How will BREXIT affect the German automotive industry

The effects of Brexit on the automotive industry

There are currently numerous questions in the room that have to be worked out and answered in the course of the year under great time pressure. At the beginning of the transition period, manufacturers and suppliers are concerned with the extent to which trade agreements that the EU has concluded with third parties are still valid for goods from the UK from the perspective of the contracting partner states. This question is of great importance for the value chains in the automotive industry. Business representatives are currently of the opinion that the previous regulations will initially continue to apply to goods from the United Kingdom. However, since there is no precedent for a member to leave the EU, there are initially no concrete regulations, says Ralf Diemer, Head of the Economic Policy, Trade and Climate Policy Department, European Coordination of the VDA.

Uncertainty influences business investments

Since the vote for Brexit, an uncertainty has been observed that has gripped not only the automotive industry but the entire British economy. For several years now, there has been a clear downward trend - albeit from a high starting level. So far, this could be cushioned well without having to reduce capacities. Among other things, the uncertainty has resulted in investment decisions not being made or postponed for an indefinite period. Quick, clear decisions in trade policy are required here in order to at least moderate the downward trend, says Ralf Diemer. However, there is not much time left for the reorganization of the relationship between the United Kingdom and the EU: the new framework conditions should be in place by the end of the transition period at the end of 2020.

Since Prime Minister Boris Johnson has clearly ruled out an extension of the transition phase, the question of a hard Brexit without an agreement could be raised again at the end of the year. According to observers, an agreement on a comprehensive trade agreement within a year is at least questionable. Experience has shown that such an agreement requires extensive negotiations in order to regulate the extremely complex relationships, sound out regulations and convert them into an agreement. This is shown, for example, by the CETA trade agreement between Canada and the EU, which was negotiated over a period of seven years and which has still not come into full force. It is therefore now important for all parties involved to work towards an agreement that is as liberal and comprehensive as possible. In particular, zero tariff rates must be agreed for all originating goods - vehicles and motor vehicle parts - and customs clearance must be simplified. This would at least keep any customs duties as additional costs for companies as low as possible.

VDA supports industry-internal exchange

Great Britain has traditionally been an important market for the automotive industry. More than 650,000 cars are delivered from Germany to Great Britain every year. At the same time, the UK plants export a little more than 80 percent of their production, making the automotive industry there very dependent on open markets. In the worst case, a hard Brexit could lead to interruptions in supply chains and production processes - but even in the case of a trade agreement, difficulties in adapting to the new circumstances are to be expected.

Immediately after the British people had decided in favor of Brexit, the VDA set up a task force that advocates the interests of all members, manufacturers and suppliers. This involves very practical questions of preparation for the new relationship, such as the design of internal processes and mutual support within the framework of antitrust law. At the same time, the VDA advocates a political framework that is as supportive as possible for the automotive industry. One thing is clear: a sensible and close relationship between the UK and the EU is very important for the automotive industry. For this reason, the VDA will continue to closely monitor the negotiations and bring in the wishes of its members for the design of future trade relations.