UK keen to keep lucrative litigation industry
British carmakers could find it hard to meet ‘made in the UK’ rules
Manufacturers of “Made in the UK” cars face a dilemma: their vehicles might not be British enough to escape expensive tariffs after Brexit.
To avoid tariffs, current trade pacts generally require exporters to prove that 50 to 60 per cent of a product’s components are from the originating country. But British cars are now just 44 per cent UK-made on average, says the Automotive Council.
Such numbers mean car companies are already bracing themselves for the UK to strike post-Brexit trade deals that will probably require them to source more vehicle parts from within Britain.
“If we have a free-trade agreement with the EU after Brexit, then we’ll have to have rules for determining whether the cars coming out of the UK really are considered British cars,” says 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 any 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.
Even as they hope Britain will end up winning advantageous trade deals, firms are preparing for the worst. Honda, which produces its Civic marque in the British town of Swindon, is already researching suppliers across the UK and Europe, says a spokesman.
The importance of foreign parts was laid bare in a report last week from the Institute for Government. It estimated that for every pound the UK car industry spends abroad, 44p is spent importing parts from overseas. It also declared the sector the most reliant of all British industries on European Union input.
It’s not just carmakers that are affected. A March study by lawmakers in the House of Lords drew warnings from the pharmaceutical, food and defence sectors that they could also be hampered by “rules of origin” after Brexit.
One solution could be if British carmakers are allowed to count parts made in Europe and viceversa, as is now the case, says Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders (SMMT). That might require British Britain wants to keep London at the centre of European commercial legal disputes after Brexit. Except, without the European Court of Justice (EJC).
A paper published by the British Government this week gave few details about how this might be achieved, but it was clear that Britain doesn’t want to lose lucrative litigation business, which contributes more than £25 billion ($44b) a year to the economy, according to business lobby group TheCityUK.
The danger for Britain is if EU members decide they want a larger share of international litigation, says the Government. English law currently governs about 40 per cent of global commercial arbitration cases.
Britain plans to continue its membership of international treaties that cover cross-border litigation, but once it leaves the EU and rejects any role for the ECJ in British law, the possibility of “drift” away from EU standards will make it an increasingly unattractive place for banks and insurers to resolve disputes, says Peter Bert, a litigator at Taylor Wessing, formed as the result of a merger between law firms in England and Germany.
“The question is how long UK law negotiators to give European companies easy access to the British products they rely on, in the hope of securing concessions for the automotive sector.
The EU side may not be willing to sign up to such an accord. France, for example, could seize the opportunity to induce Nissan — which is 43.4 per cent owned by Renault, which in turn is 15 per cent owned by the French state — to try to move its Sunderland manufacturing operations across the English Channel, says Holmes.
“Ultimately, the French Government would quite like to see the production that goes on in Sunderland replaced by production somewhere in France,” he says. “So the French Government might have a long-term interest in making these rules of origin slightly stricter.”
Sigrid de Vries, secretary general of European auto supplier association CLEPA, says carmakers are “considering various options” and “due to the rules of origin in EU trade deals with third countries,” they “might consider switching their sourcing” of components to elsewhere in the region rather than the UK
“Changes will be complex and painful,” she says. “The automotive industry is a prime example of how the EU internal market has helped underpin competitiveness in the face of global competition: The sector operates on the global marketplace.”
Even if carmakers are ultimately able to remains the law of choice for companies who are under EU regulatory oversight,” says Bert, who is based in Frankfurt.
“Until now, if you chose UK law, you didn’t have to think twice because you chose a law that automatically was 100 per cent EU-compatible.”
Britain will seek an agreement with the EU that allows “close and comprehensive” cross-border co-operation on a reciprocal basis, and the new legal framework will “mirror closely the current EU system,” according to the Government paper. —
British cars are now just 44 per cent UK-made on average, says the Automotive Council
source enough British parts, the bureaucracy of proving their origin is likely to increase costs, according to the SMMT. This could erode the competitive edge of finely tuned, “hour-by-hour” manufacturing processes, which see trucks full of parts roll into the port of Dover from mainland Europe and straight to factory doors.
Trucks entering Dover from outside the EU are subject to clearance that can take anything from five minutes to two hours, even if they have the right paperwork, says Chris Howard, a freight services controller at Motis, which handles logistics at the port.
“In Solihull, millions of components are delivered every day. There’s about a thousand truck movements every day, in and out,” says Jaguar Land Rover spokesman Chas Hallett, referring to the company’s plant in the English Midlands.
“We go to the wire. Anything that slows things down is going to be a challenge for any manufacturing business.”
The British Government has given assurances to Nissan and Toyota, two of the country’s biggest carmakers, that they will remain competitive after Brexit.
“I don’t see how they can do that,” says Holmes of the UK Trade Policy Observatory. “If you don’t have a customs union, it’s very difficult to replicate the single market just for one industry.” —