Europe SMMT News

SMMT calls for immediate ratification and implementation of draft UK-EU Trade & Cooperation Agreement

30 December 2020 #Europe #SMMT News
  • Draft UK-EU agreement avoids ‘no deal’ disaster for UK automotive industry.
  • Sector welcomes supportive Rules of Origin with phase-in periods and commitment to reduce customs burdens, and calls for immediate ratification.
  • With just hours from ratification to implementation, government should provide specific additional phase-in periods for administration requirements.
  • Investment in UK’s electrified supply chain, including accelerated large-scale battery production, now crucial for sector’s long-term competitiveness and success.

The Society of Motor Manufacturers and Traders (SMMT) is today calling for the immediate ratification by UK Parliament of the draft UK-EU Trade and Cooperation agreement (TCA), to ensure all automotive companies benefit from continued tariff-free trade with our largest market from 1 January 2021. While no substitute for the benefits provided by remaining in the EU, the TCA provides hope for the future, with a foundation on which to build, domestically and internationally, in 2021.

Given the deeply integrated nature of UK-EU automotive manufacturing and the critical importance of preferential EU market access to the sector’s competitiveness, SMMT has worked closely with government to help achieve an outcome within which the sector has a chance to recover. The draft TCA delivers across several areas for UK Automotive, limiting damage in some others, and keeping the sector connected to a market that accounts for eight out of 10 of its vehicle exports.

The TCA delivers on the core ask to avoid tariffs for most finished vehicles, parts and components. The inclusion of specific, albeit challenging, provisions on transitional phase-ins for both Electrified Vehicles and Batteries is also welcome. However, the deal does not deliver some key asks, including diagonal cumulation with common trading partners such as Japan, Korea and Turkey, and Technical Barriers to Trade – such as mutual recognition of Type Approval schemes and technical services – or formalising co-operation on the development of mutually beneficial regulations and standards after the end of Transition. Nor does it prevent increased administration and potential for friction at the border, as we leave the single market and customs union.

With new customs requirements already being introduced, the commitment to simplify administration is much needed and we look forward to seeing a firm timeline for its implementation to reduce the overall burden. Doing so will help minimise disruption at the border, vital when every minute of delay can cost the sector £50,000.1

Securing a deal with the EU that works for automotive has been the industry’s top priority for the last four and a half years. It is, therefore, of great relief that this could now be in place with the potential to unlock continued preferential access to key markets around the world. With the TCA in place, the industry will continue to work closely with government to identify essential areas for investment and support to ensure UK Automotive retains its global competitiveness, helping transition the country into post-Brexit, post-Covid prosperity, while delivering on ambitious environmental goals.

Mike Hawes, SMMT Chief Executive, said,

For automotive, Brexit has always been about damage limitation, and the draft Trade Cooperation Agreement, while no substitute for the completely free and frictionless trade with Europe we formerly enjoyed, will address immediate concerns. The TCA provides the opportunity for tariff and quota-free trade, foundations on which the industry can build. Even with immediate ratification, however, there will be just hours to adjust to new trading rules, so a phase-in period is critical to help businesses adapt. All efforts should now be made to ensure its seamless implementation, with tariff-free trade fully accessible and effective for all from day one.

Further ahead, we must pursue the wider trade opportunities that Brexit is supposed to deliver while accelerating the UK’s transition to electrified vehicle manufacturing.  With the deal in place, government must double down on its commitment to a green industrial revolution, create an investment climate that delivers battery gigafactory capacity in the UK, supports supply chain transition and maintains free-flowing trade – all essential to the UK Automotive sector’s future success.

UK Automotive priorities – How the deal measures up

Tariffs & rules of origin, including phase-in

The tariff-free, quota-free trade industry has called for has been secured in principle. However, the six-year phase-in period and special provisions for electrified vehicles and batteries now make it imperative that the UK secures at pace investment in battery gigafactories and electrified supply chains to create the world-leading battery production infrastructure to maintain our international competitiveness.

Regulatory barriers

The lack of solid commitments from either party on recognition of standards beyond UNECE and close regulatory cooperation in our sector is disappointing and we urge the UK and EU to commit to addressing these challenges once the TCA is ratified. Businesses in the UK and EU alike will incur additional costs arising from a lack of mutual recognition of type approval or technical services, and we may face capacity issues and delays in testing and bringing new products to market.

Customs & trade facilitations

Automotive just-in-time supply chains depend on frictionless trade. The commitment to simplify customs procedures is welcome as it will reduce time and costs for all – but with no detail or timeframe for implementing reform, immediate costs and friction are inevitable. Suppliers and manufacturers on both sides will face a significant administrative challenge that will undermine productivity and increase operating costs. Customs facilitation must be accelerated to support growth for all.

People & movement

We believe the industry is better placed to succeed when it is free to move the best people at speed to wherever they can deliver the most significant impact. New restrictions on freedom of movement will make this more challenging. While the TCA does include provisions that may ease some of the administration and costs that will be involved as the UK adopts a new points-based immigration policy, we await further guidance from Home Office as to its implementation.

Third country trade

Implementing the UK-EU TCA is now the sector’s priority not just for continuity of free trade between these two markets but also as a precursor to further agreements with key markets such as Turkey that are outside of the EU but part of its customs union. Now ‘the main deal’ is done, government must prioritise building on these trade relations and securing critical preferential arrangements with Mexico, and other global growth markets vital to the success of UK Automotive and the wider economy.

The automotive industry is a vital part of the UK economy, making up 10% of the country’s GDP, with every £1 generated by the sector contributing £3 to the UK economy. The UK new car market remains the second largest in Europe, delivering in excess of £20 billion each year direct to the Exchequer – on top of the £15.3 billion generated by its manufacturing operations.

It is also the UK’s largest exporter of goods, generating global trade worth £100 billion a year – with 78% of all exported finished vehicles heading to the EU. The sector, which provides well-paid, highly skilled jobs for 864,300 people in the UK, is playing a pivotal role in helping the country reach its emissions targets, with manufacturers already having invested billions in developing the technology that will allow Britain to make the transition to zero emission road transport over the next decade.

NEXT STEPS AND AUTOMOTIVE PRIORITIES

UK Automotive needs to see the following urgent measures and priorities taken forward to ensure the continued competitiveness of the sector following the agreement of the UK-EU TCA:

  1. Immediate ratification and implementation of the deal

Implementing the TCA and its Rules of Origin provisions for automotive, and ensuring its smooth functionality, is essential from day one. However, this is only one part of a complex equation to deliver future success for UK Automotive and the achievement of Net Zero ambitions.

  1. Support for business transition to new trading regime

With only days to adjust to new trading rules, it is imperative Government provides additional phase-ins for all administrative requirements and any new burdens placed upon businesses, in addition to grant funding and loans, and a supportive approach from UK agencies (e.g. HMRC, DVSA) for businesses adapting to meet new rules, standards and reporting targets.

  1. Industrial Strategy to support electrification

The TCA must be complemented by coherent industrial and climate change policy with significant support to accelerate investment in battery manufacturing and supply chain adaptation to meet Rules of Origin requirements. In addition, consumer incentives for EV uptake and major infrastructure rollout (such as charging networks and electricity grid upgrades), workforce upskilling and a strategy that positions the UK as a leading competitive environment for investment in advanced manufacturing will be essential for future growth.

  1. Developing future engagement with EU and shared FTA partners

This will be an essential next step for future UK international trade, with a focus on international regulatory co-operation, minimising border disruption, and increasing customs collaboration – including both the EU-UK relationship and shared FTA partners.

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