Introduction

  1. The Society of Motor Manufacturers and Traders (SMMT) is one of the largest and most influential trade associations in the UK, representing the automotive industry in the UK, both in the UK and globally. SMMT members cover the journey of vehicles from cradle to grave – whether they are car, van, truck, bus, coach, taxi or specialist vehicles – from component design and manufacture through to vehicle production, maintenance and end-of-life.

 

  1. The automotive industry is a vital part of the UK economy, integral to growth, the delivery of net zero and securing the UK as a global trade hub. It contributes £93 billion turnover and £22 billion value added to the UK economy and invests around £4 billion each year in R&D. Currently, 198,000 people are employed directly in manufacturing and some 813,000 across the wider automotive industry. Many of these automotive manufacturing jobs are located outside London and the South-East, with wages that are around 13% higher than the UK average, and in highly skilled roles. The automotive sector also supports jobs in other key sectors – including advertising, chemicals, finance, logistics and steel.

 

  1. The sector accounts for 13% of total UK exports of goods with more than 140 countries importing UK produced vehicles, generating £115 billion of trade in total automotive imports and exports. Accordingly, an ambitious trade and export strategy is crucial for the sector’s future growth.

 

Trade and Economic Growth

Q.1 - What should be the government’s ambition for the contribution from trade in helping deliver the fastest growing economy in the G7?

 

  1. SMMT supports a new UK trade strategy that puts trade in manufactured goods and the automotive industry at its heart. Failing to do so would endanger the UK’s role as a leading exporter of industrial products and its standing as a global trade powerhouse. UK automotive is an export driven sector and growth opportunity for the UK with 8 out of 10 cars produced for export.

 

  1. For the UK automotive industry, it is impossible to imagine a UK growth strategy that does not take into account the needs, aspirations and growth potential of our advanced manufacturing sector. Subsequent administrations have sought to achieve £1 trillion in UK exports by 2030, and growth in our sector is necessary if this is to be delivered. More than £20 billion of investment was committed into automotive and battery manufacturing in 2023 and the sector has fully regained its status of international trade powerhouse, consistently generating more than £100 billion in imports and exports of all types of automotive goods. According to the ONS, in the 12 months to June 2024, the sector was worth £46.8 billion in exports and remained Britain’s largest exporter of manufactured products, increasing its share of these exports to 13.9% despite a drop in volumes of production.

 

  1. According to the UN, last year the UK was the world’s fourth largest exporter of goods and services, behind only China, the US and Germany, with more than $1 trillion worth of exports (approximately £870 billion). The WTO-UNCTAD estimate that exports of UK automotive products contributed more than $50 billion worth of exports to the overall UK performance (more than £40 billion). Today, without exports of automotive products, the UK would lose its position as one of the world’s top five exporters and slip to the sixth place, behind France and the Netherlands. Tomorrow, growth in automotive goods’ exports will be crucial to maintain the UK’ place among the world’s largest exporters.

 

Q.2 - How can the UK’s trade strategy better align with the government’s new industrial policy, and the UK’s known comparative advantages?

 

  1. The new trade strategy must work hand-in-hand with the UK’s Industrial Strategy and environmental priorities, with harmonised timelines and key milestones, instead of being developed in silos. Not doing so would result in an uncoherent business environment, with uncoordinated objectives and timeframes that could undermine the UK’s position as an attractive investment destination.

 

  1. The vast majority of the UK’s automotive exports are delivered by inward investors, attracted to the UK by our preferential access to the EU and other major export destinations, our competitive economy, our extensive and highly developed supply chains, our skills, engineering and technology base. Companies from Asia in particular are investing in manufacturing capacity in Europe, meanwhile the UK urgently needs to attract investors to build a modern e-mobility supply chain. So an industrial strategy supporting UK manufacturing competitiveness is essential to delivering exports, including by growing domestic content needed to meet origin requirements set by UK Free Trade Agreements (FTAs) and unblock tariff-reduction benefits offered by these treaties.

 

Q.3 What are the most important foreign country and product markets for delivering the fastest possible trade growth?

 

  1. With exports in more than 140 countries, the UK automotive sector is well positioned to capture future global growth in Europe, Asia and North America. The world’s three largest economies have been consistently ranked as the top export destinations for UK-built passenger cars, namely the EU, the US and China, in this order. Other top destinations are Turkey, Australia, Japan, Canada, South Korea, the UAE, Switzerland, Israel and Mexico.

 

  1. According to SMMT’s 2023 Automotive Trade Report, growth markets for new car registrations and production of passenger vehicles between 2022-2030 include China, the EU, the US, India, Brazil, Japan, Indonesia, Thailand, Mexico and the Middle East region.

 

  1. However, while operating globally, our sector is eminently a European trade and manufacturing hub - and will remain so for the foreseeable future. Last year, the EU received 54%% of all UK-built cars and 98% all UK-made vans exported abroad.

 

  1. Last year, 83.6%% of cars exported by UK volume manufacturers were destined to the EU. While premium vehicle manufacturers and Small Volume Manufacturers (SVMs) have a more diversified export portfolio, the EU represents a major destination for these industry segments too, with  28.8% of premium vehicle exports and 15.5% of SVM units destined across the Channel in 2024.

 

  1. In summary, improving the trade relationship with the EU is essential for domestic manufacturers of finished vehicles, for the whole UK automotive supply chain underpinning them, for British consumers and for the overall competitiveness of the UK automotive industry. In this context, resetting our trading relationship with the EU and the broader European region must be a central pillar of the Trade Strategy, in line with the new government’s manifesto commitments. Priorities should include:

 

 

Q.4 - What should be the priorities for new free trade agreements and for trade diplomacy? What are the key barriers to trade in priority markets and how are these barriers best taken down?

 

  1. There is ample space to improve our trading relations with existing top export destinations and new global growth markets using different trade policy tools, including  FTAs, enhanced regulatory cooperation and trade promotion activities.

 

  1. The negotiation, conclusion, implementation and continuous improvement of FTAs must be a central pillar of the UK’s trade agenda. However, comprehensive trade agreements should not be considered as the only instrument available to reach ambitious trade policy objectives. In particular, non-tariff barriers can be addressed without resorting to formal trade negotiations, while tariffs can only be removed through the negotiation of FTAs.

 

  1. In this regard, tariff peaks on automotive products in non-preferential markets are significant. Large markets in South America and South-East Asia remain heavily protected by prohibitive tariffs. An average 35% tariff on passenger cars applies in Argentina and Brazil, the largest potential markets in South America. Prohibitive tariffs on cars are applied in rapidly developing economies such as India (up to 100%), Thailand (80%) and Indonesia (50% tariff peak). Tariffs on parts and components in these countries are equally high.

 

  1. While potential benefits from negotiating FTAs with heavily protected markets could be substantial, so are the associated risks from concluding rushed agreements. When FTAs are pursued, these agreements should:

 

 

Q.5 - How can the UK best support the WTO in addressing its challenges, such as resolving trade disputes effectively, advancing trade liberalization, and ensuring a fair and rules-based trading system?

 

  1. The international rules-based system embodied by the WTO agreements and related institutions has underpinned the automotive industry’s business model for decades. In this context, government should operate to ensure that as many trading partners as possible will continue to abide by the principles of non-discrimination and national treatment.

 

  1. Although major breakthroughs are unlikely, the UK government should lead efforts and broker compromises to reform the WTO, relaunch its negotiating function to address contentious areas including green subsidies and digital trade, form a coalition of the willing to advance global trade rules whenever possible and seek to re-establish the Appellate Body’s role as the main venue to resolve high-profile international trade disputes.

 

  1. The UK government should also consider joining initiatives aimed at preserving an effective rules-based system and seek to include as many counties as possible. One of these initiatives could be joining the Multi-Party Interim Appeal Arbitration Arrangement (MPIA).

 

Q.6 - What is the role of government-to-government relations in driving up trade?

 

  1. Engaging with key trading partners is crucial to improve market access, enhance  cooperation, support the achievement of legitimate policy objectives without resorting to over restrictive trade measures and reduce risks of burdensome barriers to international trade.

 

  1. Key priorities should include:

 

 

 

 

Q.7 - How should the government best safeguard UK trade from the spectre of tariffs?

 

  1. Trade diplomacy is key to seek de-escalation of trade irritants and navigate geopolitical priorities without penalising legitimate trade. In an increasingly conflictual global trade environment, allies and likeminded trading partners should not undermine trade between them. In this regard, appropriate exceptions and flexibilities should be agreed to ensure goods and services from partner countries are not considered a risk when developing sanctions or other trade-restrictive measures based on national security concerns. In the same vein, allied markets should not discriminate between their products when devising incentive schemes and level-playing field provisions.

 

  1. Some key trading partners are increasingly adopting trade-restrictive policies to address national security concerns. Increased coordination with like-minded partners is needed to ensure that the stated objectives of these policies are achieved without unduly undermining legitimate trade flows and to ensure UK supply chains are trusted by international trading partners too. UK businesses would also benefit from new guidelines on how to engage with major geopolitical actors.

Supporting exporters large and small

Q.8 - What goals should the government set itself for improving the UK’s export performance and how is progress towards these goals best measured?

 

  1. Compared with 2024 levels, measures of success could include overall growth in the value of automotive imports and exports; growth in exports of finished vehicles; growth in exports of key parts and components, including batteries; an increase in preference utilisation rates for UK exporters; an increase in automotive goods eligible for tariff preferences; a reduction in average tariffs applied on automotive goods; a reduction in costs of customs compliance; a reduction in lead times and costs of homologation for parts and finished products in third markets.

 

Q.9 - How should the UK Government deliver trade support services - directly, or through existing business support organisations? What is the role of government-to-government relations in driving up trade?

 

  1. See response to Q.6 addressing government-to-government relations.

 

  1. FTAs, trade diplomacy and regulatory dialogue are most impactful on facilitating market access for new vehicle manufacturers and tier 1 suppliers, as these are generally larger companies with awareness of international markets and an international footprint. However, the supply chain, aftermarket and technology companies vary in size from larger firms with international experience to small family owned businesses with limited resources. As such, while broad policy developments are impactful for these business too, more direct support to export is essential.

 

  1. The UK has one of the largest and most wide reaching overseas networks, based in our Embassies and High Commissions. Continued long-term investment in staff on the ground is essential – both British Diplomats and local staff, with the skills and experience to build relationships and offer practical help and advice to UK companies. The value of these staff and their role in supporting business cannot be overstated.

 

  1. Travelling overseas to understand markets and find opportunities is crucial for companies to develop their export strategy and win new business. It is an expensive and time consuming activity, so support from government can make a huge difference. In this regard, a successor to TAP/Tradeshow Programme is sorely lacking. SMMT would like to see a replacement that draws on the best features of TAP, being easy to understand and apply for, with companies meeting the criteria guaranteed to get the funding. Such a programme should also provide support for business development visits, not necessarily involving an exhibition.

 

  1. The support for exporters delivered in the UK is also crucial, to inform and guide companies through services. This should primarily be delivered by staff on the ground, supported by awareness raising campaigns such as GREAT.

 

  1. A trade strategy must consider access to finance, to help companies reduce financial risk and enable them to compete with well-funded competitors. The strategy should address Export Finance support and leverage the private sector. The UK banking sector is one of the world’s largest and most geographically spread, so their support can be financial and practical, through their international operations. In addition, we would encourage the implementation of an easy to administer duty drawback system in addition to the existing duty deferral programs.

 

  1. Export support is crucial for businesses pioneering new technology. For example, the UK has significant homegrown capabilities in self-driving vehicle technology. One British developer is currently deploying its self-driving technology in passenger shuttles in three locations in Florida and California, while another developer has deployed self-driving baggage-handling dollies at six airports around the world, including the world-renowned Changi Airport in Singapore. Given that domestic commercial deployment may not be possible until the full regulatory framework following the Automated Vehicles Act 2024 is completed in late 2027, the new Trade Strategy should now support the export of British self-driving technology to foreign markets where regulation already allows for commercial deployment.

 

 

Q.10 - How should the UK ‘level up’ export performance around the country?

 

  1. Growing automotive exports is pivotal to spread economic growth across UK regions. The UK automotive industry is a vital part of the UK economy, with a domestic presence in regions across the country and an export footprint spanning the globe. All UK regions hosting car assembly operations are strongly export-oriented. According to SMMT’s 2023 Automotive Trade Report, the percentage of cars produced for exports in each individual region ranges from a minimum of 65% in the East of England to peaks of 84% in the West Midlands and 87% in Wales.

 

  1. See response to Q.9 addressing export promotion tools.

 

 

Trade and Economic Security

Q.11 - What are the principal causes of the UK trade deficit and is the UK’s trade deficit sustainable? If not, what adjustments to UK economic strategy are required, and over what period?

 

  1. The UK automotive sector is structured on an export-oriented manufacturing base and a domestic market open to imports. Traditionally, the sector runs a significant trade deficit. in the 12 months to June 2024, the sector was worth £114 billion in total trade, encompassing £46.8 billion in exports and £67.2 billion in imports (Source: ONS).

 

  1. The industry submits that, in itself, the deficit is not harmful to the UK economy or to sector’s growth expectations. On the contrary, growing imports can be indicative of a healthy domestic market and of growing domestic manufacturing activities. Imports are crucial for British consumers, as in 2024 90.8% of the UK new car market is made up of imported vehicles. Imported BEVs, representing 98.3% of the market in 2024, are indispensable to achieve the UK government’s commitment to a 100% reduction of greenhouse gas emissions by 2050 compared with 1990 levels. Moreover, the industry imports £10.3 billion in parts and components, enabling domestic vehicle manufactures to access technologies not available on the domestic market and increase their competitiveness.

 

  1. However, while imports are pivotal to the industry’s business model, the existing deficit is sustainable only if matched by growing exports and domestic manufacturing capabilities, fostered by the forthcoming industrial and trade strategies. As mentioned in response to Q.8, measures of success should include growth in imports and exports, both for finished vehicles and parts, including batteries and related technologies.

 

Q.12 -How does Government best de-risk critical supply-chains and protect UK jobs from international trade vulnerabilities, and what metric could be used to determine whether the UK economy is secure?

 

  1. See response to Q. 13.

 

Q. 13 - Which critical supply chains should the Government seek to de-risk? What imports from which countries should the Government seek to de-risk?

 

  1. While facing major headwinds over the last five years, our sector has demonstrated its resilience and pathway to growth – firmly driven by global trade. After losing a quarter of its total trade value during the pandemic, the automotive industry has strongly rebounded and returned to its pre-pandemic status of international trade powerhouse, but this success is not inevitable and must be carefully nurtured.

 

  1. Trade diplomacy can play a major role in addressing supply chain vulnerabilities, as automotive supply chains and distribution channels remain vulnerable to external shocks. The move to electrification could create additional chokepoints due to the reduction of parts and the concentration of critical raw and refined materials in a handful of countries and increased demand for key inputs of production and commodities from all countries undertaking the same transition.

 

  1. Strengthening the UK and broader European value chain is crucial to reduce dependency from a limited number of suppliers and increase security of supply and economic resilience. The Industrial Strategy must therefore ensure that all aspects of the supply chain can thrive and take into account work undertaken by the recent pre-election Task Forces and Councils across Critical Imports Supply Chain, Critical Minerals and Batteries for example – and lay out if and how these will proceed in future within the new Industrial Strategy ecosystem. Finally, imports of critical minerals will remain indispensable to fuel the industry transition to a net-zero future.

 

Safeguards against a ‘race to the bottom’

Q.14 - How can trade policies be designed to support the UK’s transition to net-zero and support economic growth?

  1. Trade policy tools are crucial to support the transition to decarbonisation and reach Net-Zero objectives. In particular, FTAs can help to reduce tariff barriers on imports and exports of EVs, hydrogen-powered vehicles, fuel cells, batteries and related technologies. Lower tariffs in trade with preferential trading partners can provide benefits to consumers, commercially meaningful opportunities for EV imports and exports and greater integration of EV supply chains.  In this context, existing and forthcoming agreements should ensure that low and zero-emission vehicles and related technologies can benefit from tariff reduction opportunities by setting workable origin requirements.

 

  1. International trade is also key to building a reliable, resilient and robust supply chain for EVs, batteries and battery parts. Extraction of critical raw materials remains concentrated in a handful of countries, such as Australia, Chile, Congo and Indonesia, while China dominates critical minerals refining. In this context, trade diplomacy can play a role tough the negotiation of critical mineral partnerships (see response to Q.6)

 

  1. Recycling of critical minerals and remanufacturing of batteries, engines, transmissions and key components is an essential element to create a modern circular economy and increase supply chain reliability. However, traditional trade policy instruments are unfit to build an international circular economy and tailor-made solutions are dearly needed. An ambitious plan could identify potential cost reduction opportunities for all imports of used products necessary to scale up remanufacturing and recycling operations, including a general authorisation for remanufacturing, recycling and reuse purposes. A dedicated task force could be established to this purpose.

 

  1. As part of this strategy, the UK should seek new export opportunities and enhanced market access for remanufactured and recycled goods, seeking to remove unnecessary import restrictions against used goods in export markets and ensuring that FTAs offer the right conditions to avoid tariffs on exports of remanufactured products. Trade agreements should include language that ensures market access for remanufactured goods, and restricts barriers placed on used goods from being applied to remanufactured products. The Trade Strategy approach to FTA should consider including provisions similar to those in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the US-Mexico-Canada Agreement specific to remanufactured goods are a strong step forward and should be adopted in future trade agreements. Ideally, the UK could discuss with the EU the feasibility of the world’s first cumulation zone for materials used for/obtained from remanufacturing, recycling, reusing.

Q.15 - How can trade policy best ensure ethical standards for human and labour rights within global supply chains?

  1. With few exceptions, international trade diplomacy is shifting its focus from traditional FTA negotiations to other priorities, including trade-related investment measures, level playing field instruments and new corporate sustainability obligations.

 

  1. As already mentioned, government should ensure that partner countries mutually recognise equivalent policy outcomes or link similar regulatory frameworks to avoid needless duplicative efforts and minimise administrative burdens.

 

  1. Given the impact of EU regulations on bilateral trade relations, government should consult and set priorities for the upcoming TCA implementation review in 2026. Areas where additional cooperation is encouraged or mandated by the TCA should be prioritised, including the launch of negotiations to link our respective Emission Trading Schemes (ETS) and discuss to what extent the EU and the forthcoming UK CBAM can be considered equivalent in order to waive related administrative burdens on covered products.

 

  1. In the same vein, Government should work with the EU to mutually recognise equivalent policy outcomes or link similar regulatory frameworks to cut costs, avoid duplicative efforts and minimise or fully waive related administrative burdens on supply chain due diligence obligations, regulations on products obtained from unlawful deforestation or forced labour, and future sustainability related measures that impact UK-EU trade.

 

Q.16 - How should UK trade policy be used to guard against corruption, money laundering, and sanctions evasion?

  1. The industry is fully supportive of the necessity for HMRC to ensure goods move across the border legally and that checks and audits are an essential aspect of HMRC’s functions. Guidance to traders, however, must become much more consistent and transparent. The industry cites confusion over evidence required to comply with Russian sanctions for steel and aluminium products as an example of the challenges traders faced when there was a lack of legal certainty in the DBT-issued guidance over which documentation would be sufficient to border authorities and the slight divergence between the UK and EU approach.

 

  1. A direct communication channel between businesses, the newly-established Office for Sanctions, relevant government department and implementation agencies would ensure enhanced clarity. By engaging directly with manufacturers, authorities can access real-time and accurate information, facilitating efficient customs processing.

 

  1. Since the beginning of the aggression against Ukraine, the UK has championed coordination with allies and like-minded partners as a crucial element of the international response to Russia’s unlawful war. Such coordination has resulted in the adoption of similar sanctions by a large number of countries, including the US, Canada, Japan, Australia, the EU and other European countries.

 

  1. However, coordination is yet to be extended to the implementation of measures and facilitations to smooth trade between countries applying similar regulations. We encourage the UK government to spearhead efforts to improve coordination after sanctions are agreed and take bold initiatives to foster its leadership by seeking the mutual recognition of partner status between all jurisdictions implementing similar measures. Coordination is also needed to identify proportionate measures to contrast potential third parties’ illegitimate actions aimed at circumventing sanctions though triangulation schemes.

 

 

February 2025