Auto industry cold on UK joining NAFTA post-Brexit

Nick Gibbs is a UK correspondent for Automotive News Europe.Nick Gibbs is a UK correspondent for Automotive News Europe.
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The UK joining the North American Free Trade Agreement zone is an idea reportedly being floated as an alternative if Britain crashes out of the European Union in 2019 without a trade deal with its European neighbors.

Leaving aside the fact that NAFTA itself is under threat, the idea has some merit for the car industry, at least on paper. The U.S. imports more British-built cars than any other country and numbers are growing — up 47 percent last year to just under 200,000.

For Britain's luxury-car makers such as Rolls-Royce, McLaren and Bentley, the U.S. is their biggest market. It's also Jaguar Land Rover's biggest single export market for its UK-built cars. There's history too — Ford is still the UK's biggest-selling brand.

In practice, the idea is a nonstarter.

"I struggle to think of any upsides," said David Bailey, professor of industry at Aston Business School in Birmingham, central England.

He gives the example of rules of origin, which states that vehicles built and sold within NAFTA must have 62.5 percent local content by value. Right now, average local content for UK-built cars is 44 percent, necessitating a huge swing from EU suppliers to UK or NAFTA ones.

Aston Martin is already fretting about rules of origin post-Brexit with its engines coming from Germany and gearboxes from Italy. "We're a long way from 60 percent," CEO Andy Palmer said. "But I can't see a scenario where we bring engine production back to the UK."

A bigger problem is this: While the U.S. might be the UK's single biggest export market for cars, it's dwarfed by demand from EU member countries, which together bought over half of the 1.7 million cars built in the UK last year.

Automakers in the UK are desperately concerned that looming tariffs and customs barriers between the EU and UK will make doing business with their biggest market awkward and uncompetitive. "The ultimate issue is that 56 percent of exports go to Europe," Bailey said. "NAFTA would not be a substitute for that."

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