Beleaguered British auto industry receives Brexit blow from Brussels

The UK's struggling automotive industry has been delivered another blow as a result of Brexit following the EU's rejection of London's plan to avoid tariffs on exports.

UK ministers had wanted automotive components brought in from South Korea, Japan or Turkey to be essentially treated as if they were British in order to qualify under the EU's strict rules-of-origin if a deal is reached.

In a letter to the auto industry, David Frost, the UK's chief Brexit negotiator, conceded that he had been unsuccessful in persuading Brussels to be more flexible with regards to its assessments of how vehicles made with non-EU parts could qualify for zero-tariff access to EU markets. 

Mr Frost wrote in his letter, first obtained by the BBC, that he had been unable to convince Brussels to even "discuss" the idea.

“The Commission has made clear that it will not agree third-country cumulation in any circumstances, which we regret, but obviously cannot insist upon,” he wrote.

Standard EU rules stipulate that a vehicle must be 55% "locally made" in order to qualify for tariff-free access.

The rejection from Brussels has raised fears in the UK automotive industry that an uneven trade deal will mean that cars from Germany, Italy or other European countries can be imported without tariffs but British-built vehicles will be penalised.

If this happens, manufacturers in the UK will have to either raise prices or move production to the continent in order to remain competitive.

The move has made apparent the fact that even if London and Brussels can reach a trade deal - a situation that is appearing increasingly unlikely - UK producers will not be spared the harsh effects of the country's decision to leave the single market and customs union.

Another issue faced by UK industry is the loss of "just in time" production, with the threat of long queues at UK ports and lorries requiring a "passport" to enter the country at Kent.

In 2018, the UK's automotive sector was worth around £18 billion (€19.8 billion), employing 168,000 people and hundreds of thousands more indirectly.

Four out of every five cars produced in the UK are exported with the lion's share going to mainland Europe. Plants such as those owned by PSA, Honda and Toyota are largely dependent on sales in the EU. 

Since the Brexit referendum in 2016, several car firms have announced plans to move production to mainland Europe, or simply closed down plants in the UK entirely.

In early 2019, Nissan shelved its plans to build the X-Trail at its UK plant.

Shortly after, Honda announced it would close its Swindon plant by 2021.

Later that year, JLR revealed plans to move the assembly of its Defender to Slovakia.

While no company cited the ongoing uncertainty over Brexit as the primary reason for the move, it was widely interpreted as a contributing factor.

Wider implications

Frost's failure to secure exemptions from tariffs has wide-ranging implications, not just for the automotive sector but also for other manufacturing and prepared foods. 

While the European Commission's decision has not come as a surprise to UK industry, there is growing frustration over the government's tactic of prioritising the defence of sovereignty over securing the flow of trade.

The UK's plans for "cross cumulation" have been described by some international trade experts as both ambitious and unique in terms of scope and scale when compared with other trade agreements.

The EU's chief negotiator Michel Barnier has made it clear the EU's economic interests will not be served by giving the UK privileged access to the single market after Brexit.

The grim news was made worse just a few hours after the EU's rejection of the plan.

An inquiry consisting of UK Members of Parliament met with representatives from the aerospace, chemicals and pharmaceuticals sectors and were told of massive extra costs, mountains of red tape, shrinking investment and chemicals "disappearing" from the UK market from January 2021.

Richard Torbet, the chief executive of the Association of the British Pharmaceutical Industry, suggested that some medicines may not reach Northern Ireland if extra tests are required.

"Those facilities [for testing] don’t exist, so it’s not clear how it will happen,” he said, before adding that it was “very important that patients don’t panic”.

Neil Hollis of chemicals giant BASF spoke of the £1 billion in new registration costs, damage to innovation and some chemicals no longer being available in the UK.

“There's no positive spin on this,” he said.

Paul Everitt, chief executive of the ADS Group, the aerospace trade organisation, said: “Whatever happens now, we will be involved in a day-to-day struggle to ensure the goods that we need to see flowing across our borders.”

He also criticised the UK's decision to pull out of the European Union Aviation Safety Agency, which certifies products, arguing that continued membership had been "negotiable".

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