Tariffs, trade-offs and transfixed by trout
You’d have been forgiven if, previously, you had struggled to find much overlap between Japanese car parts and British fisheries. That was, until the Brexit negotiations which have likely outlived most of the fish even implicated in the matter. But here we are, in December 2020, still faced with several Brexit sticking points.
According to Britain’s chief Brexit negotiator, Lord Frost, alongside reaching an agreement on our fisheries, the UK has failed thus far to get the car parts deal it wants. Discussions continue, time dissipates, and any sign of compromise looks increasingly unlikely.
Throughout the negotiations, the UK and the EU have bickered over the terms of a potential free trade agreement (FTA) with little in the way of constructive solutions. If no deal is secured by the end of the transition period at 11pm on 31 December 2020, Britain’s trading network will fall under World Trade Organisation jurisdiction – which includes heavy taxation on goods passing through its borders.
Advice from the FCA
With now less than a month to go, the Financial Conduct Authority (FCA) reminded firms to be ready for the end of the transition period – deal or no deal.
In anticipation of a less-than-favourable deal, OEMs have reportedly been stockpiling cars and parts in the UK. The Society of Motor Manufacturers and Traders (SMMT) found earlier this month that 60% of its members were spending significantly on stockpiling and more than half had employed customs agents to prepare for new paperwork.
In a statement, the FCA warned that the automotive sector should expect a number of changes to the regulatory environment in which they operate - EU laws will no longer apply and passporting between the UK and EEA states will end.
To help firms adapt to their new requirements, the Treasury has given UK financial regulators the powers to make transitional provisions in relation to financial services legislation for a temporary period. This is Temporary Transitional Power (TTP).
We’ve already spent nigh-on a billion pounds preparing for the unknown of Brexit and lost twenty-eight times that to Covid. Let us not also be left counting the costs of tariffs, especially not by accident.
Nausicaa Delfas, executive director of international at the FCA, said: “To help minimise disruption, we have on shored EU legislation and established temporary regimes to allow non-UK firms and funds to operate in the UK after 31 December 2020. We remain committed to open markets, international co-operation and high international standards of regulation.”
Zeroing in on a tariffs and trade
According to advice from the FCA, how firms are affected at the end of the transition period will depend on a number of factors, namely: the nature of their business; the location of their customer, and any agreement or decisions about the future UK-EU relationship.
The industry is banking on a zero-tariff, zero-quota trade deal with highly ambitious rules of origin provisions and a phase-in period that would facilitate operational adjustment. Failure to obtain these requirements represents the equivalent of no deal at all, further compounding the damage from Covid-19.
With this in mind, the SMMT has made a final plea to negotiators to leave no stone unturned in efforts to secure a deal by Christmas.
As the UK-EU negotiations enter endgame, now is the time for both sides to deliver on promises to safeguard the automotive industry.
Speaking at an online event, SMMT president and executive chairman HORIBA MIRA George Gillespie, said: “We need a future trading relationship that works for automotive. We’ve already spent nigh-on a billion pounds preparing for the unknown of Brexit and lost twenty-eight times that to Covid. Let us not also be left counting the cost of tariffs, especially not by accident.”
Findings from the SMMT revealed that costs have already amounted to £735m, with upwards of £235m spent in 2020 alone. The sector should also anticipate a drop in vehicle production by two million across the next five years, whilst annual production is expected to consistently fall below one million units. Even with a bare-minimum trade deal, the cost to the industry could reach £14.1bn.
Mike Hawes, chief executive of SMMT, said: “As the UK-EU FTA negotiations enter the endgame, now is the time for both sides to deliver on promises to safeguard the automotive industry. Securing a deal is absolutely critical but it cannot be any deal. To work for UK Automotive, it must deliver for UK products and that means securing the right terms and conditions that allow our exports – now and in the future – to be zero tariff and zero quota trade.”
The stakes are high – automotive represents one of Europe’s most valuable manufacturing industries, supporting around 180,000 manufacturing jobs. The sector, worth £78.9bn, exports more goods than any other UK industry and provides an annual £15.3bn in added value every year to the UK economy, while investing £3.73bn in R&D.
Teach a man to fish, and you feed him for a lifetime. Sadly, without a rod, sufficient hooks or appropriate bait, knowledge will only get him so far. Success hinges on the presence of all necessary components. In the UK, certain imported car parts are required if we are to maintain a profitable automotive sector.
As a preoccupation with life below water continues to dominate the negotiations, the future of British automotive remains up in the air. A favourable trade deal is of paramount importance to British economy and society, and it is time for the government to reel it in.