Deal or no deal, there were always going to be obstacles to post-Brexit trade. Here’s what the agreement should mean for the automotive sector.
Bureaucracy
Jubilation at the trade deal was tempered by scepticism at prime minister Boris Johnson’s assertion that UK industry would face “no non-tariff barriers” when trading with the EU. The new agreement will result in increased paperwork, processes and border checks, with some estimates suggesting an extra cost to the UK economy of £15 billion in customs declarations alone.
Felipe Munoz of industry body Jato Dynamics said: “Costs are likely to grow due to longer processes and more authorisations involved,” which will “complicate things for the OEMs producing locally, and those exporting to Europe.”
With modern factories operating according to a ‘just-in-time’ supply model, any delay at the border could prompt the temporary shutdown of individual lines or even entire factories, as we have already seen at Honda’s Swindon plant on two occasions, in December and January.
Tariffs and quotas
In the event of a no-deal Brexit, the UK would have traded with the EU as a “most preferred nation” under World Trade Organization rules so would have incurred tariffs of 10% on cars and 2-4% on their individual components, amounting to an estimated £2800 premium on an EU-built car for UK buyers. Under the terms of the deal now agreed, tariffs are imposed only on products that fail to meet ‘rule of origin’ requirements and no quotas have been imposed.
SMMT boss Mike Hawes said: “It’s no substitute to the benefits that we enjoyed under the EU, but the agreement does provide some hope and a platform, limiting some of the damage.” To avoid incurring tariffs on future electric cars built domestically and exported to the EU, the UK will need to drastically ramp up its battery production capacity to meet those requirements.
Supply chain
In a normal year, an estimated £13bn worth of automotive parts crosses the Channel, but the ‘rules of origin’ that were instrumental in securing tariff-free trade in new cars could make that figure shift.
Professor David Bailey of the Birmingham Business School said it was “good news in that there is full bilateral cumulation, allowing UK and EU parts to count towards local content rules”. He suggested the agreement “will be enough for most car makers in the UK to avoid tariffs”, despite the UK’s failure to attain a ‘diagonal cumulation’ with countries including Japan, Turkey and China.
Crucially, the trade deal allows for a 12-month grace period for manufacturers to produce evidence of the origin of their products – “a major win” for the industry, according to Hawes. He added: “Some members were disappointed at the lack of diagonal accumulation on content with Japan, Korea and so forth. That would have been a really big ask of the UK, so I don’t think there was surprise it wasn’t in there.”