3Non-tariff barriers
15.It is clearly in the interests of both the EU and the UK to reach an agreement which does not involve tariffs on components or finished vehicles, whether set at WTO or any other level. Even if that objective is achieved, the threat to the competitiveness of the UK automotive industry of non-tariff barriers—a more potent threat than tariffs for some—will need to be mitigated.49 Setting aside the role of regulation—considered in the next chapter—as a non-tariff barrier, these primarily consist of delays at the new UK-EU border and the additional administrative requirements associated with trading outside the single market.
The impact of delays
16.The volume manufacturers rely upon the just-in-time delivery system, under which components are delivered directly to the assembly line and there is a very limited requirement for warehousing of stock. The process is a vital part of minimising costs and maximising efficiency. We saw at first hand the arrival of trucks to the Honda factory in Swindon every seven minutes and the seamless delivery of parts to the line. Because of the reliability of transportation across the Channel at Dover, warehouses held only one day’s worth of stock from EU countries.50 For imports from Japan, the scope for delays is greater, and components were stocked for two to three weeks.51
17.There have been various estimates of the impact of potential delays to trucks arriving at Dover arising from new customs arrangements.52 We heard from Honda their estimate that a 15 minute delay could add around £850,000 per year in costs–a significant sum in the context of reported pre-tax profits of £9m in 2016–17 at the Swindon manufacturing site.53 Other companies had made similar calculations of the increased costs associated with border delays.54 For Aston Martin, the greater concern was the impact on cash flow of expensive vehicles being held up at borders for long periods.55
18.There are also likely to be additional administrative costs associated with trading goods outside the customs union. Ford will be required to provide 115,000 declarations for its imports alone.56 At £35 per declaration, the supplier GKN told us that there would be “a fairly significant impact” on costs.57 The administrative impact on smaller suppliers is likely to be proportionately greater.
19.The trade-off between friction-free access to the single market and regulatory alignment will be a key part of the negotiations. The Prime Minister has referred to seeking to achieve trade “as frictionless as possible.”58 In its policy paper on a Future Customs Arrangement, the Government sets out two options for future customs arrangements: one based on unspecified technology-based solutions; the other on the development of a new partnership, aligning approaches in such a way as to remove the need for an UK-EU customs border. Other select committees will continue to scrutinise proposals for customs arrangements as they progress, but we note the consensus view expressed by the SMMT that, outside the single market and customs union, it is inevitable that there will be some additional costs.59
Mitigations
20.There are various options for mitigating the impact of these additional costs, including the expansion of the Authorised Economic Operator regime in the UK and trusted trader status, as well as other solutions that do not require physical checks at the border.60 Some have advocated a regime similar to that at the US-Canada border, which sees car components cross multiple times under the provisions of CETA and a range of bilateral agreements.61 Taxation can be administered away from the border, for example.62 These potential solutions are likely to apply across the board, not just to vehicles. They will require further detailed exploration and the outcome is likely to be affected by whatever agreement is reached in relation to the external border with the EU in Northern Ireland.
21.Whilst the automotive sector is trading non-perishable goods, border delays are likely to result in added costs with longer journey times. Any mitigations that involve the establishment of additional warehousing facilities will contribute significantly to costs, not to mention the footprint of manufacturing plants. We are also concerned about the impact of additional bureaucratic requirements on small suppliers, which form the majority of suppliers and many of which will not have operated at all outside the single market.63 Once the future arrangements have been agreed, the Government will need to provide comprehensive information and support to small businesses having to negotiate the new regime. Longer journey times, with added risk of delay, plus extra customs bureaucracy would make the UK automotive sector less efficient and act as a disincentive to international companies looking for a base to manufacture cars for the European market. In a highly competitive market, small margins can make a significant impact on investment decisions. If the Government wishes to uphold the UK’s reputation as a good location for volume vehicle manufacturing, consistent with its Industrial Strategy, we recommend that it should in its negotiations on withdrawal place a high premium on securing frictionless trade for the automotive sector.
52 In evidence to the Public Accounts Committee, the Port of Dover reported that it processed 10,000 freight vehicles every day, the equivalent of a 180km queue, Second Report of Session 2017–19, Brexit and the future of customs, November 2017, HC 401
53 Insider Media Limited, Revenue grows by more than £1b at Honda Europe, 11 October 2017
54 Vauxhall Motors (BRA0016)
59 Q70 [Hawes]. Home Affairs Committee, Home Office delivery of Brexit: customs operations inquiry International Trade Select Committee, Continuing application of EU trade agreements after Brexit inquiry
60 SMMT (BRA0005). For more information on Authorised Economic Operators, see the Government website
61 See House of Commons Library Research Briefing, CETA: the EU-Canada free trade agreement; and Special Trade Commission, Brexit, Movement of Goods and the Supply Chain, February 2017, Appendix 2
28 February 2018