BMW has urged the UK to ensure that it maintains tariff-free access to the European Union (EU) after it leaves the bloc.
Prime Minister Theresa May announced yesterday that Britain will leave the EU single market after Brexit and would seek a bespoke customs union deal that would allow it to sign bilateral free trade agreements with the rest of the world. This has led car manufacturers, which rely on cross-border assembly lines, to ensure the UK maintains tariff-free access once it leaves the single market.
The Society of Manufacturers and Traders (SMMT) warned on Tuesday that Britain must participate in the EU customs union in order to retain its automotive industry.
BMW has previously said it was best for business for the UK to remain in the single market. A spokeswoman said: ‘We urge her [Prime Minister Theresa May] to ensure the UK's negotiations with the EU result in uncomplicated, tariff-free access to the EU single market in future.’
It is the customs union arrangement that is fundamental to the future of the UK automotive industry. Nearly 60% of the parts in a British-made car are assembled abroad, and some of these components also travel to and from the continent several times in the manufacturing process. Therefore any impediments to this process will cause major disruption to both the UK and EU automotive industry, particularly because most UK plants are foreign-owned.
SMMT chief executive officer Mike Hawes said: ‘We need a deal which includes participation in the customs union to help safeguard EU trade, trade that is tariff-free and avoids the non-tariff and regulatory barriers that would jeopardise investment.’
A further concern Hawes highlighted before May’s speech yesterday is that considerable problems will develop if the UK fails to gain access to the EU customs union. May hopes to negotiate a new, bespoke ‘customs agreement’ with the EU that does not mean the UK is bound by the common commercial policy and common external tariffs. If this fails and the UK remains outside the customs union, the British automotive industry would not be able to operate under a normal free-trade deal, because UK-built cars do not contain enough local content to comply with local content provisions within most usual free-trade agreements. Hawes said: ‘Generally rules of origin require around 50-55% local content. Currently in the UK, the average car has about 41% local content. Being part of the customs union, basically European content counts so that's not an issue.’
Global automakers have also warned that British plants will become uncompetitive if there is a return to World Trade Organization tariffs of 10% on car exports and around 3% on engines. Last year, Nissan pledged to build its new Qashqai – its best-selling car in Europe – and the new X-Trail crossover in the UK after the UK government promised to provide extra support to counter any loss of competitiveness from Britain leaving the EU. If the UK’s negotiations with the EU turn sour, it is feared such promises could cost the UK taxpayer huge sums of money.
On Tuesday, May said that as part of the new agreement she hopes to negotiate, the car industry may be able to retain some elements of the free trade agreement the UK currently has through membership of the single market. She said: ‘That agreement may take in elements of current single market arrangements in certain areas - on the export of cars and lorries for example,’ she said.
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