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Brexit “Crash Out” From The EU Might Be No Bad Thing

Brexit “Crash Out” From The EU Might Be No Bad Thing.

“A hard Brexit will cost JLR more than $1.5 billion – it’s horrifying, wiping out our profit, destroying investment in the autonomous, zero-emissions (world) we share”

“Trading under the WTO option is my preferred alternative to Chequers, as was – and most certainly is to be preferred to the current “deal”,”

Britain’s deadline for leaving the European Union is approaching and the automotive industry’s horror scenario looms large; there’ll be no deal, and the UK will “crash out” of the EU.

But this “crash out” scenario which industry leaders so passionately abhor needn’t be a problem, according to experts. If there was no deal, Britain could revert to World Trade Organisation (WTO) rules, which currently govern more than half, 56%, of its foreign trade.

Britain is scheduled to leave the EU on March 29, next year.

Last week, Britain’s Prime Minister Theresa May declared her draft Withdrawal Agreement deal had been agreed with the EU. This was welcomed by industry, but failed to get much traction with British politicians, who have to approve it. In a debate in Parliament last week, the terms of the Withdrawal Agreement were roundly trashed by both governing Conservatives and opposition Labourites. The draft deal will be put to Parliament probably in the second week of December for formal approval.

Political commentators in Britain reckon there is little chance of Parliament approving the deal, and turmoil looms. If the deal fails to pass, that might prompt the resignation of Prime Minister May. A replacement PM might seek improved terms from the EU. There might a clamor for a second referendum, or a general election to settle the issue. 

Prime Minister May was in Brussels Wednesday talking to Jean-Claude Juncker, the head of the European Commission about the deal.

Meanwhile Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT), lauded the deal.

Damage limitation
“For the automotive industry, Brexit is about damage limitation. The outline agreement is a positive step in avoiding the devastating consequences of ‘no-deal’ and securing a transition period. It is, however, only a first step and business seeks certainty and ambition when it comes to securing a competitive future,” Hawes said in a statement.

“Truly frictionless trade is the only way to ensure the industry’s future success, and this should be the objective for all parties as we move into negotiating the permanent UK-EU relationship,” Hawes said.

The SMMT represents Britain’s auto industry.

The global automotive industry has been less restrained.

Ralf Speth, CEO of British based and Indian owned Jaguar Land Rover has floated some scary projections if a deal is not agreed. Key industries will be destroyed by a so-called “hard Brexit”, or no deal. Thousands of jobs will be lost.

“Everybody can do the maths. It is very open and very transparent. It is not only at Jaguar Land Rover, but it is also an element for the supplier industry and export industry in the UK,” Speth told The Guardian newspaper.

In another Guardian report, Speth said the prospect of a cliff-edge break with the EU was “horrifying”.

“A hard Brexit will cost Jaguar Land Rover more than 1.2 billion pounds ($1.5 billion) a year – it’s horrifying, wiping out our profit, destroying investment in the autonomous, zero-emissions (world) we share,” Speth was quoted as saying.

Toyota president Akio Toyoda warned about the ramifications of a “no deal”.

“We hope that both the UK and EU governments will continue to make maximum efforts to reach a satisfactory settlement and that a ‘withdrawal without agreement’ is avoided at all costs,” Toyoda said in a statement.

Other objectors include Josh Hardie, deputy director general of the British business lobby group CBI, who said “no-deal” would be a disaster. His view is typical of the business world.

The Brussels-based European Car Manufacturers Association, known by its French acronym ACEA, has also pointed out the damage a “no-deal” scenario would bring to the European industry, which would threaten the business model.

“All (European) manufacturers rely on ‘just-in-time’ and ‘just-in-sequence’ delivery and production, without any delays or obstacles. These parts are in constant transit in trucks, arriving as and when they are needed,” ACEA said in a statement.

“Every day 1,100 EU trucks cross the Channel to deliver to car and engine plants in the United Kingdom alone. After Brexit, even short hold-ups at customs will cause massive logistical problems, disrupting the production process and generating significant costs,” ACEA said.

This is short-term, defeatist nonsense, some trade experts say.

“Trading under the WTO option is my preferred alternative to Chequers, as was – and most certainly is to be preferred to the current “deal”,” said Ruth Lea, economic adviser to the Arbuthnot Banking Group.

“Chequers” refers to a controversial Brexit leaving plan which was announced at the Prime Minister’s country house in July, and which prompted the resignation of Brexit minister David Davies and Foreign Secretary Boris Johnson. Chequers was modified into the current draft Withdrawal Agreement, which is being lauded by Prime Minister May.

Michael Burrage, director of the pressure group Economists for Free Trade, points out that the 56% of Britain’s foreign trading which takes place under WTO rules has grown at a much faster pace that its trade with the EU.

“Do these people forecasting catastrophe (from “crashing out”) have any data to back this up? All this scare stuff about massive delays and motorways blocked by trucks around Dover is fantasy. Car manufacturers might have to tweak their computer programmes a bit and face some initial delays, but it is very difficult to believe that this is going to be devastating,” Burrage said.

No customs requirements
Victoria Hewson, international trade and competition expert at the Institute of Economic Affairs, said it was understandable that the automotive industry wanted to protect its current supply chain which worked well.

“If the system was changed to WTO rules there would be new customs requirements. If handled properly and sensibly – like trading between the U.S. and Canada, and Switzerland and the EU – there needn’t be any disruption or delays,” Hewson said.

Hewson said if the normal procedure of checking 2 trucks per ferry took place, that wouldn’t cause any disruption.

Many members of the ruling Conservative party agree that if there was failure to agree an acceptable deal between Britain and the EU, WTO rules would do just fine.

“Adopting WTO rules would give a lot more certainty and not the gloom and doom that many believe. We should start making preparations now. Let’s get WTO properly understood in the public mood,” Conservative MP Anne-Marie Morris told BBC Radio’s World at One.

Arbuthnot Banking’s Lea, in a report for lobby group, Brexit Central, derides talk of Britain “falling of a cliff” if there was no formal deal and the country had to trade under WTO rules.

“If one accepts that the economic “raison d’etre” for Brexit was to free up the British economy, have scope for regulatory reform and form closer trading ties with the fast-growing parts of the world economy, then the Chequers’ proposals (and subsequent ones were) clearly profoundly flawed. The WTO option, on the other hand, would provide complete freedom for regulatory reform and trade negotiations. It is clearly preferable. It is the forward-looking, global option. Moreover, it, most emphatically, is not about “falling off cliffs” or “falling into chasms” or other such nonsense,” Lea said.

Lea said countries trading under WTO rules had made big progress in recent years to streamline trading.

“Under the landmark Trade Facilitation Agreement, developed countries with adequate resources are expected to install state-of-the-art border systems in order that trade should not be impeded. Most countries now permit traders to submit their customs documentation electronically in advance of the goods arriving at the border,” she said.

“Virtually all submissions of the EU’s own Single Administrative Document, for declaring imports and exports, are now made online, for example. This means that most trade arriving from countries that are members of neither the Single Market nor the EU Customs Union suffer little or no hold up at the border when entering the EU. There is no reason for this to change after Brexit. Streamlined, computerized borders are the norm,” Lea said.

While the European automotive industry has been defending its supply chains and just in time methods in the context of Brexit, many observers must have been saying to themselves that this looks an incredibly wasteful system, in terms of fuel consumed, time taken, truck miles, and highways worn out, and surely there must be a more efficient and centralized way of doing this. Perhaps that will be next controversy when Brexit is completed.




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