How does Brexit affect they automotive sector?

In 2019, the UK was the fourth main commercial partner for the Spanish automotive suppliers, the export figures reached €1494 million. 2020’s total, until October, reached figures of €974 million, 23.8% less than the previous year due to the pandemic impact. EU, considered as a block, is now the second destination for the sector’s global exports as Brexit has been established on 31 January of 2020. 

An agreement between the EU and the UK was made on 24 December 2020, it sets the rules for trade between the two regions and define the avoidance of taxing or regulation resetting on specific items. 

Highlights of the EU and UK trade and cooperation agreement (TCA). 

From 1 January 2021, business will operate under the new UK-EU trade and cooperation agreement (TCA) whose content will be applied temporarily until 28 February to avoid that an absence of legal framework may occur after 31 December of 2020 in waiting for the European Parliament ratification. It is worth noting that:  

• The agreement covers not only the service and goods trade but also some other areas of interest such as investments, competition, fiscal transparency, air travel, road travel etc. 
• It sets tariffs and quotas for merchandise meeting with the proper rules of origin 
• To assure the highest legal safety for companies, consumers and citizens. there’s one chapter devoted to governing which provides clear guidelines on how the agreement will be controlled and executed. The committing mechanisms for application and issue-solving will assure company rights will be respected and, therefore, companies -regardless they are from the UK or the EU- can compete at equal conditions by avoiding the use of any of the parts’ regulatory authority and then distort competition 

It must be considered, that although the agreement is made, UK is abandoning the EU’s common market and custom union besides the EU policies and international commercial agreements. It means that both blocks will now make up, as different markets, their own regulatory and legal environment. It will bring up some trade barriers regarding goods and services and mobility and inter-border exchanges non-existent before 1st of December 2020. 

UK has left the EU ecosystem of common norms, supervision mechanisms and execution, therefore they are not enjoying the benefits of the EU’s common market and partnership anymore. 

How will the agreement affect the automotive business tariff -wise?  

Regarding tariffs, in automotion, vehicles will not be taxed as long as they meet with the rules of origin: 

• Fuel and diesel turismos must incorporate at least 55% of local content 
• Regarding hybrids and electrics, this percentage should rise at least to a 40%. From 2024, it will be a 45% 

The agreement has a specific annex: ANNEX ORIG-2B. Specific transitory norms of products for electric batteries and electric vehicles. This type of batteries can use, until 2023, up to 70% of third- part country components. However, in between 2024 and 2026 the limit will be 50%  

Meeting with the annex ANNEX TBT-1, motor vehicles, equipment and components in the agreement, they are regulated to avoid any kind of technical trade obstacle between the EU and the UK. This will guarantee regulatory convergency and no duplicity in standardization requirements. These products are considered as specific products of common interest.  

One of the challenges the sector has to face is the need of a rapid set-up, by custom authorities, of certain custom controls and procedures which will affect the “just-in-time” processes in the value chain. It will have implications not only in terms of exports but in designing purchase policies or logistic reorder for deliveries. 

Opinion of the market expert and coordinator of Autoparts from Spain and SERNAUTO Market Segment Head 

“It is good news for the sector that the EU have reached an agreement with the UK due to the intense commercial relation existing with this market and the interaction of the automotive industries between both economies. However, a new process and necessary talks must be on about practical aspects to execute the agreed regulation. The movement of goods among both blocks will be subjected to custom regulations to be carried out on export, imports, transit goods and border inspection controls. Because of this, the speed of delivery will be affected as some companies will find administrative difficulties and issues regarding the products’ certification of origin if they are not used to commercial exchanges outside the EU.”