Remain or Leave?: Brexit and the Aerospace Industry
June 17, 2016
In the first of 3 weekly guest blogs, Richard Gale from the UK’s Aerospace & Defence Trade Association, ADS Group, blogs on the UK’s upcoming referendum on the European Union.
In just four days, the United Kingdom will go to the polls to vote on its membership in the European Union (EU) – the first time the British public have voted on such an issue since 1975.
Since the referendum was announced and the campaign began just a few months ago, both sides of the debate here in the UK have discussed a wide range of issues and topics – from the future of the UK economy, to free trade and free movement, and the impact of EU regulations.
But what does the UK’s Aerospace and Defence industry think of EU membership, and what impact could a ‘Brexit’ have on the future of our industry?
At ADS, we commissioned two pieces of research to understand how the EU affects our members. In 2015, KPMG conducted an independent analysis of the key benefits and costs of EU membership. And earlier this year, we surveyed our members – with 70% believing that it would be better for their business if the UK voted to remain in the EU. Opinion on this remains the same whether you are a small or large business (69% remain from SME members; 73% for larger members).
The KPMG analysis showed that our members also cite three key reasons why the UK should remain a member of the EU – the ease of doing business, the ability to access EU investment, and the UK’s influence in regulations and EU policy development.
- Easy access to EU customers and suppliers: EU membership makes doing business with Toulouse and Turin as easy as with Norwich and Newcastle. UK companies are often key suppliers, providing components, critical elements and sub-systems into Europe’s supply chain. The UK’s membership in the EU and the Single Market, as well as the ability to move employees around Europe freely and efficiently, improves our productivity and competitiveness in order to win business, not just in Europe, but also across the world.
- Access to EU R&D funding: Every year, the EU funds almost £100m ($141m) in UK R&D, supporting UK jobs, innovation and exports. On top of this, the UK stands to gain £2.5bn ($3.5bn) in space R&D funding by 2021 if we stay in the EU.
- UK influence over EU regulations: Whether we’re in or out, the UK will have to meet EU regulations to trade with the EU. Staying in means delivering better EU regulations to benefit UK businesses. As a member of the European Union, the UK has significant influence on the setting of standards and regulations both at a global and regional level. As an example, the UK is a key and influential member of the European Aviation Safety Agency (EASA). By leaving the EU, and adopting similar models to that of non-EU countries such as Norway or Switzerland, the UK would likely have to follow the same European regulations implemented by EASA, but would lose the ability to shape their development.
Similar reasons to as why the UK should remain as part of the EU have been voiced across various industries, institutions and nations, from economists at the Federal Reserve, the IMF, the OECD, the Bank of England to the Prime Ministers of Canada and India, the Head of NATO, and the President of the United States.
President Obama was clear in his recent trip to the UK:
“When it comes to creating jobs, trade, and economic growth in line with our values, the UK has benefited from its membership in the EU – inside a single market that provides enormous opportunities for the British people.”
“The European Union doesn’t moderate British influence – it magnifies it. A strong Europe is not a threat to Britain’s global leadership; it enhances Britain’s global leadership.”
(It’s worth noting that the Presidential candidates have also weighed in on Brexit, with Hillary supporting Remain, and Trump backing Leave).
So with the U.S. President emphasising that the EU enhances the UK’s influence, leadership and economic prosperity, what impact could a Brexit have on the UK’s Aerospace industry?
If the UK left the EU, there would be at least two years of discussion between the British government and the EU on the terms of the UK’s exit, followed by a much longer negotiation period on the UK’s trading relationship with the EU.
But that two year window is based on the experience of Greenland, which has 50,000 people and an economy based almost entirely on fishing. The UK has 65 million people and a far more complex economy. Leaving the EU could take longer than the two year window. Far more realistic is the seven years it has taken to negotiate the EU-Canada trade deal.
What if the UK doesn’t get a trade deal after two years? The UK would be subject to World Trade Organisation (WTO) rules (which many in the ‘Leave’ campaign have suggested), which could see the UK subject to any tariffs on goods exported to the EU.
For the UK’s Aerospace industry, these tariffs could amount to around 8% – a significant cost to businesses seeking to improve performance, drive down costs and boost efficiencies. Tariffs such as this could, according to some economists on the Leave campaign, “mostly eliminate manufacturing in the UK”.
Statements such as these are significant, and would have a profound impact not only on the 310,000 jobs which rely on the UK’s Aerospace, Defence, Security and Space sector, but also the £56bn ($79.5bn) in revenue our sectors contribute to the UK economy.
Another aspect where leaving the EU could have a significant impact is long term investment. Employing 15,000 people in the UK, companies such as Airbus regularly make long term strategic investment decisions across its major European sites – investing around £500m ($700m) per year in UK based R&D. If the UK left the EU – becoming less competitive due to lack of influence on regulations, an increase in trade barriers and difficultly in moving employees around different sites – large scale investment would be placed at risk, and with it, the future ability of the UK Aerospace industry to compete with other nations.
So for ADS members, the view on the referendum is clear.
The UK’s Aerospace, Defence, Security and Space industries benefit from EU membership – with access to integrated European supply chains; R&D funding which enables the UK to compete globally, and the ability to influence and shape EU regulation.
Leaving the EU puts at risk these benefits, and risks the UK’s long term competitiveness and access to investment.
In four days’ time, our sectors will know whether these risks become a reality.