Trade barriers: Employment, sustainability and growth of the mobility industry at stake
IN CONVERSATION WITH
Today the Commission publishes its new trade strategy, December saw last-minute deals with China and UK and there is a different sound coming from a new administration in Washington. Are the days of trade wars and uncertainty over or will climate change concerns and supply chain disruptions (semiconductors) require a change of direction? CLEPA’s Nils Poel talks with two experts in the trade field, Nadia Bouzenzana, Senior Director International Trade at Garrett Motion, and Dr Stephan Müller von Kralik, Director Business Development Emerging Markets and Director Global Processes Sales at Webasto. Nadia is the incoming Chair of the CLEPA Trade Working Group (WG), taking the baton from Stephan who led the group over the past four years.
NILS: COVID-19 and Brexit seem to have dominated the European trade agenda in 2020. Were there any other “lesser-known” challenges in 2020 that the industry needed to overcome?
NADIA: Yes, absolutely. Taking a step back, unpredictability may have been the biggest challenge. There were (and continue to be) trade conflicts between the US, China, India, the EU and other countries, adding to this the COVID crisis while the economy was already slowing down. It has resulted in a lot of uncertainty and limited businesses in their ability to plan for the middle and long term. Global trade facilitation and market access are critical for our economies to grow; protectionism often does the opposite. Tariffs should not be used as a geopolitical tool as it causes instability, triggers retaliation and hence often causes even more tariffs, hurting prosperity and economic growth. Together with the US association for automotive suppliers, MEMA, CLEPA therefore worked hard to provide policymakers with an understanding of the ramifications of auto–specific tariffs on EU and US trade over the past years. We avoided the tariffs, but the damage of years of uncertainty remains real in the form of delayed investments or adapted supply chains. 2020 was an unprecedented and challenging year for all of us as the global sanitary crisis hit us in an already unstable trade and economic environment. And then, I have not even mentioned the Brexit preparation with a last-minute agreement and obviously not forgetting the planning for recovery.
NILS: Mentioning Brexit. Does the trade agreement sufficiently serve our industry’s interests?
NADIA: Brexit is no walk in the park. It’s been several years of preparation, and the last-minute agreement made it challenging for businesses to get prepared. We lobbied hard for a deal that protected our supply chains and have avoided the worst. This deal will facilitate trade in the long run, but there is a lot of fine-tuning needed. The CLEPA Trade Working Group has seen that there is a lot of confusion on the interpretation of the agreement among the many stakeholders involved on the business side and does not underestimate the fact that this deal is implemented by 28 different Member States. Nevertheless, this agreement will evolve, and the worst-case scenario has been avoided.
STEPHAN: Indeed, Brexit was a major issue on our front doors, looking at the size of the trade flows and level of sectoral integration. The deal being last-minute created additional difficulty by giving very little time for industry to implement all the details required by this trade agreement. Suppliers need to get the systems up and running in record time. And, to obtain tariff-free trade you often depend on information provided by your suppliers further down in the supply chain as well.
NILS: The other big cause of uncertainty, was the EU-US relationship. Can we say things look more promising?
STEPHAN: The statements of the new US President Biden suggest the return of the US as a strong and reliable partner. The question remains when the EU and US can agree on how to resolve the legacy disputes of the past four years.
NILS: The industry is looking now into the growing issue of the semiconductor shortage due to a strong demand of electronics all over the world. How is this going to impact automotive suppliers?
NADIA: There is a global shortage affecting our industry. Suppliers either run out of chips themselves or are impacted on the demand side as OEM’s are forced to delay production. We need to say what role trade and industrial policy could play here. The US is currently also looking into the issue and closely working with the automotive industry. This may be one of the topics where it would make sense to cooperate with our US sister association MEMA. It will be a balancing act between avoiding singular dependencies on specific regions and avoiding protectionism. If trade and competition are replaced by technological rivalry, we end up with a problem that could hurt everyone. We already see this happening with export controls that could increasingly be used to monopolise technologies rather than to address legitimate concerns about global security.
NILS: To put it simply, what should we be more concerned about, the current shortage of semiconductors or the risk that policy responses ultimately end up in protectionism?
STEPHAN: The automotive business world is changing at a high pace and this makes it critical that we have significant investment and access to a global, sizeable market. The Commission’s aim is open strategic autonomy and I think there are areas where we need to reassess the balance between integration and specialisation on the one hand and singular dependencies on the other. How do we balance this requirement which is now turning into a problem and how do we discuss it with policymakers and other organisations? I think those are questions we can discuss as a Trade Working Group to further define our position.
NILS: On the relation of the EU with other markets, what should we be looking into in the upcoming years?
NADIA: We see major growth in Brazil, India, China, and South East Asia. In particular, India and China remain important, and we should put more focus there and ensure we work on the development of the right policies and agreements to expand our market access in those regions. They remain important for their capacities as sourcing, manufacturing and markets for our technologies. We should develop the right strategies to work on partnerships with those countries together with our policymakers.
STEPHAN: Nadia is right. India will take time, but there is a mutual interest. Their automotive sector could benefit hugely from investment and India has an automotive export surplus. It is up to the automotive industry to support the European Commission (DG Trade) to help continue making the case. The FTA with Mercosur took 20 years to negotiate, but at the end there was a deal. These things take time.
NILS: Stephan, talking about the Mercosur FTA, you have always been very clear about the importance of this deal for our sector, but ratification is still uncertain. Do you think the economic benefits of these deals get the attention they deserve, or do you see work for CLEPA on this issue?
STEPHAN: A Free Trade Agreement simply means “it’s not over”. On Mercosur we have a very interesting task. The job of DG Trade is done: we have a Free Trade Agreement. Now it’s up to politics and the nations to succeed in making it a reality. The associations in Europe, not only from automotive, should join the Commission in their effort to get the FTA released.
NILS: After a general overview of the trade world in 2021, let’s zoom in on the role of trade in CLEPA. Nadia, how do you see this going forward? What can the Trade WG bring for members?
NADIA: CLEPA is a great organisation to provide ONE voice for all the automotive suppliers in Europe, but it also has a global touch, because their members are global companies with manufacturing and R&D sites everywhere. It’s a very big chance for a group like this one to have a voice towards the European Commission. I see that there is a lot of exchange and consultation between this group and the EU Commission on major initiatives. This combined with the partnership of other automotive trade associations in different regions makes this group very efficient. The group is really a great means for us to channel issues, opportunities and suggestions to the policymakers. There is also a lot of exchange happening within the group on best practices.
In the mid– to long-term, technological and climate protectionism could be a real risk. I call it “technology protectionism” because sometimes export control rules are set up to protect some technologies to be introduced into ‘rival’ markets. Tariffs could be re-introduced or increased on the false pretence of mitigating climate change or security threats. We need to monitor those trends and new regulations. It is clear that trade of innovative technologies will play a key role in addressing climate change concerns, so there should be no place for tariffs or sanctions in an effective climate change and security threat mitigation strategy.
NILS: Stephan, perhaps you could complete the picture, as you have also been an active member in the area of Technical Regulations within CLEPA?
STEPHAN: I very much agree with the picture presented by Nadia. I would like to highlight one element: the risk of rising trade barriers, in particular, sustainability. The European Commission has put sustainability as one of the four pillars for the next decade. What will sustainability mean for the future of automotive suppliers and our products, towards our customers, as part of our exports? Will there be trade barriers in sustainability of automotive parts? There is a big possible risk, not yet defined. This topic should be discussed with the European Commission before the pressure starts to build between policymakers and our customers, which are the automotive manufacturers.
CLEPA’s Trade WG gathers, evaluates and discusses the trade impact between the members to be able to identify and describe activities needed by policymakers, associations, and companies, to manage and overcome negative impact or develop new opportunities. Sustainability could also be an opportunity, because in Europe we are really good at adapting to new regulations in a fast and efficient manner.
In: CLEPA News, Growth & Competitiveness, Trade