Do you work in the automotive & mobility industry in the UK? Do you manufacture or sell vehicles, or parts of vehicles, in the UK? Are your manufacturing activities, suppliers, customers or contracting parties located in the UK?
Brexit will affect you. What should you do now?
WHAT IS THE LATEST ON BREXIT?
Unless there is an extension of Article 50, the UK will leave the EU at 11.00pm UK time on 29 March 2019.
Currently, the UK is still part of the EU and EU law still applies in the UK. On leaving, the UK will become a "third country".
EU law will be transposed into UK law.
The UK Government plans that the European Union (Withdrawal) Act will transpose all EU law directly into UK law. Assuming that happens on day one after Brexit, the law in the UK will still be the same as it is currently and the same as in the EU. Post-Brexit, the UK Government can then decide whether it wishes to make changes to that UK legislation.
But it's not that simple in practice.
Transposing over 40 years of legislation is not straightforward. There are numerous references in EU law to a company or person needing to be present within the EU, or the involvement of an EU institution or agency, or access to an EU system or database, which cannot simply be transposed. The UK cannot unilaterally legislate to continue participating in those EU bodies and systems. Depending on the outcome of negotiations with the EU, the UK may need to set up new bodies and systems to enable parts of UK legislation to operate post-Brexit.
The withdrawal terms are agreed in part.
The EU27 and Theresa May have reached agreement on a draft Withdrawal Agreement, which sets out the terms on which the UK will leave the EU. It includes provision for a "transition period" after the UK leaves to give businesses time before the new arrangements apply. The Withdrawal Agreement cannot take effect unless it is approved by UK Parliament known as the "meaningful vote". This sets out what will happen to existing products and licences in the UK and EU27 on withdrawal. However, the UK and EU27 are still discussing some key provisions, such as the role of the ECJ.
Possible extension of Article 50.
On 20 March 2019 Theresa May requested an extension of Article 50 to 30 June 2019, so that MPs have more time to consider the UK Government's deal.
THE IMPACT OF BREXIT ON THE AUTOMOTIVE & MOBILITY INDUSTRY
The key areas affected are trade, supply chain, people and regulation
Ensuring the continued supply and safety of automotive & mobility products is paramount.
The UK automotive & mobility industry relies particularly heavily on unrestricted access to the EU single market, with the UK's supply and trade channels being intrinsically linked with those of the EU27. This means that Brexit has particularly far-reaching consequences for the UK automotive & mobility industry. Delays at the new UK-EU border and the additional administrative requirements associated with trading outside the single market are major concerns.
Trade tariffs and rules of origin
The majority of cars produced in the UK are exported to the EU and 79% of all parts used in the manufacture of UK cars are imported from the EU. Following Brexit, without any other preferential arrangement, tariffs on components or finished vehicles – set at WTO level or other level - will apply for EU/UK trade. This could result in an overall cost increase of c. 15% for automotive manufacturers in the UK. To minimise costs to businesses and consumers while protecting the automotive industry, the UK has designed a temporary tariff regime that will allow car components to be eligible to duty-free access to the UK market. Finished automotive vehicles, however, will be subject to payment of customs duties. Additionally, EU FTAs, such as the EU-South Korea FTA, the EU-Japan Economic Partnership Agreement or the EU-Canada Comprehensive Economic and Trade Agreement, will cease to apply to the UK. As a result, trade between the UK and those countries will be based on "WTO terms" rather than on preferential origin terms.
Customs delays: the principle of "just in time manufacturing"
Any customs controls at the border following Brexit would jeopardize the principle of "just in time manufacturing" (JIT), on which the success of the UK automotive & mobility industry hinges. To mitigate the impact of delays at the UK border, the UK has put in place customs facilitation measures for goods coming from the EU in case of a no-deal Brexit: the Transitional Simplified Procedures (TSP) and the exemption of Entry Summary Declarations (ESD). Conversely, the EU 27 are announcing different customs processes to facilitate border controls in case of a no-deal Brexit. France for instance announced that it would introduce a smart border system to streamline customs controls on trade between France and the UK.
Key people risks
Any restriction in the free movement of people would also pose a significant challenge to the industry as EU nationals make up at least 10% of the UK's manufacturing workforce. Brexit could impact the ability for businesses to recruit and access EU talent.
Key regulatory risks
Given that the automotive & mobility industry is subject to a wide range of EU regulations spanning issues such as technical, safety and environmental standards, the industry will experience heavy disruption if regulatory alignment is not maintained. Therefore, the UK Government and industry are seeking close co-operation for limited regulatory divergence.
Possible regulatory implications may include:
Type approvals: Type approvals issued by the Vehicle Certification Agency will become invalid in the EU27. This means that in order to sell vehicles in the EU, companies holding such type approvals are required to apply for type approvals to be re-issued by another body which is authorised by the EU. Manufacturers would have to cease production until type approvals are obtained. Note that products that have been "placed on the UK market" before Brexit day will continue to benefit from free movement to the EU market.
Environmental standards: UK law may begin to require vehicle manufacturers to adhere to different limits for exhaust emissions than those set by the EU. This would require manufacturers to produce slightly different vehicles, which could increase costs.
WHAT SHOULD YOU DO NOW TO PREPARE?
For detailed advice on how to identify areas of legal and commercial business risk created by Brexit and contingency planning, visit our Brexit toolkit: hoganlovellsbrexit.com/brexit-toolkit
Much about Brexit remains unclear so deciding what changes to make and when is challenging. However what is clear is that you should make sure you have identified potential impacts and have a contingency plan in place so you are in a position to move quickly.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.