Why industry should brace for chaotic, no-deal Brexit

Trade talks between the European Union and the UK have entered a new crunch phase and time is running out.

All existing trade agreements pertaining will end Jan. 1, leaving the two sides without any legal basis for cross-border commerce.

There been no progress in the main policy sticking points going into this week’s eighth round of talks, and the two sides appear to be re-opening issues long believed settled. 

On Monday, UK Prime Minister Boris Johnson said that unless there is a breakthrough by the time government leaders meet at the EU Council summit on Oct. 15, he will declare the negotiations have failed.

In this case, each side will impose 10 percent tariffs on imported passenger cars in keeping with World Trade Organization rules.
Ignoring for a moment the disruptions to just-in-time production stemming from extensive new customs clearance at the EU-UK border, this would cause a severe financial blow for automakers.

According to figures from the UK parliament, road vehicles were the single-largest British import from the EU by value, accounting for 48.5 billion pounds (50.6 billion euros) last year or 18.2 percent of overall imports. Similarly, they were the UK’s second-largest export to the EU at 17.3 billion pounds, or 10.2 percent of total the country’s total.

One option repeatedly floated by the UK to prevent a total collapse in trade after Dec. 31 has been mini-deals, which are sector-specific agreements protecting threatened industries such as vehicle manufacturing. The theory is that a mini-deal can be more easily arranged than a comprehensive agreement governing all future EU-UK relations.

Last Friday, I put this issue to Bernd Lange, who has chaired the trade committee at the European Parliament since July 2014 and currently sits on the UK Coordination Group. I hoped to gain an EU perspective on whether Europe’s cross-border auto industry could be protected from the fallout of a no-deal Brexit.

Lange is a member of Germany’s labor-friendly Social Democratic Party (SPD) and he represents constituents from Volkswagen Group’s home state of Lower Saxony.

Although Germany is already suffering from an unprecedented collapse in production because of the pandemic and would be hit hard by a no-deal Brexit, Lange rejected the idea of mini-deals.

“In Lower Saxony we export a lot of cars and automotive parts to the United Kingdom, but this, of course, is also linked to services, this is linked to supply chains and I can’t see that it’s possible to isolate such a sector,” he said during a webinar hosted by the EU parliament’s liaison office in the UK. “We need to have a more comprehensive approach to secure all the conditions for trading goods and services.”

In his opinion, common standards for state aid, employment rights and other factors remain a prerequisite to preferential access to the single market.

“We need guarantees we will have a level playing field in competition,” Lange said. 

Ultimately these considerations boil down to an issue of trust, trust that was further undermined when the UK government admitted on Tuesday it planned to renege on its obligations under the EU Withdrawal Agreement.

If even Lange, a labor union-friendly politician from VW’s home state, is offering little hope for pragmatism, the auto industry should prepare for a chaotic no-deal Brexit.

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