Rebalancing the Economy: Trade and Investment

Written evidence from The Society of Motor Manufacturers and Traders (SMMT).


1. The Society of Motor Manufacturers and Traders (SMMT) is the leading trade association for the UK motor industry, providing expert advice and information to its members as well as to external organisations. It represents companies throughout the automotive sector ranging from vehicle manufacturers, component and material suppliers to power train providers and design engineers. The motor industry is a crucial sector of the UK economy, generating a manufacturing turnover of £51 billion, and contributing well over 10% of the UK’s total exports.

2. SMMT welcomes the opportunity to provide written evidence to the House of Commons Business, Innovation and Skills Select Committee inquiry on rebalancing the economy: trade and investment. SMMT responded to the Department for Business, Innovation and Skills (BIS) call for evidence on the government’s forthcoming Trade White Paper, in which we stressed the need for government to pursue a positive trade policy that looks to encourage manufacturing in the UK and promote the UK as an attractive business location for international investors. Government’s ability to provide long-term certainty for investors will be a key factor in leveraging investment in the UK. An open trade policy that is fair to all sectors is a crucial element in implementing government’s objectives to rebalance the economy and stimulating export and private sector-led growth.

Government’s Trade White Paper

3. As outlined above, the automotive industry is a vital part of the UK and European economy, being the largest investor in research and development (R&D) in Europe at €20 billion, with UK manufacturers supplying over 100 markets worldwide. The automotive sector is a strategic industry in the UK, where the value of UK automotive exports is £26.6 billion. Government should consider automotive as a strength and as an area of comparative advantage within their White Paper.

4. Government must provide long-term certainty to investors that the UK is an attractive business proposition and implement coherent policies that look to leverage investment in the UK. Crucial in this is for government to demonstrate through the White Paper how it will coordinate policies across government departments to create a positive business environment. Government’s approach in its White Paper should take into account how the UK is seen as an investment location compared to other competing locations across Europe and globally. Where specific policies on manufacturing and R&D are key to industrial growth, policies around taxation, business rates and intra-company transfers, for example, are as equally important tools that government can use to attract investment.

5. The White Paper must set out a policy approach that demonstrates not only government’s commitment to their objective of export-led growth but ways in which it plans to work with businesses across sectors in creating value-added opportunities. The White Paper must complement government’s overarching policies that look to encourage sustainable, low carbon growth, and a rebalanced economy.

The role of the Department for Business, Innovation and Skills in supporting exports and investment

6. UK government’s role in trade policy on a national, European and international basis should promote the UK’s export industries, encourage foreign direct investment into the UK to build sustainable industrial capacity, as well as contributing to open, fair and balanced discussions in trade negotiations for UK exporters to take advantage of new markets.

7. As the government department responsible for trade policy, BIS must take into account the opportunities within the automotive sector and how a positive trade and investment policy can assist the industry in taking advantage of opportunities to increase investment in design, development and manufacture of vehicles and components. BIS should ensure that its formation of trade policy and the White Paper complements work being taken forward in government’s framework for advanced manufacturing and growth review.

8. The UK automotive industry has benefitted greatly from direct foreign investment, particularly in low and ultra-low carbon vehicles, as well as supporting the UK production of premium and luxury vehicles. Decisions by global vehicle manufacturers to invest in UK manufacturing and R&D facilities is a credit to successive government policy that has supported improvements in conventional technology and ultra-low carbon vehicles. The automotive industry is at the forefront of the low carbon economy; a trade and investment policy that looks to build on this success and future new opportunities is crucial for the UK to establish itself as the European leader in low carbon industrial and research capacity. This approach will bolster the UK’s competitive advantage, continue to enable automotive to add significant value to the UK economy, as well as having the potential to spur further large scale investments in the sector. Future export capability lies in the successful growth of advanced manufacturing sectors such as automotive.

9. The role of BIS in WTO and EU negotiations on trade is vitally important. In discussions with European Commission officials, BIS should use automotive as an example of an important sector of the economy, where growth potential through exports and investment in manufacturing is communicated as key UK industrial strength. SMMT calls on government and BIS to prioritise an effective, balanced and fair conclusion to the Doha Development Round of WTO trade talks, which mean that improvements to the flexibilities in the Non-Agricultural Market Access (NAMA) chapter should be encouraged. The opportunities to increase international competition as a result of a fair agreement for all sectors will benefit the industry and increase market access for our members.

10. The European automotive industry voiced concerns over elements of the EU-South Korea Free Trade Agreement (FTA), where concessions were given to other sectors of the economy at the potential detriment to automotive. Trade agreements must not look to negotiate sector by sector – a comprehensive assessment of the impacts of trade deals on all economic sectors must be undertaken by UK government before the European Commission opens negotiations with third countries looking to enter into economic partnerships or trade agreements. UK government should call on the European Commission to review its procedures in trade negotiations that have resulted in the South Korea agreement being unbalanced for the automotive industry, with a likely negative impact on the sector. BIS should ensure that unbalanced duty drawback mechanisms and other articles related to Rules of Origin do not set a precedent for future negotiations, particularly in the current negotiation process looking to form a Free Trade Agreement with India.

11. Where the EU seeks to open Free Trade Agreements or Economic Partnership Agreements, BIS has a responsibility to ensure the agreements are truly ‘free’ and include full elimination of all tariff lines and address non tariff barriers. The UK automotive industry is supportive of efforts at a European and international level to facilitate free trade, but the mechanisms by which trade agreements operate must be transparent and truly beneficially reciprocal. Impact assessments should be used to formulate government positions in trade negotiations; ensuring economic sectors such as automotive are not unduly harmed or put at risk. It is crucial that UK government is thoroughly consulting the automotive industry prior and during negotiations. Enabling a positive and coherent approach to EU trade policy will ensure that market and investment opportunities are utilised to full potential.

The role of UKTI

12. The work of UK Trade & Investment (UKTI) is crucial in supporting businesses expand overseas and promoting the UK as a leading location to invest. SMMT has a close working relationship with UKTI and is a key delivery arm for the UKTI Automotive Sector Group as an Accredited Trade Organisation (ATO), providing contract delivery, project management and matched funding for inward and outward trade missions, overseas seminars, trade shows and exhibitions. SMMT supports UKTI activities that support SMEs, and develop market opportunities, particularly though the Overseas Market Introduction Service (OMIS), Export Market Research Study (EMRS), and Tradeshow Access Program (TAP).

The effectiveness of the Export Credit Guarantee Department and the flow of trade credit

13. In the review of support for exporters through the Export Credit Guarantee Department, government should commit to providing assistance as firms emerge from recession and look to diversify and expand their business presence. This type of support should be more accessible than it has been in the past and reflect the constrained business conditions firms have been operating in. This is a key example of where government facilitation can support businesses throughout the automotive supply chain.

14. Other EU member states such as Germany have implemented greater levels of support to increase the flow of trade credit for domestic exporters, as well as providing more substantial support in assisting with export trade credit insurance. Government should review its position in assisting those firms in the UK that are looking to expand their operations and further increase export value. Support to enable more accessible export trade credit insurance for smaller firms is a particularly important in the automotive sector, where many suppliers operate in international markets, and experienced a tightening of the availability of products from financial institutions.

Securing opportunities for growth

15. Government has an opportunity to implement a set of positive business priorities in its White Paper that will present the UK as a leading location for investment, and provide the opportunity for private sector growth. Investments being made in the automotive industry, particularly around low carbon vehicles and technology are key. SMMT hopes that government uses its White Paper to demonstrate how it will spur further investments, strengthening industrial, manufacturing, research, design and development bases.

16. Promoting trade facilitation and supporting businesses through mechanisms such as export trade credit insurance are practical ways in which government can assist firms as they emerge from difficult financial conditions, as well as those companies that are looking to expand overseas. Continued support through UKTI is a crucial element of government’s trade policy, identifying market opportunities for UK business.

17. Government should pursue a considered, balanced and fair trade policy at an EU and international level. The promotion of government’s objectives to rebalance the economy, reinvigorate manufacturing and promote sustainable growth should be communicated through its involvement with European and WTO trade negotiations.

January 2011