The power of the scale of the EU in trade negotiations

We are continuing our blog series about the UK’s automotive industry and how it is affected by the EU, with this third article. Here, will we explore the power of the scale of the EU in trade negotiations – essentially, how the EU’s considerable influence in the international market affects the outcome and speed of trade negotiations with other countries.

To read the previous part one or part two simply click the links below.

The UK Automotive Industry in the EU – Part One
The UK Automotive Industry in the EU – Part Two

Negotiating trade deals

Trading within the EU is a free market; there are no extra taxes or costs involved when a car is imported between two EU countries – in fact this kind of trade is encouraged. However, outside of the EU many countries take steps to help protect their own automotive industry and use the opportunity to generate additional revenue from importing countries.

Famously, Brazil and India are renowned for their high import taxes, which can see the price of a Range Rover Evoque rise by as much as 125%. Despite these taxes, the international market remains crucial to automotive manufacturers, especially the smaller British marques such as Aston Martin, who are unable to operate separate factories in these areas. In order for these companies to continue to sell cars at a competitive rate in these countries, they rely on political bodies to negotiate trade deals on their behalf. The power and influence of these political bodies is key here – the more they can offer the countries with whom they are negotiating, the better the trade deal will be, and the quicker it will be approved. The UK has a reasonable influence, but it simply cannot match that of the EU.

Very simply, the scale of the EU means that its influence is far more wide-reaching, and a comparable UK negotiation would not carry the same amount of weight, regardless of the UK’s strong trade reputation. The collective bargaining power of the EU helps to break down trade barriers erected by countries attempting to defend themselves against free trade.

Growth of international trade

Expert predictions suggest that over the next 15 years, 90% of global consumer demand growth will be generated outside of Europe and the EU. Preventing trade barriers which restrict the flow of free trade is therefore of tantamount importance, with the negotiations of free trade agreements (FTA’s) crucial to the survival of any country’s economy.

Currently the EU is in the process of negotiating with the USA, China, Russia, Japan, Brazil and India, some of which started as early as 1995. Trade negotiations can take many years to complete – by leaving the EU, the UK would lose much of the progress on these negotiations, and have to start from scratch. This alone could severely damage the UK automotive industry, especially when you consider that 77% of the vehicles manufactured in the UK are exported, with international markets such as China growing at an alarmingly fast rate.

Jaguar Land Rover commented that “being part of a large single EU market puts the UK in a far stronger position, with regard to ensuring free and fair trade with the rest of the world.”

You can read part four here.

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