If you want to know, ask
A big Brexit-related story came yesterday from the Society of Motor Manufacturers and Traders. The Guardian reported that investment by car companies had "halved" to less than £350 million in the first half of 2018. "That’s the cost of uncertainty," said Mike Hawes, SMMT chief executive, "that’s the price we pay for slow decision-making". Which confused me, because I remembered a Financial Times report from last year which told us "Investment in the UK car industry has fallen to just £322m in the first half of 2017", and £350 isn't half of £322.
2015 - £2.5 billion
2016 - £1.7 billion
2017 - £1.1 billion
H1 2018 - £347.3 million
Last year Hawes said "A lot of people have spent the best part of decades turning round the
industry, when you think back to how it was characterised in the 70s,
80s and into the 90s. It is very different now. It has had very
difficult times and it is a cyclical industry, and there is a fear that
that success could be put at jeopardy.
"We consistently said do not expect [the German car industry to demand a good deal]. The European market and to a
certain extent the European project is more important to them than the
UK, so they want to safeguard the four freedoms which benefit them. If
any sector has really benefitted from growth and development across
Europe, it’s the German car industry. It is frustrating and it also
reveals a lack of understanding of the way markets operate."
And this year his message is "There is no Brexit dividend for our industry, particularly in what is an
increasingly hostile and protectionist global trading environment. Our
message to government is that until it can demonstrate exactly how a new
model for customs and trade with the EU can replicate the benefits we
currently enjoy, don’t change it".
This follows BMW's UK boss Ian Robertson warning "If we don't get clarity in the next couple of months we have to start
making those contingency plans... which means making the UK less
competitive" and the company's chief executive commenting that it must remain "flexible" about production facilities. BMW's director of customs operations said "if in the end the supply chain will have a stop at the border, then we cannot produce our products in the UK".
BMW has already raised the possibility that the new electric Mini might be made in Germany or in the Netherlands, which already produces a third of all Minis, but the current position is still that "While Brexit has made BMW hedge its production bets, the company is
still committed to the Oxford plant and the English heritage of the
brand," though future developments will be in cooperation with China's Great Wall Motors.
We've had similar statements from Honda and Unipart among several from other industries. Unipart reminds us of the issue of supply chains, and of rules of origin. Almost 90% of BMW parts used in their British plants come from Germany, though the industry average of UK content in British-made cars is currently 44%. To qualify as a product of "EU origin" the normal rule is that around 55% of components must be produced in an EU country, and EU companies have been warned that "too many" British parts could cause trouble when cars are exported. How any future UK-EU agreements handle these rules of origin (and whether trade partners accept it) might have a significant impact on UK exports. Unipart and the SMMT also raise the subjects of dealerships, servicing and spares.
These are warnings of the implications of a sub-optimal Brexit (if there can be anything else), and whether you ended up blaming EU intransigence or the UK red lines would be irrelevant if it happened, but obviously no company wants to have to incur the cost of moving production. And we hear from the midlands that Jaguar Land Rover plan major investment over the next few years after a poor year. "Sales and revenue did not grow as much as we planned [last year] with diesel
uncertainty impacting the UK and European markets, exacerbated in the UK
by Brexit and cyclical weakness".
Then we heard from Carlos Ghosn, head of Renault-Nissan, who never minds being the centre of the story:
Carlos Ghosn tells me on Brexit: “We don’t have a clue how all this will end up...we frankly are in the dark...”— Theo Leggett (@Theothebald) June 27, 2018
And now, services
There's a lot of stuff about manufacturing and goods in the Brexit debate, though it's a relatively small part of the UK economy. Now the European Services Forum, "a European private sector grouping that represents the interests of the European services industry in international trade and investment negotiations related to services". has sent a letter to the chief negotiators Michel Barnier and David Davis. It's clear, concise and well enough written, so I'll let it introduce itself.
"Given that ESF’s focus is on trade and investment negotiations, we have so far refrained from commenting on the negotiations over the United Kingdom’s withdrawal from the European Union. Now that the European Council has agreed to authorise the negotiators to turn to the future relationship, we would like to offer you some views on points of critical importance to our members.
"Trade in services will have a central role in the future EU-UK relationship. Services are the basis of both economies representing 74% of EU GDP and 73% of the EU labour force and 80.4% of UK GDP and 83.5% of the UK labour force.
"it also needs to be remembered that cross-border flows of goods depend on services, including air, rail and sea transport, port services, road haulage, logistics, freight forwarding, customs clearance, delivery services, professional services, trade finance, insurance and insurance intermediation. Action is needed on many aspects of regulatory frameworks in services sectors, including arrangements that secure contract continuity, to ensure unbroken flows of goods and services.
"Based on our experience of trade negotiations, we are concerned that - even with the strongest political will from both sides - a period of 21 months is unlikely to be sufficient to cover all the stages needed to put in place the future relationship (completion of negotiations, agreement in principle, legal scrub of agreed texts, signature, ratification and implementation).
"The UK is the largest services exporter among the EU28, at €189.2 billion, representing 22.4% of total EU28 services exports (extra EU). The EU27 take 58.2% of UK services exports. According to Eurostat, the EU27 exported €92.8 billion services to the UK in 2016 and the UK exported €110.2 billion services to the EU27. The EU27 and the UK trade in services are highly integrated as a result of progress towards the EU single market in services.
"According to the Trade in Value Added (TiVA) database developed by the OECD and the WTO, in 2011, 37.1% of the value of UK total exports of goods is in fact "goods-related services" and this figure rises to up to 39.9% for the EU28."
