecting demand, profitability and jobs. Similarly, UK buyers of a car or van from the EU would be faced with GBP1,500 and GBP1,700 increases if manufacturers and their dealer networks were unable to absorb these additional costs.

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The SMMT points out that the automotive sector is one of Europe’s most valuable economic assets, employing 13.3m people and representing 6.8% of EU GDP. The sector invests some GBP47bn in innovation each year, making it the EU’s largest R&D investor, and it produces roughly 17m cars annually – nearly a quarter of global passenger car production.

And the SMMT adds that UK Automotive is a key component of this success. It is the EU’s second largest new car market – worth some GBP29bn to EU manufacturers every year – and the fourth largest car manufacturing nation. Alone, it turns over some GBP82bn, supports 856,000 jobs (186,000 in manufacturing) and is responsible for 11% of EU auto manufacturing R&D spend. In 2017, British buyers registered some 1.9m cars and vans from the European Continent.

The SMMT maintains that fundamental to this has been the deeply integrated nature of the EU-wide industry, which has sought to maximise single market and customs union benefits to reduce costs, improve quality and embrace innovation. Some seven out of every 10 cars registered by UK motorists come from factories in Europe, meanwhile UK car plants send more than 40% of their output to the Continent. In addition, the tens of thousands of parts making up a vehicle cross EU borders multiple times before final assembly, with the majority of components going into UK-built cars coming from EU suppliers, supporting supply chain jobs across the region.

 Mike Hawes, SMMT Chief Executive, said: “Tariffs alone should be enough to focus minds on sealing a withdrawal agreement between the EU and UK but the potential impact of ‘no-deal’ means the stakes for the automotive sector are far higher. Without a deal, there can be no transition period and the complex issues surrounding tariffs and trade, customs, regulation and access to talent will remain unresolved. Our industry is deeply integrated across both sides of the Channel so we look to negotiators to recognise the needs of the whole European automotive industry and act swiftly to avoid disruption and damage to one of our most valuable shared economic assets.”

In addition to the 2.7m cars and vans that cross the Channel both ways each year, the UK exports some GBP3.4bn worth of components to help build these vehicles in Europe, and sources almost three times that sum from EU-based suppliers. More than 1,100 trucks cross into the UK from the Continent every day – the vast majority without a customs check – to deliver some GBP34m worth of parts to UK plants for vehicles and engines, which are then exported back to the EU.

Without a withdrawal agreement, SMMT maintains that on 30 March 2019 this trade will, as a minimum, be severely disrupted – potentially halting production, undermining competitiveness and negatively impacting the industry in the UK and Europe.

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