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Manufacturing has been a high topic of conversation amongst government and businesses in the run up to the EU Referendum. Manufacturing and the EU seem to go hand in hand and overall, manufacturers appear adamant that the UK must remain in the EU. However, many Brexiters have argued that Manufacturing would survive and eventually flourish in a post Brexit Britain, branching out, building firmer relations with China, India and other emerging markets. Has the media representation therefore, been a little one sided or is the industry right to be worried?
Pro EU MPs have debated the consequences of a Brexit vote on the UK’s thriving manufacturing trade.
An exchange took place on 12 April 2016, during Foreign Office questions in the House of Commons between Labour’s Pat Glass MP and the Rt Hon David Liddington MP, Minister of State for Europe:
Pat Glass MP for North West Durham “more cars [are] manufactured in one city in north of England in one month, than Italy makes in a year – post Brexit deal will add 10 per cent tariff on UK manufactured cars sent to Europe – can he confirm?”
Minister of State for Europe, the Rt Hon David Lidington MP “that is indeed the case”
Those in favour of the EU hold this point as one of their key arguments, additional tariffs are undesirable and it can be assumed that these will be implemented until any sort of trade agreement is reached. The type of trade agreements reached are also uncertain. If the referendum results in a ‘leave’ vote and Parliament argues migration is key factor of this, it is unlikely the Government will secure a free trade deal with the EU, similar to Norway or in parts, Switzerland, as the both countries have agreed to the free movement of people, in exchange for free trade.
Remainers also argue that trade regulation will not reduce in the event of Brexit and costs will increase. Goods manufactured in the UK and exported to the EU will still have to adhere to the EU’s rules of origin and may be subjected to quotas. It is therefore probable that businesses supplying across the EU and the UK, would continue to apply these rules across all of their products, to ensure easy trade with the EU and uniformed company processes, wherever possible.
The argument of additional costs of clearing customs, is a strong argument for the Remain camp and hard to be defeated by Brexiters. These costs also come with the possibility of additional administrative burdens and costs to comply with new EU regulations imposed on the UK, something that Remainers believe is an even greater loss of sovereignty.
Those in favour of the EU from a manufacturing viewpoint, argue that it is too much of a crucial export market for the UK to jeopardise and the survival of British manufacturing is dependent on a strong trade relationship with the EU. HM Revenue and Customs reports of Overseas Trade Statistics – Non-EU and EU Trade, show that the proportion of total exports to the EU was 46 per cent in February 2016. Over the past 18 months, this has ranged from 38 per cent to 48 per cent. The proportion of total imports from the EU was 55 per cent in February 2016. Over the same period, this has ranged between 51 per cent and 55 per cent. EU Exports for March 2016 were £12.0 billion. This was an increase of £0.6 billion (5.7 per cent) compared with the previous month, and a rise of £0.1 billion (0.6 per cent) compared with March 2015. EU Imports for March 2016 were £20.2 billion. This was an increase of £0.8 billion (4.1 per cent) compared with February, and a rise of £0.1 billion (0.5 per cent) compared with March 2015.
As such, in EU trade, the UK was a net importer this month, with imports exceeding exports by £8.2 billion. The proportion of total exports to the EU was 48 per cent for March 2016.
Remainers also point to Germany creating trade relations with China from with the EU as a possibility for the UK.
Source: EEF – commissioned independent research company, GfK, to survey members on views of the EU referendum and the UK’s membership of the EU.
Notable comments came from members such as Magal Engineering, an Automotive Tier One Supplier to all major OEMs, and is a fully European integrated company. The company has branches in the UK, with headquarters in Reading, as well as other sites across the rest of Europe, and additionally in Turkey, India and China.
Gamil Magal, CEO says:
“Operating in the EU countries is much easier, we enjoy free movement of skilled labour and goods. We import materials, and export more than 45% of our finished products to Ford, Daimler, Volvo, Renault and Nissan in Europe.
Leaving the EU will change this status, we will have the extra burden of VAT, export paperwork, and this will tie up cash. For us to trade with the EU, we [would] probably have to comply with the European rules anyway, so, no gains there. As nobody can quantify the depth and the length of the ‘difficult period’ when leaving the EU, I recommend to stay in and not damage the UK’s fragile economy now, when we don’t even know what the benefits are [that] we will enjoy by leaving the EU.”
Society of Motor Manufacturers and Traders (SMMT)
In March 2016, the SMMT published the results of its member survey, which looked at whether remaining in or leaving the EU was best for member businesses.
The results were as follows:
The SMMT stated that they ‘commissioned the poll, carried out over a five-week period in January and February 2016, to get an up-to-date understanding of the views of its members about the importance of the EU, so that this vital sector for the UK economy and jobs can speak with authority in the debate.’
Delving into the reasons why the EU is important to them, SMMT members are most likely to say that access to EU automotive markets has a positive impact on their business (66%). This is followed by a majority saying that access to a skilled workforce (55%) and the ability to influence industry standards and regulations (52%) also have a positive impact on their business. When asked to provide open-ended feedback, some of the key reasons given for staying in the EU included the importance of economic and market stability, securing the UK’s global competitiveness, and access to the single market’s free trade opportunities.
Looking ahead to the threat of a potential Brexit, 59% of SMMT members say it would have a negative impact on their business in the medium- to long-term, with a further one in five uncertain about the nature and extent of that impact (18% don’t know). When those foreseeing a negative impact were asked why, fears included becoming uncompetitive and losing business to EU rivals, while the risk of future investment being diverted to the continent also featured highly.
Mike Hawes, SMMT Chief Executive, said,
“The message from UK Automotive is clear – being in Europe is vital for the future of this industry and to secure jobs, investment and growth. UK Automotive is thriving, with record car exports, new registrations and the highest manufacturing levels for a decade. Our industry supports 800,000 jobs across the UK and contributes more than £15 billion to the UK economy – our members have clearly stated that pulling out of Europe could jeopardise this.”
Dr Ian Robertson, Member of the Board of Management, BMW AG, said,
“As a major employer, exporter and investor, the BMW Group is committed to the UK which is home to two of our brands, MINI and Rolls-Royce Motor Cars. Our experience shows that the free movement of components, finished products and skilled workers within the EU is extremely beneficial to British-based business. We firmly believe Britain would be better off if it remained an active and influential member of the EU, shaping European regulations which will continue to impact the UK whatever the decision in June.”
Rory Harvey, Managing Director and Chairman of Vauxhall, said,
“The UK is the fourth largest global market for Vauxhall’s parent company GM and the largest EU market. We are part of a fully integrated European company where we benefit from the free movement of goods and people, and we believe not to be part of the EU would be undesirable for our business and the sector as a whole.”
This was the second time SMMT members were polled on the Brexit debate and was the second time the overwhelming majority stated that staying in Europe was best for their business. However, it was acknowledged that reform was essential to the future of the EU. As the SMMT stated ‘reform remains important: When asked to select the three reforms that would be most beneficial to their business, the [SMMT member] top options included better regulation and reduction of red tape, and a greater emphasis on free trade and access to global markets – in line with the EU reforms now secured by UK government.’
Those in favour of leaving the EU point to countries such as the United States of America (USA) as an example of how UK manufacturing will survive from outside of the EU. The USA continues to successfully export to the EU despite trade barriers. Brexiters argue that while the barriers and regulations might be inconvenient they are workable and therefore this is not enough of a reason to stay within the EU.
In response to comments from some manufacturers threatening to pull factories and plants from the UK, if Britain leaves the EU, Brexiters have labelled these “inappropriate and extreme”. This was experienced by Nissan boss, Carlos Ghosen, after his comments regarding Nissan in a post Brexit UK were labelled as “scaremongering”.
Brexiters argue that whilst trade is always changing, the UK does not rely on its imports and exports with the EU as much as it once did. HM Revenue and Customs reports of Overseas Trade Statistics – Non-EU and EU Trade show that:
When looking at March 2016 (latest figures) trade between the UK and other countries, imports and exports are clearly growing with nations outside of the EU, as well as maintaining EU trade. This is a key argument for those in favour of Brexit. Manufacturing would not decline because of improving imports and exports with countries such as America, China and India.
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The above figures add weight to the Brexiters argument that the UK must learn to focus less on the established market of the EU and look to establishing closer ties with emerging markets, such as China. Arguing that the UK is better placed to make these trade agreements from outside of the EU. UK automotive exports to China increased more than six-fold between 2008 and 2013 (SMMT).
Lord Bamford, Chair of JCB, openly voiced his lack of concern if the UK was to leave the EU from a manufacturing point of view. In May 2015, Lord Bamford told BBC Midlands Today that the UK is “the fifth or sixth largest economy in the world. We could exist on our own – peacefully and sensibly,”.
Lord Bamford explained his comments by explaining the UK would be in a stronger position as it could “negotiate as our country, rather than being one of 28 nations”.
Lord Bamford said [JCB] was “well placed” to capitalise on improving growth in developing countries.
“The need for infrastructure in much of the developing world remains acute and will eventually drive a resumption of growth,” he added.
Fabrice Bregier, Chief Executive, Airbus:
He has said he has ‘no intention’ of pulling manufacturing out of the UK if the country votes to leave the European Union (BBC News, 16 June 2015).
Akio Toyoda, Chief Executive of Toyota said:
“We want to deepen our roots to deliver ever better cars, so when that capsule is opened after 100 years, all can see we’ve built a truly British company…. I think a strong manufacturing workforce and parts supply chain are characteristic of the UK… I understand it was judging on those factors that we choose to put our first European plant in Britain” (FT, 11 January 2016).
It is undisputable that, on the whole, the manufacturing sector has come out in support of remaining in the EU. This support has been given to a varying degree of success but the positon was well placed by Paul Willcox, Nissan Europe Chairman, following Nissan’s pledge of a £100m investment in its Sunderland plant.
Mr Wilcox stated that “Nissan is a global company and we want to ensure our business has the ability to operate as freely as possible in all markets around the world,” said Mr Willcox.
“Europe is very important to Nissan, it is a growth region for Nissan. We have a very long-term commitment; we don’t manage our business on short-term cycles. Sunderland is… a beacon for global manufacturing and excellence for Nissan.
“In terms of the mid-term, [the investment] announcement shows there is a commitment, it shows that through to 2020 we have made an investment.”
He further commented that “The two things (investment decisions and the result of the referendum) are not completely linked, as we manage and judge our business on events that we understand.”
“Our position in terms of competitiveness is driven by not only the situation in Europe in terms of whether we are in or out of the EU but more importantly the commitment of the people we have in the North East; the supply chain we have in the UK.”
What can be inferred from this is that manufacturing industries, such as the motor industry are keen for the UK to stay within the UK, however, it is unlikely UK production would cease in the wake of Brexit and there is definitely sense in developing global relations. Nevertheless, what is also clear from Wilcox’s comments is that should business become too difficult to maintain, following a poor trade agreement, the probability of moving production may become more likely.
Whilst it is undisputable that emerging economies will play a vital role for the UK’s manufacturing sectors in the future, this is unlikely to take real effect or potentially overtake the UK-EU levels of import/export, for many years. It is essential that the manufacturing industry continues to make strong trade agreements with countries such as China and India but these should not yet be solely relied upon. Volume manufacturers in the UK such as Honda, Nissan, Toyota, and Vauxhall, have the largest export market in the EU. ‘For premium manufacturers such as BMW Group and Jaguar Land Rover, approximately 40% of their vehicles are sold within the EU [alone] with the rest sold in non-EU markets’*. These figures should not be underestimated but also not feared. Manufacturing will not halt in Brexit but it is debatable to what extent it will continue to flourish in the UK and grow at its current speed.
*(KPMG interviews with SMMT members (2013-2014) and LMC Automotive Quarter 4, 2013 Global Car and Truck)