Standing up for international trade amid tariff threats and Brexit fears

Message from ACEA’s Secretary General – March 2018

EU auto manufacturers exported more than 6.1 million motor vehicles last year, generating a trade surplus of more than €90 billion for the European Union. Compared with the EU’s total trade balance in manufactured goods, worth some €290 billion, automobile exports make a vital contribution to the overall trade position of the European Union. Indeed, ACEA’s 15 members are truly global companies and major exporters. We therefore support trade that is both free and fair, with respect for the international trade rules upon which these principles are based.

Looking at the current discussions about possible tariffs on EU car exports to the United States, it is important to understand that US and EU car markets have been integrated for decades now. Auto-related trade currently accounts for some 10% of total trade between the two regions. Today, the US is the third biggest exporter of cars to the EU in terms of value, representing 15.4% of EU imports. The other way around, the United States is the number one destination for EU-built cars, accounting for 29.3% of our export value.

Nevertheless, it is important to go beyond a simple numbers game, because EU manufacturers do not only import vehicles into the US. They also have a major manufacturing footprint there, providing significant local employment and generating tax revenue. Indeed, some of ACEA’s members have their biggest plants not here in the EU, but in the United States. So, instead of talking about adding new barriers between these two important automobile industries we should strive to further close the gap.

A few years ago, during discussions about a possible EU-US free trade deal (the so-called TTIP), manufacturers on either side of the Atlantic already agreed that the elimination of tariffs and of non-tariff barriers through regulatory convergence would enable the automobile sector to lower costs and improve efficiency, while upholding high safety and environmental standards. In an increasingly globalised world, I truly believe that convergence is the only viable path forward.

Likewise, Brexit is probably the most challenging issue when it comes to the future of EU auto trade. Today, auto makers are part of a highly integrated and complex manufacturing network spanning right across the EU. Any changes to this deep economic and regulatory integration will have an adverse impact on auto manufacturers with operations in the EU or UK. From our point of view, there are various sector-specific issues that require urgent attention from the negotiators if we want to avert disastrous implications on the entire supply chain.

Let me highlight three major areas that will need to be addressed in both the Brexit withdrawal agreement and the framework for the future relationship between the EU and the UK.

Firstly, a big concern for our industry is whether cars approved by UK authorities for sale in the entire European Union will still be able to be sold in the EU after Brexit, and vice versa. It is essential that manufacturers can maintain valid type approvals in both the EU and the UK at the time of Brexit. Without this legal continuity, there will be chaos in the market place. In the long run it will be key that both parties mutually recognise each other’s type approvals, although this would require the UK to remain fully aligned with relevant EU legislation.

Another major issue is whether the UK car market, the second biggest in the EU, will still count for reaching the 2021 CO2 targets after Brexit. To monitor compliance with these EU-set targets, the CO2 performance of new cars will be tracked using registration data from all EU countries, including the UK. However, once the UK has left the EU, the requirement to include UK data in these CO2 calculations will expire, as the UK will no longer be subject to the CO2 targets.

This would leave very little time for the auto industry to readjust compliance strategies for reaching the stringent 2021 CO2 targets, especially as the UK has such a high market share of alternatively-powered vehicles. ACEA’s priority is therefore to keep the system as it is today, with overall fleet compliance being based on CO2 data from the 27 EU member states, plus the United Kingdom.

Finally, when it comes to customs the outlook is clear: any new border checks as a result of Brexit will add cost, cause delays and reduce productivity. Given that the automotive supply chain is based on ‘just-in-time’ manufacturing, customs barriers could even result in production being stopped. So, regardless of which Brexit scenario is pursued, it is essential that EU and UK authorities already now start simplifying customs procedures and reinforcing their customs capacity. Otherwise we will see long tailbacks at both sides of the Channel following the UK’s departure from the EU.

After last week’s EU summit here in Brussels there were some positive signs that progress had been made on the legal basis for a so-called ‘transition agreement’, which would serve as a bridge between the UK formally leaving the EU on 30 March 2019 and the entry into force of a future EU-UK deal. Such a transition agreement would indeed give our industry much needed clarity about the continuation of the status quo, ie whether everything stays the same during that time. If this is the case, there would be no issue with the validity of type approvals during the proposed 21-month transition period between March 2019 and the end of 2020.

As much as we welcome this progress, it must be kept in mind that the transition agreement is only applicable if there is also an agreement on the final withdrawal, and we are still a long way from that. So, until everything is agreed, ACEA’s members have to prepare for Brexit on the basis of the worst-case scenario, that is one without any agreement in place. Even if there is a transition period, it will still be a question of kicking the can further down the road. The issue of the existing type approvals, for example, would then have to be resolved once the transition period ends on 31 December 2020.

At ACEA we are hopeful that there will be an orderly withdrawal of the UK from the EU, one which will contain an agreement on a transition period to give negotiators the time to agree an ambitious deal for the future EU-UK relationship. Besides addressing the automotive-specific issues that I mentioned before, it should above all be based on the key principles of international trade; allowing for free and fair trade that is as frictionless as possible.

Erik Jonnaert
Secretary General of ACEA