The UK's EU Referendum - DeHavilland

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The UK's EU Referendum

This is the second in a series of sector-focused briefings on the UK's referendum on EU membership, looking at the transport sector. It begins by looking at how UK Prime Minister David Cameron's renegotiation impacts the sector, before surveying the key issues at stake for the industry. Finally we look at the positions of the two campaigns and of the sector itself.

Cameron’s Renegotiation

Little has been said about the transport industry in Mr Cameron’s renegotiation. The issue of travel has been discussed almost entirely in the context of migration to the UK, rather than on the ability of individuals to move freely across the continent for work or leisure.

In a recent Telegraph article he suggested that leaving the European Union could have a devastating impact on air travel. He began, “Imagine a world where a British airline wasn’t allowed to fly between Rome and Paris… This is the world we could wake up in if we leave Europe – with the massive knockon effect on jobs, prices and living standards in our country.”

Notwithstanding, Mr Cameron has claimed that, since the launch of the single market, travel has been made easier due to a reduction in airfares.

Mr Cameron has also argued that the single market has led to a “renaissance in the UK car industry,” and it is the manufacturing side of the transport industry which the Prime

Effect on the UK transport industry

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The UK's EU Referendum Minister is attempting to safeguard through his reforms. The final renegotiation attempts to both protect and grow manufacturing industries in the UK by promoting “European competitiveness,” through the pursuit of free trade agreements and the reduction of red tape for business.

European Competitiveness Following the publication of the final deal, Mr Cameron told the House of Commons that while part of the EU Britain had secured commitments to complete “trade and investment agreements with the fastest growing and most dynamic economies around the world.” He stressed that the continued access to global markets and with it the ability to export goods depended on Britain’s continued membership. The text of the renegotiation does not detail the specifics of new trade agreements, but instead guarantees that the EU will, “with renewed commitment, pursue free trade agreements.” This is a message that appears to resonate with the transport industry more so than the alternative arguments provided by Leave. Under the banner of “European Competitiveness” the renegotiation text states that the “regulatory burden on businesses, particularly small businesses, will be reduced.” The position of small businesses on the EU has been the subject of much speculation and claimed by both sides of the campaign. A week after the renegotiation was finalised the Telegraph published a letter signed by 200 small companies in favour of Brexit. However, when it comes to manufacturing, particularly transport related manufacturing, Siemens has argued that lots of small businesses are integral to the supply chain of


larger firms, and thus have a strong interest in Britain remaining part of the European Union.

Impact of Brexit The European transport sector is heavily regulated by the EU, with and the UK’s EU membership brings with it a wide range of EU laws covering rules on market access, safety, security, state aid, the environment, employment conditions, and more. The possible impact of Brexit on transport – including the aviation, automotive, maritime, and rail sectors – depends much on what deal the British government negotiates post-Brexit, and to what extent it will seek to sign up to this existing regulatory framework.

Aviation For both UK and non-UK airlines and airports, the foremost question in the case of Brexit would be that of market access, with the EU’s liberalised aviation market meaning that any airline owned and controlled by nationals of EU Member States is free to operate anywhere within the EU without restrictions on capacity, frequency, or pricing. The loss of traffic rights would have an enormous impact on the aviation sector in both the UK and across the EU. Assuming that the UK would want to maintain these traffic rights, the likeliest course of action in the event of Brexit would be for the UK to attempt to join the European Common Aviation Area (ECAA), which extends EU aviation laws to European countries including Norway. Another option could be to take the same route as Switzerland and negotiate a bilateral aviation agreement with the EU. In each case, there is no guarantee that the UK could successfully negotiate the same traffic rights and benefits that it currently enjoys as a member of the EU. Likewise, any weakening of traffic rights could potentially result in UK

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The UK's EU Referendum airlines looking to base themselves elsewhere in the EU, mirroring the establishment of Norwegian Air Shuttle subsidiary Norwegian Air International in Ireland. Should the UK successfully negotiate membership of the ECAA or its own bilateral agreement and maintain existing traffic rights, it is likely that this would entail the UK signing up to most or all of the current rules and regulations affecting aviation, from air safety to environmental standards. It seems unlikely that the UK would be allowed to pick and choose legislation. In addition to traffic rights, the UK would also have to negotiate new bilateral deals with countries that currently have such deals with the EU, including the US, Canada, Morocco, and more. While it again seems likely that the UK will renegotiate the same traffic rights for UK (and EU) airlines as those that currently exist, there is at least some degree of uncertainty over the situation.

As with aviation, much depends on what is negotiated in the case of the UK leaving the EU. It seems likely that the UK would attempt to continue access to the single market, but there is serious risk of tariffs being imposed and technical barriers to trade appearing. On standards and safety, it seems likely that UK automotive manufacturers would continue to comply with EU rules on safety and type approval, with the UK already having safety and quality standards above EU levels in many areas. The key difference, however, in the case of Brexit would be the loss of the UK’s ability to influence the creation of new standards by the EU, an area in which the UK has often pushed for the bar to be raised.

Maritime Owing to the many international conventions that apply to the maritime sector on issues including safety at sea and environmental issues, including SOLAS1 and MARPOL2, UK shipping companies would still need to observe and operate within the same international regulatory framework as other EU shipping companies, regardless of Brexit. Looking further ahead, new proposals relating to monitoring and reporting of maritime CO2 emissions – brought forwards by the European Commission last year – are likely to apply to UK shipping companies using EU ports, Brexit or otherwise.

Automotive For the automotive sector, the central problem in the case of Brexit would be continued access to the single market and maintaining existing cross-border supply chains. With regards to market access, currently the UK automotive manufacturing industry relies on EU markets to sell around half of its production, which rose to nearly 1.6 million cars in 2015.


In terms of access, Brexit is unlikely to impede the ability of UK shipping companies to carry goods to or from EU ports. However, this depends very much on the deal negotiated by the UK and EU, with potential membership of the European Economic Area not guaranteed.

Rail The biggest question in the rail sector in the event of Brexit would be that of rail franchise processes and access to tenders.

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The UK's EU Referendum The situation, including UK rail companies’ freedom to participate in tender processes for franchises in the EU, depends on what deal will be brokered in the event of Brexit and whether the UK would continue to participate in the liberalisation and integration of the EU’s rail system. Under the current Conservative government, the latter seems likely, and it is equally likely that EU companies would be allowed to bid for UK rail franchises. The situation for UK companies in the EU is likely to mirror EU companies’ treatment in the UK. In terms of regulatory developments, the UK is likely to remain a member of the Intergovernmental Organisation for International Carriage by Rail (OTIF) and the Channel Tunnel Intergovernmental Commission (IGC), both of which form parts of working parties set up by the European Railway Agency (ERA). Due to this the UK would likely continue to have a role in the development of common technical specifications in the event of Brexit.

The Campaigns Neither Leave or Remain supporters have focussed much of their attention on how the transport industry could be affected by a Brexit. However, pro-EU campaigns have suggested Brexit could negatively impact the UK airline industry and both sides have been keen to capitalise on any comments from manufacturers about the impact Brexit could have on jobs. Alan Johnson, head of Labour’s campaign to stay in the EU, has said that if the UK were to leave the EU then British car manufacturers could face export charges of £1.2bn a year: “Leaving the EU would threaten the success of an important British industry which employs around a million people. Even if an isolated Britain outside the EU managed to scratch together a trade deal with our former partners,


our position would be weaker which would be bad news for British workers and the British economy.” Responding to arguments regarding Britain’s manufacturing sector Richard Tice, co-founder of Leave.EU has said: “It is our contention that opportunities for industrial expansion will improve once we shed the burden of the EU’s onerous regulations and costs for products that are not destined for EU markets. With 81% of British cars and 62% of engines exported last year it is no surprise the UK will remain an attractive destination after we leave the EU.” Defence Secretary Michael Fallon has made similar statements arguing that Brexit would mean that UK-based airlines such as EasyJet would not be able to operate freely between the remaining member states. Matthew Elliott, chief executive of Vote Leave, responded to Mr Fallon’s remarks saying: “If pro-EU ministers aren’t wasting our money on propaganda then they are spending their time making up ridiculous scare stories. Instead of doing down our economy and British success stories, pro-EU campaigners should engage in a positive debate. If we Vote Leave we will be part of a free-trade zone from Iceland to Turkey which we will be able to fly within.” There has also been some discussion about the impact of the EU on public ownership of the railways. In the past UKIP has argued that as a member of the European Union Britain would not be allowed to nationalise the railways. On rail nationalisation and the EU Labour’s Leader Jeremy Corbyn has said, “It was not the EU that privatised our railways. It was the Conservative Government of John Major and many of our rail routes are now run by other European nations’ publicly owned rail companies. They haven’t made the mistake of asset stripping their own countries."

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The UK's EU Referendum Labour is committed to bringing rail back into public ownership in 2020. And that is why Labour MEPs are opposing any element of the fourth rail package, currently before the European Parliament, that might make that more difficult.”

Stakeholders The consensus among transport industry stakeholders is in favour of the UK remaining in the EU, with manufacturers in particular coming out in favour of remaining in the EU. In February a number of business leaders signed a letter backing the UK to stay in the EU including: Paul Kahn, President, Airbus Group UK; Sir Roger Carr, Chairman, BAE Systems; Dr Ian Robertson, Board Member, BMW AG; Dame Carolyn McCall, CEO, EasyJet; James Farley, Executive Vice President and President, Europe, Ford; Stewart Wingate, CEO, Gatwick Airport Ltd; John Holland-Kaye, CEO, Heathrow; Ralf Speth KBE, CEO, Jaguar Land Rover; Charlie Cornish, Chief Executive, Manchester Airports Group; Dean Finch, CEO, National Express Group; Warren East CBE, CEO, Rolls Royce; Michael O’Leary, Chief Executive, Ryanair. ABTA has said that in the longer term, following a Brexit, travel is more likely to become more expensive. ABTA chief executive Mark Tanzer said, "Our assessment of the report's findings is that a vote to leave will lead to uncertainties and may lead to increased costs for travel businesses and the travelling public.” Airbus has written to their employees to inform them that it makes “good economic sense” for Britain to stay in the EU. BAE systems have said, “Do I think it is the right thing for the UK to stay? Yes, to maintain the stability we have got.”

Gatwick CEO Stewart Wingate wrote to the Times saying, “Gatwick supports staying in the EU and I myself will be voting to stay in.” Heathrow Chief Executive John Holland-Kaye has said “Membership of the EU has made air travel affordable and convenient, with regular flights to the continent from all parts of Britain - fuelling jobs, exports and economic growth. A vote to remain offers the best of both worlds – it secures our place as a powerhouse in the global economy, while remaining in the world’s largest free trade zone.” Hiroaki Nakanishi, Chairman of Hitachi, said he discussed with Philip Hammond, the Foreign Secretary, how a British exit from the EU could be made “feasible”. “Mr Hammond’s answer was that he understands our requirements [as a business] very well,” said Mr Nakanishi. He has previously described the idea of a British exit from the EU as “ridiculous”. Honda has said “Anything that weakens our ability to trade with the region would be detrimental to UK manufacturing.... There would have to be some penalty to being outside rather than inside that’s the risk I think.” Tony Whitehorn, CEO and President of Hyundai Motor UK, has said “Brexit adds a degree of consumer nervousness and that concerns me. The result of the vote on 23 June will determine how long that nervousness will continue. In Q2 we’ll get a little bit of nervousness about whether we’re coming out or staying in; if we come out that nervousness will extend as it will add some uncertainty into the economy.” IAG Chief Executive Willie Walsh has said the British EU referendum would not affect IAG: “We have conducted a risk analysis of a decision to leave the EU and we don’t see any material risk to our business.” Charlie Cornish, Chief Executive of Manchester Airports Group has said: "Inside


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The UK's EU Referendum the EU Britain can continue to grow, invest and create jobs and I believe it would be in the best interests of the millions of passengers using our airports every year, and the UK economy, for Britain to remain in a reformed Europe." Carlos Ghosn, Nissan chairman and chief executive, said: “Our preference as a business is, of course, that the UK stays within Europe – it makes the most sense for jobs, trade and costs. For us, a position of stability is more positive than a collection of unknowns. However, this is ultimately a matter for the British people to decide.” The Rail and Maritime Transport Workers' Union has argued that leaving the EU would “end attacks on rail workers” arguing that EU policies would “further entrench rail privatisation and fragmentation”. The Union has also called for a vote to leave the EU to save Caledonian MacBrayne Ferry services from privatisation. The Union argues that EU procurement rules force the Scottish government to put the ferry service out to tender. The TSSA transport union by contrast has said, “TSSA has a long standing position in favour of Britain remaining within the EU.”


The Chief Executive of Rolls-Royce, owned by BMW, has written to all its workers in Britain to warn that exit from the European Union would drive up costs and prices and could affect the company’s “employment base”. On a BBC1 programme Jürgen Maier, the chief executive of Siemens UK stopped short of saying jobs would go if Britain voted to leave the EU: “I have never said jobs would go," he added. "I am saying we can create many more jobs and we can do that working inside the European Union." Mike Hughes, Chief Executive of SMMT has said, “The message from UK Automotive is clear – being in Europe is vital to the future of our industry to secure jobs, investment and growth. An independent survey of our members - large and small - confirmed the overwhelming view that remaining in Europe is best for their business, giving access to the single market, its skilled workforce and the ability to influence regulations.” Johan van Zyl, the President and Chief Executive of Toyota Motor Europe, said, “We are committed to our people and investments, so we are concerned that leaving would create additional business challenges. As a result we believe continued British membership of the EU is best for our operations and their long term competitiveness.”