Car manufacturers are worried
The UK’s biggest manufacturing lobby groups are calling for more clarity as efforts to establish a new post-Brexit trading relationship gather pace.
Yesterday, ahead of Britain’s departure from the EU on Friday, representatives of business organisations met the senior cabinet minister Michael Gove to express their concerns.
“It’s clear that government are serious about engaging with industry,” said the chief executive of the Food and Drink Federation, Ian Wright.
“It was constructive and encouraging,” said another participant in the meeting, “but the detail is still being established.”
So what has the government said it wants?
Boris Johnson has talked repeatedly about getting a “zero tariff, zero quota” trade deal agreed before the end of the year, when the post-Brexit transition period runs out.
That is certainly possible, but it’s a very tight schedule.
“I don’t know if it’s doable, but we’re up for it,” said Mike Hawes, the chief executive of the Society of Motor Manufacturers and Traders, which lobbies for the car industry.
“We need to be up for it, we can’t afford to get to the end of this year and not have a trade deal,” he insisted. “That would be a major threat to our future here in the UK.”
Manufacturing may not be the economic force it once was across the UK, but it still employs several million people.
Now the UK’s seamless trading relationship with the rest of the Europe is about to change, and that’s why many industry leaders are a little nervous.
While a “zero tariff, zero quota” deal sounds good, it is the bare minimum many manufacturers require.
Will the prime minister secure a good deal for food manufacturers?
“What we have now is exclusion from a whole range of checks,” said Mr Wright, “on animal health, on customs, checks on lorry drivers and so on.
“Behind a basic ‘zero tariff, zero quota’ deal would be a whole load of new friction that would add cost, delay and difficulty in doing business.”
There are several issues to consider.
The EU is insisting that the UK sign up to strict rules on fair competition to prevent its companies undercutting their European rivals.
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“Without a level playing field on environment, labour, taxation and state aid,” said the European Commission President, Ursula Von Der Leyen, in a recent speech in London, “you cannot have the highest quality access to the world’s largest single market.”
Participants in the meeting with Michael Gove also raised concerns about what’s known as “rules of origin”.
It means companies have to prove that the components or ingredients in their product – flour in a loaf of bread for example – actually come from the customs territory that is doing the exporting.
“There’s a whole world of pain for the exporter and the retailer,” said Mr Wright, “if those matters are not resolved, and resolved as close as possible to the current arrangements.”
Finally there’s the question of what might happen to the baffling array of rules and regulations that protect product standards.
“There’s the equivalent of about five phone books worth of rules that determine how you make a car,” Mike Hawes explained. “If you start changing those rules you have to make that car to a different recipe.”
That adds cost, which feeds through into price and makes products less competitive.
So, which rules will the UK choose to maintain, and which ones might it seek to change?
It is a key question.
The government says the UK will not be a rule-taker, and there will be no wholesale alignment with the EU. On the other hand, the UK will not diverge from EU rules just for the sake of it.
Industry has been told it will need to adjust to a new reality.
“At the moment,” said Nicole Sykes, who covers EU negotiations for the Confederation of British Industry, “businesses have one set of rules to follow, one set of tests, and one set of enforcers of the rules to deal with, when they trade with the EU.”
If they are suddenly faced with two sets of rules and tests, that creates a problem.
“I spoke to one firm that said if they have to deal with the same kind of structure that Canada does, they are thinking about £1,500 on every machine they sell,” Ms Sykes added. “That’s about 10% of what they sell the machine for.”
“Those are huge costs that will affect how they will be able to grow in the future.”
The arrival of a government with a clear majority, after years of dither, has certainly given business a lift. And they’re hoping that a big dollop of prime ministerial optimism will get trade talks off to a good start.
Boris Johnson is expected to make a speech on the UK’s new trade priorities next week.
But alongside optimism, the government needs to make some tough choices, and industry is impatient to find out what those choices are going to be.