Regardless of the type of exit the UK eventually makes from the EU or the value of the “divorce” costs there will be an impact on both Europe and the United Kingdom. The German automotive industry exports 31% of its total output to the UK. It has been estimated that the jobs of 18,000 of the 60,000 workers currently involved in the manufacture of German cars for the UK market would be in jeopardy if the German UK exports are threatened. The effect will be two-way with the UK car workers working for foreign car manufacturers also coming under threat.
A hard Brexit, Britain leaving the European Union without an agreement, would result in the imposition of EU rules and World Trade Organisation tariffs on British goods and services. Therefore in the automotive industry, vehicles and vehicle parts produced in Britain entering the EU would face a 10% and 4.5% tariff respectively. The entire system is likely to change should there be the introduction of customs controls, non-tariff barriers and rules of origin which almost certainly would require changes in procedure, shipping and distribution affecting the whole supply chain structure. In the worst case scenario, it is predicted that there is likely to be 600 million euro loss in profit as well as a 36% decrease in sales, further crippling an already unstable automotive industry.
There is no doubt that to prevent such consequences is a common wish from both countries. It seems that the creation of a customs union, giving the United Kingdom independence from European treaties in combination with clear limitations on sovereignty; acceptance of the EU’s product standards; and a minimum commitment on freedom of movement, however presenting a decrease from the obligations which apply today. Such a compromise would be in line with both countries economic interests and has the potential to ensure a smooth transition period between the United Kingdom’s full membership and the new arrangement after Brexit. Once the UK cuts loose from the EU it will have to look for trade in the wider world. Regrettably, should such a trade deal be possible, it would carry significant disadvantages for the British automotive industry as it would limit its trade with third-party countries, meaning relationships with India, Brazil and Russia could suffer.
This is due to the United Kingdom’s inability to follow the EU’s existing bilateral trade agreements with third countries, possibly even including those created after the Brexit vote such as Canada and Japan. Instead, the UK would have to enter into protected trade talks with all affected countries creating much insecurity and doubt about future trading possibilities. Furthermore, this type of agreement would not change issues faced through rules of origin if British made parts would no longer be counted as having been produced in Europe creating higher costs and supply deficits for European manufacturers.
There are no easy answers for the path the UK has chosen to take, it remains to be seen whether a solution can be found to the difficulties faced by the German/UK automotive trade.
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