The UK automotive industry has called on Government to seek an interim arrangement with the EU that would maintain membership of the single market and customs union until a final agreement on a new relationship with the EU is negotiated and implemented.
The sector accepts that the UK will leave the EU and fully supports a bespoke and comprehensive agreement on a new relationship with the EU. However, a final agreement would be hugely complex and it does not believe such a comprehensive agreement can be reached by March 2019 – just over 20 months’ time.
Without agreed interim arrangements, businesses would be faced with the ‘cliff edge’ and forced to trade under the World Trade Organisation rules – the worst foreseeable outcome for the sector, its employees and the British economy.
Speaking yesterday (Tuesday, June 20) as the sector announced its annual performance figures, the Society of Motor Manufacturers and Traders (SMMT) said it was time to be pragmatic about what can be achieved in the time available and what the consequences would be if the UK left without a deal.
The UK and EU automotive sectors are highly integrated and any new relationship will need to address tariff and non-tariff barriers, regulatory and labour issues, all of which will take time to negotiate.
Mike Hawes, SMMT chief executive, said: “We accept that we are leaving the European Union and we share the desire for that departure to be a success. But our biggest fear is that, in two years’ time, we fall off a cliff edge – no deal, outside the single market and customs union and trading on inferior WTO terms. This would undermine our competitiveness and our ability to attract the investment that is critical to future growth.
“That’s why we have to be honest with ourselves. If the UK cannot secure – and implement – a bespoke and comprehensive new relationship with the EU in two years’ time, we need a back-up plan. Having looked at all the alternatives, we need government to seek an interim arrangement whereby we stay within the single market and customs union until that new relationship is implemented.”
The UK automotive industry has always maintained the importance of the EU to its prosperity. The EU is by far the UK’s biggest automotive export market, taking over half our finished vehicles, four times as many as our next biggest market.
The sector already exports to over 160 different global markets and has a consistent approach to free trade. It needs that trade to be tariff-free, as frictionless as possible to support the ‘just in time’ manufacturing process and with consistent regulation.
Stuart Young, partner at Gowling WLG, said: "The SMMT has rightly delved into this burning issue as a matter of urgency as UK Automotive continues to grapple with the impact of what remains an uncertain Brexit.
“Deferring trade talks increases the period of uncertainty and that is simply not an option for an industry that works on an extended capital cycle.
“The long product lead-in times, often over five years from planning to production, the long product life, often five to 10 years, and highly intensive capital requirements all drive a need for medium-term certainty so that decisions made today will still make economic sense over the next 10 to 15 years."
James Broadhead, CEO of Close Brothers Motor Finance concluded: “The automotive industry is unquestionably one of the leading lights of the British economy, with turnover in 2016 totalling a record £71.6 billion.
“But despite having been an undeniable growth industry in recent years – with seemingly endless records set for car registration numbers – it’s difficult to dispute that we are entering into uncertain times for our industry, especially now Brexit discussions are under way.”