UK car­mak­ers could face EU ex­port tar­iffs of 10%

Brexit sub­si­dies for car­mak­ers could top wage bills

Kuwait Times - - BUSINESS -

Com­pen­sat­ing car­mak­ers in Bri­tain for any post-Brexit tar­iffs on ex­ports to Europe could see the gov­ern­ment hand the com­pa­nies more money than they need to pay the salaries of all their Bri­tish work­ers, a Reuters anal­y­sis of cor­po­rate fil­ings shows. Ja­pan’s Nis­san said in Septem­ber it would only com­mit to new UK in­vest­ment if it re­ceived a guar­an­tee of com­pen­sa­tion to off­set any such tar­iffs. Last week, it agreed to build new mod­els in the coun­try after Prime Min­is­ter Theresa May as­sured it the gov­ern­ment would pro­vide sup­port to pre­serve its com­pet­i­tive­ness in the EU mar­ket after Brexit.

The na­ture of the Nis­san deal - which gave Bri­tain a cru­cial cor­po­rate en­dorse­ment as it pre­pares for life out­side the Euro­pean Union - is un­known. The gov­ern­ment said there hadn’t been a “de­tailed and spe­cific” agree­ment on tar­iffs. If Bri­tain does not se­cure a free-trade deal with the Euro­pean Union, car­mak­ers in the coun­try could face ex­port tar­iffs of 10 per­cent - the level the EU im­poses on cars im­ported from out­side the bloc.

The cost of com­pen­sat­ing Nis­san, which has 2.9 bil­lion pounds ($3.5 bil­lion) of an­nual EU ex­ports, would be 290 mil­lion pounds a year. That would ex­ceed the com­pany’s Bri­tish wage bill, which was 288 mil­lion pounds in 2015, ac­counts for Nis­san’s main UK oper­at­ing unit show. The pat­tern is fol­lowed across Bri­tain’s car­mak­ing in­dus­try. Reuters ex­am­ined the ac­counts of eight of the big­gest car ex­porters, in­clud­ing Jaguar Land Rover, Toy­ota, Bent­ley, Mini, Rolls-Royce, As­ton Martin and Honda, which are all for­eign-owned. Their wage bills av­er­aged 7.5 per­cent of to­tal oper­at­ing costs and 7.7 per­cent of turnover. This sug­gests the cost of tar­iffs on ve­hi­cles ex­ported from Bri­tain to the con­ti­nent levied at 10 per­cent of turnover - would ex­ceed the wages paid to Bri­tish work­ers to build those ve­hi­cles.

Bil­lion pounds

The UK Of­fice for Na­tional Sta­tis­tics and the So­ci­ety of Mo­tor Man­u­fac­tur­ers and Traders in­dus­try group do not com­pile fig­ures for the value of car ex­ports to the Euro­pean Union. But a Reuters es­ti­mate based on cor­po­rate fil­ings and com­pany state­ments sug­gests they to­taled over 10 bil­lion pounds in 2015 - around 40 per­cent of UK car­mak­ers’ ex­ports.

This would mean car­mak­ers in Bri­tain could face ad­di­tional tar­iffs of over 1 bil­lion pounds a year after Brexit, if the gov­ern­ment does not se­cure a free-trade deal for the in­dus­try. Kevin Farnsworth, a pro­fes­sor of so­cial pol­icy at the Univer­sity of York who has re­searched and writ­ten ex­ten­sively about gov­ern­ment sub­si­dies, said the cost would go be­yond any pre­vi­ous sup­port of­fered to Bri­tish in­dus­tries. “A sub­sidy of this mag­ni­tude would be huge,” he said. “An on­go­ing com­mit­ment to sub­sidise a com­pany would be un­prece­dented.”

When asked about the gov­ern­ment’s plans for sup­port­ing car­mak­ers, a spokesman for the Depart­ment for Busi­ness, En­ergy and In­dus­trial Strat­egy re­ferred to com­ments from min­is­ter Greg Clark at the week­end, when he said the gov­ern­ment be­lieved it could se­cure a trade deal with Europe that would not in­volve tar­iffs on ve­hi­cle im­ports or ex­ports. How­ever such an out­come is far from as­sured. The big­gest Euro­pean busi­ness lobby groups, in­clud­ing some which have car­mak­ers such as Daim­ler and Volk­swa­gen as mem­bers, have urged their gov­ern­ments not to grant Bri­tain sin­gle mar­ket ac­cess with­out fol­low­ing all the EU’s core rules - some­thing Bri­tish min­is­ters have said they do not want to do.

‘High-level com­mit­ment’

Clark told the Times news­pa­per last week that the Nis­san deal had been a “high-level com­mit­ment” and that it did not go into de­tails on is­sues like com­pen­sat­ing the com­pany. Some an­a­lysts have said that the gov­ern­ment could make good on its prom­ise to keep the UK car­mak­ing in­dus­try com­pet­i­tive post-Brexit, with­out fully mak­ing up the cost of tar­iffs be­cause ex­porters are al­ready ben­e­fit­ing from the sharp drop in ster­ling since the June vote to leave the EU.

For car­mak­ers, key ster­ling-de­nom­i­nated costs - where they would ben­e­fit from the cur­rency’s weak­ness - are wages and lo­cal pro­cure­ment. How­ever, their wage bills as a pro­por­tion of oper­at­ing costs are mod­est com­pared with many other sec­tors, such as bank­ing and phar­ma­ceu­ti­cals. Only 37 per­cent of the UK au­to­mo­tive in­dus­try’s to­tal sup­ply chain spend was sourced lo­cally, ac­cord­ing to a 2014 re­port from ac­coun­tants KPMG. Much of that was sup­plied by com­pa­nies whose prod­ucts used im­ported raw ma­te­ri­als and com­po­nents.

This all sug­gests that for UK car ex­porters to re­main com­pet­i­tive in Europe, if Bri­tain does not se­cure a trade deal, they will need sig­nif­i­cant fi­nan­cial sup­port from gov­ern­ment. Even if the gov­ern­ment made good only half of the tar­iffs that the ex­ports of a com­pany like Nis­san faced, this would rep­re­sent a level of sub­sidy that far ex­ceeds prece­dents. Nis­san’s main UK oper­at­ing unit em­ployed 7,240 work­ers last year. If the gov­ern­ment did sub­si­dize the com­pany just 145 mil­lion pounds a year to make up for half the 10 per­cent tar­iff on its ex­ports, the cost would rep­re­sent 20,000 pounds a year. —Reuters

DUBLIN: A del­e­gate walks through the Royal Hospi­tal Kil­main­ham, the venue of the All-Is­land Civic Di­a­logue on Brexit, in Dublin, Ire­land yes­ter­day. —AFP

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