The clock is ticking ...

Here in the UK, it feels almost a lifetime ago that the evening TV news would feature little other than wall-to-wall coverage of Brexit, such are the extraordinary times we are currently living through.  Some might even argue that a little more Brexit-related news would provide some welcome relief from the grim COVID-19 statistics, however, we suspect that, for much of the UK population, Brexit is increasingly thought of as last year’s news.  However, Brexit is not yet, to borrow a word from our Prime Minister, “done” by a long shot, and as the (mercifully, beautiful) Spring of 2020 slips past, so too do the remaining days during which a deal might be struck on the future EU-UK relationship, before the transitional period expires at midnight on 1st January.

After the April round of online trade talks was labelled by EU chief negotiator Michel Barnier as ‘disappointing’, and by the UK as only having made ‘limited progress’, a further round is being held this week (11th – 15th May), and again in early June ahead of the key joint summit to review progress.  The summit will mark the final point at which either side can table an ordinary request for an extension to the transition period, but so far the UK has steadfastly refused to countenance any such move, despite the obvious strain UK government and EU resources are currently under as a result of the COVID-19 crisis.  After that, as we head into the Summer and beyond, we will be in the lap of the gods, or rather the trade negotiators, as to whether the future will be one of ‘trade deal’ or ‘no deal’.  Right now, and without getting lost in interminable details of Irish Sea customs posts, fisheries policies, and so on, the two sides remain some considerable distance apart.  And, whilst such trade negotiations all too often have a habit of only coming together into agreement at the 11th hour, as both sides make the necessary concessions to get a deal across the line, there is currently little confidence around amongst commentators that this will be the case as New Year approaches.

We therefore have to consider the very real possibility that a trade deal will not be reached, and this would not be good news for an automotive industry already grappling with the massive financial and operational consequences of the COVID-19 crisis and the enforced production and market shutdowns, and now fiercely keen to get cars and components flowing again.  A ‘no deal’ outcome would be a major set-back; when it comes to crossing the EU-UK border, for example, ACEA have estimated that, should trade have to default back to WTO rules, the import duty burden alone would hit around €6 billion, per year.  And this is not accounting for the massive administrative complexity for companies across the supply chain of assessing their compliance or otherwise with any ‘rules of origin’ requirements on their products when they cross the UK border, with many bringing together componentry from all around the world.  ‘No deal’ would also raise the prospect of gradual but growing divergence between the UK and the EU in many of other areas of regulation that affect the sector, from fleet average CO2 emissions targets, to competition policy, to data and consumer protection, with all this happening just at the precise time when the whole industry, throughout Europe, needs to pool its expertise and resources to help build a sustainable recovery across damaged economies, and to accelerate the drive towards carbon neutrality.

So, despite Brexit having been pushed off the front pages, at least for the moment, the stakes in the EU-UK negotiations remain extremely high, and with the automotive industry right in the firing line.  The ticking clock will only grow louder as the year progresses …

Image: Personnel Today