SMMT chief executive Mike Hawes has told just-auto that the possibility of WTO rules applying to UK trade with the EU following the UK’s planned exit from the bloc would present a considerable competitive challenge for many UK manufacturers.
Concerns are being raised within the UK automotive sector over uncertainties regarding possible trade arrangements following the UK’s planned exit from the EU in 2019 (two years after the triggering of ‘Article 50’ in the spring of next year).
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“Arrangements for trading relations with our biggest export market are obviously a matter of some concern for many companies in the sector,” Hawes said.
“The industry has said it wants to remain within the EU single market. That may or may not be politically possible, but they certainly do not want a reduction of free trade.”
Hawes points out that the UK cannot conclude a free trade deal with the EU until it is formally outside of the EU, which raises the possibility of an interim or transitional period while a trade deal is negotiated and agreed.
“There is a spectrum of possibilities for that transitional arrangement,” he says. “And one possibility is to go to WTO [World Trade Organisation] rules for international trade. In that scenario, a 10% tariff would apply to UK car exports to the EU and that would present a significant competitive challenge for UK car plants who export in volume to the rest of the EU.”
Hawes points out that the ability to absorb such a tariff on the ex-works price of car is severely limited. “It would present a significant challenge. This is an industry that operates on wafer-thin margins. It’s about volume and efficient scale on tight margins. Putting 10% on the [ex-works] price of vehicles coming out of a factory would be a big challenge to absorb from a competitive point of view.
“On top of that being outside of the customs union – in an industry that has built its reputation on lean manufacturing, taking out waste, and being just-in-time for delivery – would pose a challenge and could potentially lead to further additional cost on international trade.”
Hawes told a trade dinner this week that an imposition of tariffs resulting from Britain’s exit from the EU could add GBP2.7bn (US$3.4bn) to the cost of vehicles.
