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NAA Event Review: Planning for Brexit

The NAA ran an event in January at GEFCO in Speke which looked at the potential impacts of Brexit on the automotive industry; here’s a summary of what you need to know about planning for Brexit, and an overview about the event host, GEFCO…

Prior to the Brexit presentation, Craig Allen, Regional General Manager, GEFCO UK, gave a presentation about the venue for the event, the company’s new £10m ‘Halewood Operations’ facility in Speke. The site, known as a ‘Sequencing Centre of Excellence’, only opened recently, in August 2017.

GEFCO is a global payer in industrial logistics, and the only logistics company that offers an ‘end-to-end package’ – including in the automotive sector. The company, which employs 12,000 people worldwide, used to be exclusively owned by Peugeot Citroen, but recently Russian Railways have taken a stake in the company.

GEFCO’s background includes managing the inbound supply of components for Peugeot Citroen, such as dashboard assembly and sub-assembly, including handling the finances and logistics. Today GEFCO is involved in ever-wider business activities, and the Halewood Operations facility was set up to supply vehicle wiring harnesses to the Jaguar Land Rover factory in Speke. These are now VIN-specific harnesses, meaning that individual harnesses are manufactured for each of the Evoque and Discovery Sport vehicles that roll off the JLR production lines. Each harness only has the wires that it needs, so saving weight – although it was noted that the weights of the harnesses are still increasing, and this is likely to continue (up to 30-35kg) as JLR moves to more electrification of its model range.

NAA members were also given a behind the scenes tour of the Sequencing Centre, which showed how GEFCO ensures that wiring harnesses are supplied to JLR’s Halewood factory ‘just in time’ for the build of the vehicles.

Being in an environment where components had travelled across Europe to be fitted to JLR vehicles which were then due to be exported back into Europe was a very appropriate backdrop to the presentation from Matthew Clark, Head of UK Customs & Excise and International Trade Team at PwC (PricewaterhouseCoopers), about the implications of Brexit for the automotive industry.

Matthew explained that there were certain ‘black and white’ trade parameter scenarios for Brexit, but there was one element that was unpredictable: politics.

Brexit will be the most fundamental change for the UK since we joined Europe. Transitional arrangement are still being discussed, but lots of companies are taking action and preparing for Brexit now.

Article 50 allows for a two-year negotiating period. The big issues should have been resolved in detail by October 2017 in order to start trade negotiations, but they haven’t; instead we have a ‘general agreement’. Matthew’s view was that the time period to agree everything with the EU is too short and will have to be extended.

There are three different scenarios: a withdrawal agreement with transition (giving both sides two years); a withdrawal agreement with no transition (the UK leaves the EU and then at a later point reaches agreement with the EU); and the ‘cliff edge’ (the UK leaves the EU with no agreement – the outcome we need to avoid).

If there was a free trade agreement, this would mean that there would be no customs duty over border. However conventional wisdom says that if the UK leaves the EU then we would lose access to the free trade agreement. That should leave us with a World Trade Organisation (WTO) agreement, which would be the cliff edge scenario and doesn’t provide anything – we would trade with Europe like we do with China or the US.

Currently we can transit a package across into Europe with minimum paperwork; if we lost this ability, “lots of data sets” would be needed – which would mean that items would take much longer to travel across borders – but the big difference would be that customs duty would become payable when crossing the border. Duty rates vary from 0-15%. However the customs duty for exporting vehicles to some countries in Asia under free trade agreements is 100-150%.

Additional customs duty would have the biggest impact on industries with the largest volumes of goods entering and leaving Europe – sometimes more than once – such as the automotive industry.

To get round paying much higher taxes, many companies are currently looking at bonded customs warehousing facilities, which can take 6-9 months to arrange.

Matthew’s summary was that Brexit will mean, at a minimum, that lots of admin will need to be done by automotive companies exporting into Europe. At worst, significant customs duties will have to be paid. But perhaps of the most concern was the suggestion that there are likely to be a number of years of ‘pain’ for the UK automotive industry until all the required new systems and paperwork are in place.

Despite the issues outlined above, at the time of going to print with this newsletter, Downing Street has said that the UK will leave the EU customs union.

The NAA is intending to run further events on the subject of Brexit. Please take a few moments to complete the survey at the link below so we can organise the most relevant events for you: www.surveymonkey.co.uk/r/JTDCGQD

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