New report suggests No Deal tariffs would be damaging to global automakers

A new report by rating agency Moody’s suggests that tariffs under No Deal would have a negative impact on the production capabilities of global automakers who are based in the UK.

 In such a scenario, tariffs would be 10% and the agency argues that this would be a hard hit for automakers in the EU bloc who import and export  cars to and from the UK. 

Moody’s vice-president Motoki Yanase said, “The UK production of these automakers is highly interconnected to the EU, and so a ‘No-Deal’ Brexit will create a significant negative impact through various channels, most notably, the cessation of tariff-free automobile trade with EU countries.” 

The UK automotive industry is especially vulnerable since 80% of domestic production was exported last year – half going to the EU.

The Prime Minister Theresa May visited Strasbourg on Monday to hold last-minute talks with President of the European Commission Jean-Claude Juncker. Negotiations resulted in what the Prime Minister called legal assurances to the EU Withdrawal Agreement, which will prevent the backstop from becoming permanent.

The new legal assurances consist of three documents. The first is a joint legal interpretative instrument in relation to the backstop, which builds on the assurances issued in the joint letter by Juncker and European Council President Donald Tusk in January. The EU and UK have agreed in the instrument that it would be inconsistent with “good faith” and “best endeavours” requirements for “either party to act with the objective of applying the [backstop] Protocol indefinitely.” If either party were to act with this intention, the dispute would be brought before the independent arbitration panel. 

A ruling from the panel that one side was seeking to apply the protocol indefinitely would be binding, and could ultimately give the aggrieved party “the right to enact a unilateral, proportionate suspension of its obligations under… the Protocol.” 

The instrument also contains further assurances for Northern Ireland, and a joint commitment to establish a “negotiating track” to replace the backstop with “alternative arrangements.” These alternative arrangements “are not required to replicate [the backstop] in any respect, provided that the underlying objectives continue to be met.”

The second document is a joint statement supplementing the Political Declaration on the future UK-EU trading relationship. This reaffirms the UK and EU’s joint commitment to begin negotiating the future relationship as soon as possible, and makes it clear that the future relationship may apply provisionally pending ratification. It also includes EU recognition of the UK’s commitments on workers’ rights.

The third document is a unilateral declaration by the UK. This emphasises the UK’s interpretation that if agreement on a future relationship is not possible, then the UK would be able to begin “instigating measures that could ultimately lead to disapplication of obligations under the Protocol.”

May said, “The deal that MPs voted on in January was not strong enough in making that clear – and legally binding changes were needed to set that right. Today we have agreed them.” Juncker commented on the deal saying, “Let us be crystal clear about the choice – it is this deal or Brexit might not happen at all,” adding, “It is what we do with the second chance that counts. Because there will be no third chance. There will be no further interpretation of the interpretations and no further assurances on the reassurances.”

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Martin Banks

Martin Banks

Martin Banks is a highly qualified journalist with many years experience of working within the EU institutions. He is an occasional, and highly valued, contributor to EU today, writing on a wide variety of issues.

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