U.K. CARS MAY NOT BE BRITISH ENOUGH
Manufacturers likely to struggle to meet 50-60pc component requirements to avoid tariffs
MANUFACTURERS of “Made in the UK” cars are facing a worrying dilemma: Their vehicles may not be British enough to escape expensive tariffs after Brexit. Current trade pacts generally require exporters to prove that 50 to 60 per cent of a product’s components are from the originating country to avoid tariffs. But United Kingdom cars are now just 44 per cent British-made on average, according to the Automotive Council.
Such numbers mean car companies are already bracing themselves for the UK to strike post-Brexit trade deals that will most likely require them to source more vehicle parts from within Britain. The demands also show how non-tariff barriers may prove a bigger headache for firms than duties.
“If we have a free-trade agreement with the EU (European Union) after Brexit, then we’ll have to have rules for determining whether the cars coming out of the UK really are considered British cars,” said Peter Holmes, an economist at the UK Trade Policy Observatory.
So-called rules of origin are designed to stop parties to a free-trade agreement being used by other counties to gain preferential market access.
If Britain leaves the Customs union, as planned, UK goods may not be eligible for reduced tariffs that are negotiated in new deals if they contain insufficient “originating” content.
Complying with the rules risks pushing up the cost of production for manufacturers and burdening them with paperwork.
A report by the opposition Liberal Democrats last year cited research that trade costs stemming from such demands could increase by between four and 15 per cent for all sectors.
Even as they hope the UK will end up winning advantageous trade deals, firms are preparing for the worst. Honda Motor Co, which produces its Civic marque in the British town of Swindon, is already researching suppliers across the UK and Europe, said a spokesman.
One solution could be if UK carmakers were allowed to count parts made in Europe and vice-versa, as is now the case, said Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders. Bloomberg