Description of Sector
All major global vehicle manufacturers with plants in the UK are foreign owned. In general, the business model for volume vehicle producers is to use UK sites to supply the European market (with alternative sites in Asia and the Americas supplying those markets).
Investment decisions and sourcing choices are often made from European or Global headquarters. Investment decisions are made against a wide range of key
performance indicators (set out in the Automotive Council International Competitiveness report, 2015).
The current EU regulatory regime
The arrangements described in this section are examples of existing arrangements between countries. They should not be taken to represent the options being
considered by the Government for the future economic relationship between the UK and the EU. The Government has been clear that it is seeking pragmatic and
innovative solutions to issues related to the future deep and special partnership that we want with the European Union.
EU Customs Union and Single Market
Articles 28-37 of the Treaty on the Functioning of the European Union (TFEU) set out the Treaty provisions on the free movement of goods, including the establishment of the Customs Union. This has been achieved by establishing the Customs Union within the EU and by preventing Member States imposing customs duties or formalities on goods imported from other Member States. In addition, these rules prevent Member States imposing restrictions on the quantity of imports and exports of a particular item (e.g. quotas or an import or export ban).
This legal framework also prevents non-tariff barriers that may restrict imports and exports in less direct ways, for example, by applying product standards and regulations that make it harder in practice for goods coming from one Member State to be sold within another. The exception is where those restrictions can be justified on certain grounds. The legal framework has been achieved by establishing a common set of product rules, underpinned in many cases by voluntary standards. For goods not covered by those rules and standards, the principle of mutual recognition has been developed (whereby once goods have been lawfully manufactured and marketed in one Member State, another Member State cannot then require it to comply with additional product rules). Finally, goods imported from other Member States must be treated in the same way as goods produced nationally.
Regulatory standards play a crucial role in determining the design and production costs of a vehicle affecting vehicle design, components and manufacturing
processes. The harmonised regulations of the United Nations Economic Commission for Europe (UN-ECE), accepted in more than 50 markets (but not the USA), help to minimise these costs. UN-ECE standards relate predominantly to safety.
The UK Government implements EU legislation on harmonised vehicle standards for relating to all road vehicle manufacturing. This legislation applies across the UK but the national governments in Scotland, Wales and Northern Ireland can make separate provisions for the use of vehicles in certain circumstances.
46. Regulatory barriers are one of the industry’s most significant concerns, in relation to international trade with non-EU markets. These include differences in local testing and certification requirements, and application of technical regulations different to those agreed globally through UN-ECE. Alongside efforts to address regulatory barriers through bilateral and plurilateral agreements, the UK will continue to participate and influence UN-ECE Regulations at the multilateral level.
All new vehicles and trailers sold in the UK must be type approved (whole vehicle approval) by an EU type approval authority prior to registration. This is a process that ensures vehicles irrespective of where they are produced comply with relevant environmental, safety and security standards and account for both the UN-ECE and EU led regulations. The UK type approval authority is the Vehicle Certification Agency (VCA), an executive agency of the Department for Transport.
Whole vehicle type approval brings together all the individual system and component approvals for a vehicle into a single legal document enabling a manufacturer to demonstrate that it complies with all the relevant technical requirements. The manufacturer can then produce subsequent vehicles in conformity with the original approval, and issue a certificate of conformity for each vehicle.
Member States are permitted to implement national schemes for low volume production within certain guidelines. These national schemes are lighter touch and
allow deviation from the full set of EU vehicle standards.
EU Regulations (EC 443/2009 and EC 520/2011) deliver reductions in CO2 emissions from new cars and vans sold into the single market. In short, this works by setting fleet averaged targets for manufacturers. Significant fines for noncompliance are in place, encouraging manufacturers to invest in the development of more fuel efficient and new technologies.
European emission standards (EC 715/2007) define the limits for exhaust emissions of new vehicles sold in the EU and EEA member states. They set limits for emissions of nitrogen oxides, total hydrocarbons, non-methane hydrocarbons, carbon monoxide and particulate matter. The emission standards are set in a series of directives staging the progressive introduction of increasingly stringent emissions standards.
In addition to stringent emissions standards, a new Real World Driving Emissions test will be introduced as part of the European Community (EC) Type Approval process from 2017. This is to ensure that new vehicles more accurately meet the regulated emissions limits when tested in real world driving situations.
Connected and autonomous vehicles
The development of regulation and standards for the operation and use of connected and autonomous vehicles in the EU is emerging. Systems and networks are likely to be run by manufacturers and operators transnationally as well as access networks and systems at national and local level. Standards for systems are likely to be set at international level at UN-ECE. However, operational usage and implementation may be affected by what is allowed under EU Type Approval. EU competency will extend to things like connectivity and Cooperative Intelligent Transport Systems (C-ITS),data flow and privacy, insurance, and infrastructure.
The UK automotive sector has not been a major beneficiary of Horizon 2020 funding. Funding of €21.4 million out of a total of €344.2 million was secured from the Green Vehicles and Road competitions in 2014 and 2015.
EU funding can also contribute indirectly at the business level to the automotive sector – in particular, the range of EU grants and loans for small and medium sized enterprises, and the support for research and innovation, much of which come from the European Structural and Investment Funds.
International rules and standards
The EU Member States, the Commission and the UN Governments, strive to ensure harmonisation is maintained between the EU and UN-ECE with the EU adopting the safety regulations developed in the UN-ECE while the environmental standards of the EU are adopted into UN-ECE regulations. There are no harmonised internationalstandards for a limit on car or van CO2 emissions.
The UK belongs to the UN-ECE 1958 Agreement as an individual member (since 1963) and as part of the EU following the EC joining the UN-ECE in 1998, so ourmembership will continue after exit. The EU has adopted most of the UN-ECE standards, as have other territories like Japan. To sell a vehicle in the EU, the vehicle must be checked by an EU type approval authority (e.g. the VCA). That authority will check that the “whole vehicle” complies with up to 60 separate technical requirements, by ensuring that there is an individual approval for each system on the vehicle (e.g. tyres, seat belts, and lighting).
Approval can be achieved through compliance with UN-ECE regulations where the EU has adopted those regulations or to EU specific legislation where harmonisation has not been achieved. Non-EU countries do not have “whole vehicle” approval, but have their own systems for demonstrating that the complete vehicle is satisfactory.
The UK is well respected in the UN groups and experience over recent years shows that the UK can be influential/instrumental in creating the compromise situations that build consensus whilst delivering UK policy objectives. This plays well to UK interests as vehicle manufacturers favour UN approvals over EU as they provide access to many more markets than an EU approval. The EU is required to accept, as an alternative to an EU regulation, a vehicle that has demonstrated compliance with an equivalent UN-ECE Regulation to which the EU is a Contracting Party.
Rules that affect how non-EU countries are able to trade with the EU
World Trade Organization agreements are the main source of international rules fortrade between the UK/other Member States and non-EU countries. The most wellknown of these agreements, the General Agreement on Tariffs and Trade and the General Agreement on Trade in Services, cover tariffs (import duties) on goods and market access for services (including those in the automotive sector). There are more than 20 WTO agreements to which the EU is a party. These agreements cover, amongst other matters, Rules of Origin, technical barriers to trade, anti-dumping, subsidies, dispute settlement and government procurement. In addition to the WTO agreements, the EU has entered into a range of agreements such as free-trade agreements, association agreements and economic partnership agreements which contain further rules governing trade between the parties to the agreement.
EU legislation has been adopted which implement “domestic” (i.e. within the EU) obligations and/or procedures to be followed in relation to those international agreements.
The UK Government implements the harmonised EU legislation relating to vehicle construction for all new road vehicles. This legislation applies across the UK but the national governments in Scotland, Wales and Northern Ireland can make separate provisions for the use of vehicles in certain circumstances.
Existing frameworks for how trade is facilitated between countries in this sector
The arrangements described in this section are examples of existing arrangements between countries. They should not be taken to represent the options being considered by the Government for the future economic relationship between the UK and the EU. The Government has been clear that it is seeking pragmatic and innovative solutions to issues related to the future deep and special partnership that we want with the EU.
Manufacturers from outside of the EU wishing to export automotive products to the EU need to meet the requirements set out in any applicable EU legislation, in particular vehicle standards legislation. Importers and distributors of automotive products from manufacturers based in third countries must satisfy themselves that the products comply with EU legislation, including type approvals from a type approval authority. These manufacturers would also need to comply with legislative requirements in their home country, and any other countries where they intend to market automotive products.
Countries can use bilateral agreements to reduce the regulatory barriers to operating in different regimes. In the case of vehicle standards, these agreements have been typically integrated into free trade agreements (FTA). One example is the EU-South Korea FTA, which includes a provision on the mutual recognition of vehicle type approvals. The provision establishes that a type approval issued by one party’s “competent authority”, confirming conformity with the relevant UN ECE Regulations, must be accepted by the other party as providing proof of conformity. Both EU and South Korea committed to harmonising their own regulations to UN-ECE regulations or Global Tech regulations within five years.
Other existing agreements, such as the EU-Swiss agreements and the EEA Agreement, provide for further mutual recognition. For example the EU-Swiss mutual recognition agreements includes a chapter on motor vehicles, which allows for mutual recognition of vehicle type approvals, and is linked to an agreement that recognises Swiss legislation as equivalent. Where legislation is deemed equivalent, EU type approvals will be recognised as proving conformity with Swiss legislation, and vice versa. They also cover cooperation on market surveillance of products already on sale.
In the EEA agreement, for industrialised goods (including construction products /machinery and electronics / consumer goods), EEA countries adopt EU product
legislation into their domestic legislation, and goods that originate from these countries are treated as products from Member States. The agreement also includesa system of surveillance and enforcement.
In the automotive sector, product regulations are informed by international organisations which facilitate the development of common approaches across countries, drawing on best practice. These organisations bring together national regulators. For example, the United Nations Economic Commission for Europe established provisions related to safety and environmental aspects of vehicle standards. They include performance-oriented test requirements and administrative procedures which address, for example, the type approval (of vehicle systems, parts and equipment), production conformity and the mutual recognition of the type approvals granted by signatories. The work of these organisations can facilitate similar regulatory approaches across a number of countries, which in turn can help business in operating in a number of countries.
There are many customs facilitation arrangements in international agreements. These include the EU’s agreements with a number of third countries, such as Canada, Korea, and Switzerland. These agreements differ in the depth and scope ofcustoms facilitation offered. Examples of customs facilitations include: simplifying customs procedures, advance electronic submission and processing of information before physical arrival of goods, and mutual recognition of inspections and documents certifying compliance with the other parties’ rules.
In the absence of a preferential trade agreement, goods imported into the EU from non-EU countries must pay a tariff. Tariffs are custom duties levied on imported goods. Under WTO Most Favoured Nation (MFN), a country’s tariff schedule must be consistent for all countries it trades with, except those where a preferential trade agreement exists. EU MFN tariff rates vary depending on the good. The EU’s external tariff on finished cars is 10 per cent whilst tariffs on car components range from 2.5–4.5 per cent.
Rules of Origin
The EU includes rules of origin in all of its FTAs, which are restrictions on the originating content of products that exporters must comply with to gain tariff preferences. These rules typically reflect the supply chains of both the EU and its FTA partner. Many of the EU’s rules of origin arrangements are based on the Regional Convention on Pan-Euro-Mediterranean Preferential Rules of Origin, which includes provisions that allow producers to treat content from some third countries as if it comes from their own country. Several arrangements aim to reduce the administrative requirements associated with origin certification, including the EU’s Registered Exporter (REX) system, which lets businesses register for selfcertification of origin using an online system, avoiding paper certificates.