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The impact of Brexit on the North East's car and chemical industries

July 19, 2017 9:19 PM

Cllr John Shipley OBELiberal Democrat peer John, Lord Shipley, has spoken in the House of Lords about the north-east of England, its economy and its export dependency on the European Union and what needs to be done to protect the region's interests, and in particular its jobs. He was commenting on the Report from the European Union Committee Brexit: trade in goods, saying:

Crucially, this report gives ample evidence that a hard Brexit would be damaging to the UK economy with our departure from the single market and the customs union. In January, the Prime Minister announced that we would exit the single market and the customs union and seek a free trade agreement. It was the wrong decision. The result of the referendum did not point to any specific status with the EU-it was a decision to leave the EU, but with no clear destination in mind. So the Government are seeking a free trade agreement with the EU, but that cannot be a replacement for what we have now, since we already have free trade with the other 27 members of the EU. If there is no free trade agreement, we will still have to adopt World Trade Organization rules, which will mean that tariffs will apply, such as 10% on cars. Further, as the report makes clear, both a free trade agreement and following WTO rules would require non-tariff barriers to come into effect such as the rules of origin, of which we heard quite a bit earlier in this afternoon's debate. However, those rules of origin would require evidence of substantial local content, and there will be a serious negative impact on those sectors which have an integrated European supply chain.

I will say something further about the impact of Brexit on the automotive and chemical industries, both of which were identified by the committee as important-particularly, of course, to the economy of the north-east of England. Paragraph 60 reminds us that:

"International businesses are not structured neatly along sectoral lines or national boundaries", and paragraph 61 reminds us that:

"The manufacturing and primary commodities sectors are important employers, particularly in regions outside the South East of England. Ensuring that these industries do not face additional barriers to trade with the EU and beyond will be essential to drive growth across the whole country, as envisaged in the Government's Green Paper, Building our Industrial Strategy".

Two issues arise. Some regions are more exposed than others to leaving the single market. Has there been a regional impact assessment of leaving the single market? If not, on what basis was it decided by the Prime Minister that we should leave and not attempt to negotiate staying in the single market? Secondly, do the Government understand that supply chains are international? Paragraph 111 of the report says that the Society of Motor Manufacturers and Traders,

"provided the following summary of the automotive supply chain", which is worth quoting:

"One part can, as part of an integrated supply-chain, travel across the Channel multiple times before the final vehicle is completed. If a tariff is applied to parts, whole vehicles and furthermore customs duties and significant compliance costs for inward and outward processing, this could ultimately make UK automotive companies, and their operations unviable".

That word "unviable" becomes critical.

In January, at Davos, the chairman and chief executive of Nissan said that when the Brexit "package" was made available, Nissan-which accounts for some 28,000 jobs across the north-east of England, directly and indirectly through the supply chain-would,

"have to re-evaluate the situation", and ask the question,

"is the competitiveness of your plant preserved or not?".

That is the key question. Therefore, does the Minister agree that we have to keep tariff-free access to the single market and the customs union to ensure that we are competitive?

Let us take a look at the chemical industry, which is very strong on Teesside. We note at paragraph 87 of the report that:

"Mr Steve Elliott, Chief Executive Officer, Chemical Industries Association … said that tariff-free access to the Single Market was 'the key priority'. The chemicals sector 'faces essentially three tariff levels: 0%, 5% or 6.5%'. The volume of cross-border trade made these potentially significant: 'some 75% of our chemical imports come from the European Union', and 60% of the UK's exports went to the EU. This meant that tariffs would apply to 'both the import … of a raw material … and the export, so there is a potential double whammy if you sit at the 6.5% end'. The CIA concluded that the imposition of tariffs 'would have a significant impact on the competitiveness of the UK to continue to deliver into EU markets'".

Therefore, I repeat the question that I asked a moment ago: have the Government assessed the impacts of Brexit by region and by sector? The committee has done a very good job but we have not heard a response from the Government.

One hundred and seventy thousand UK businesses trade with the rest of the EU, and they are able to trade within the single market using fully computerised systems and without going through customs controls. It is reported that the UK will face 350 million customs declarations a year-effectively 1 million a day. The bureaucracy sounds endless. We need to stay in the customs union, and that is particularly vital for those depending on just-in-time delivery systems.

Much has been said about a free trade agreement, and in my view a lot of it is overoptimistic. I was very struck by paragraph 293 of the committee's report, which says:

"When asked about the feasibility of negotiating the UK's withdrawal and the new trading relationship within two years, Lord Bridges of Headley … Parliamentary Under-Secretary of State, Department for Exiting the EU …, said the Government was seeking to negotiate 'an agreement that covers both … within the two years'. Thanks to the UK's 'unique position because of the way in which our laws and regulations are so entwined with one another … we see it being technically possible to do this'".

It is reported that the Minister of State, the noble Lord, Lord Price, agreed with that,

"arguing that there was 'certainly no reason why an FTA could not be negotiated within that timeframe'".

Therefore, I ask the Minister: is that still the Government's position as there are only 18 months to go? I just draw the House's attention to the fact that the Canada/EU trade agreement took 10 years.

While we are on the subject of free trade agreements, will the Government publish the Treasury paper-described as an internal paper-which says that a hard Brexit would be far more costly than any potential gains from new trade agreements? I ask the Minister whether that unpublished paper will be put into the public domain.

We have heard quite a bit about the need for a transitional agreement. The committee's previous report, Brexit: The Options for Trade, concluded that a transitional arrangement would be essential, and that is undeniable. I agree entirely with the noble Baroness, Lady Verma, on that point-I recall her saying that that would be necessary.

I think that we are now moving into very dangerous waters. We must aim for an EEA-style agreement. The noble Lord, Lord Livingston of Parkhead, helped us by reminding us that many overseas and UK investors are suspending investment until they know what the position with Brexit will be. This is very bad for growth and jobs, and all the indicators of economic difficulty are now there. Also, as we hear with great regularity, other countries are waiting to take investment and jobs out of the UK. Will the Minister tell us what this uncertainty does for the future of UK jobs, particularly in those parts of the country that are very dependent on exporting to the EU?

Finally, the Government said that they wanted frictionless trade-we all want frictionless trade-but without, it appears, thinking through how that would be delivered. Monsieur Barnier has made it clear that frictionless trade is impossible to achieve outside the single market. We cannot have both outcomes: be outside the single market and have frictionless trade. I have concluded that our national interest is to stay inside the single market, and by that I mean that we need to stay inside the customs union-I have heard a number of speakers this afternoon say exactly the same thing. This is fundamental to the economic prosperity of our country and, in particular, to that of regions like mine.