The consequences of the submarine dispute for the German auto industry

World Tobias Kaiser 3 min ago | After the U.S. went it alone with Australia and Great Britain, France wants to block a trade pact with Australia that is almost ready for negotiation. This would have significant consequences for key German industries. The Australian market is attractive to German carmakers - but now the French submarine dispute could spoil opportunities. It was a gesture of accommodation that would have had the potential to smooth the waters between Paris and Washington. But it did not work. Just as French-born EU Internal Market Commissioner Thierry Breton began his trip to the U.S., the U.S. announced the end of the entry ban for Europeans. Breton was delighted, posing in Washington with Jeff Zients, the Covid 19 coordinator at the White House - but the mood remains tainted. In the meantime, even the EU demonstratively rushed to France's side. Commission President Ursula von der Leyen said the behavior was "unacceptable." The submarine deal between the U.S. and Australia with junior partner Great Britain has caused anger in Paris. The anger in the Elysee Palace could cost uninvolved German companies dearly, as the dispute jeopardizes a largely negotiated free trade agreement between the EU and Australia. Indeed, clear words were already coming out of Paris over the weekend: the agreement could be scrapped, French Minister for European Affairs Clément Beaune let it be known. Beaune belongs to the closest circle of power of French President Emmanuel Macron and is considered his whisperer in European affairs. "Keeping one's word is the condition of trust between democracies and allies," Beaune told the Politico information service. "That's why it's unthinkable to continue with negotiations as if nothing happened with a country we no longer trust." Should the negotiations be massively delayed or should the agreement even fall through, companies in Germany in particular would be the ones to suffer. This is shown by an impact assessment of the European Commission for the free trade agreement. The economic significance of the agreement would be limited, but an ambitious agreement would still contribute around 3.9 billion euros to the EU's economic output in 2030. Exports from Europe to Australia could increase by almost a third in 2030. According to the report, carmakers, suppliers and mechanical engineering companies would be the main beneficiaries of the agreement in Europe - all of which are industrial sectors with above-average strength in Germany. "If the free trade agreement with Australia is delayed, it will be a problem for German industry in particular," says Bernd Lange, chairman of the trade committee in the European Parliament. "German car manufacturers have a great interest in selling their cars there. This is especially true for premium manufacturers. Australia still has a luxury tax for higher-end vehicles, but German manufacturers are counting on that falling with the agreement." In fact, Australia no longer has a domestic automaker whose business would need to be protected with such a luxury tax. Holden, a subsidiary of U.S. conglomerate General Motors that built cars for the Australian market based on Opel models, among others, ceased production on the continent in 2017. This year, the brand is set to disappear. German engineering and tooling technology manufacturers would also have been among the beneficiaries of a deal, especially companies that make equipment for mining and coal extraction. "With every month of delay, companies lose potential sales," warns SPD politician Lange. Although the member states are not negotiating directly with Australia, the European Commission, which has extensive powers in the area of trade and represents the 27 member states, is conducting the talks. The Directorate-General for Trade, headed by Sabine Weyand of Germany, is in charge. However, the Commission is in permanent consultation with the member states and the European Parliament; ultimately, the Parliament and the member states must approve the final negotiated agreement. France's vote is crucial here because the Australian side wants to sell meat and dairy products to the EU more easily in the future. Australian cattle farmers would be the biggest beneficiaries of the agreement on the Australian side, according to the Commission's impact assessment. They have a vested interest in securing new customers in Europe because political tensions between Australia and China are causing the Chinese sales market to disappear.