Brexit and German cars: Britain will suffer most from a rupture

With Britain and the EU poised to start hammering out the details of a Brexit transition deal in talks starting on March 22nd, key industry leaders in Europe have continued to express their fears about the impact Brexit will have on their sector.

 

The Local spoke to Kurt-Christian Scheel, CEO of the German Association of the Automotive Industry (VDA), a lobby group that represents BMW, Volkswagen and Daimler (parent company of Mercedes).

 

Scheel expressed concerns that “supply chains could be torn apart” and bemoans the loss of “an important counterpart for free trade in the EU.”

 

In this interview, first published in The Local's Brexit & You newsletter last month, Scheel warned that any major changes to value and supply chains would hurt the UK more than Germany.

 

The Local: A report by Deloitte Germany outlines the threat that Brexit poses to the German and British automotive industries in terms of possible WTO tariffs, customs declarations and loss of profits. Is the German car industry demanding that the EU prioritize the sector in forthcoming trade negotiations?

 

Kurt-Christian Scheel: Brexit brings costs and risks to all industries. From the point of view of the VDA, the study does not sufficiently reflect the risks for the industry, and its key sites, in the United Kingdom. For Brexit will force changes in the value chains - such as the construction of warehouses, since a just-in-time production will no longer be possible due to the resulting customs modalities. Supply chains may be torn apart. This need for adjustment is likely to be more damaging to the UK sites. In the negotiations, the EU will prioritize the cohesion of the remaining 27 EU countries, because the Single Market and the Customs Union are a model for success.

 

TL: How does the German automotive industry hope to protect its relationship with the British automotive industry?

 

KCS: The German automotive industry is campaigning for the partnership with the UK to remain as close as possible. This applies to the areas of trade and investment, but also to regulatory cooperation.

 

But the negative effects of Brexit are already being felt - both on the island and on the continent: the UK is risking many disadvantages by leaving the Common Market and the Customs Union: higher prices, lower and more difficult exports and also relocation of production – all economists agree on that. Already in the past few months it has become clear: nobody benefits from Brexit!

 

TL: Is the car sector in the EU and the Single Market ultimately more important than the current relationship with Great Britain?

 

KCS: In the case of Brexit, the EU and Germany have a clear economic and political priority: the cohesion of the remaining 27 member states. Of course, relations with the United Kingdom continue to be important to us. We hope to continue very close relations on all economic and political issues. With the UK we are losing an important counterpart for free trade in the EU - we very much regret that.

 

TL: What concrete points would you consider important in negotiations between the EU and the UK for the protection of the German car industry?

 

KCS: It’s important for the industry to have a stable framework. If the United Kingdom were to go it alone in regulatory matters, everyone would suffer - especially exporters in the UK. Any resulting customs costs would significantly burden German-British trade. And another challenge for companies is to ensure the supply chain to and from the UK.

 

New formalities, such as import and export declarations for bilateral goods traffic, mean high organizational costs for the companies. In addition, a simplified customs clearance procedure needs to be established, guaranteeing a smooth flow of goods without any additional administrative burden for companies and customs authorities in the EU and the UK. It is urgent to find practical solutions for the period after the transition phase. Legal certainty and continuity in all regulatory issues are important prerequisites for developing economic relations.

 

TL: Can the current German-UK relationship in automotive industries, where every fifth car assembled in the UK imports parts from Germany, be maintained?

 

KCS: The German automotive industry is committed to free trade worldwide. That is, we are fundamentally against tariffs and non-tariff trade barriers. It would be more than desirable to maintain the closely intertwined value chains with the UK.

 

Alex Macbeth

 

This interview initially appeared in The Local's Brexit and You newsletter, sent on February 6th. Receive it every week to get news and analysis of Brexit by signing up here.