Post-Brexit reality: Made in UK may still not be British enough
london — Manufacturers of “Made in the UK” cars are facing a worrying dilemma: Their vehicles might 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 UK cars are now just 44 per cent Britishmade on average, according to the Automotive Council.
Such numbers mean auto 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 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 freetrade 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 in- crease by between 4 per cent and 15 per cent for all sectors.
Getting Ready
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, a spokesman said. The UK automotive sector would need “significant divergence from current practice” to actually benefit from any free-trade deals with the EU or other countries, Ian Howells, senior vice president at Honda Motor Europe, said in June. The importance of foreign parts was laid bare in a report last week from
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 Peter Holmes, Economist, UK Trade Policy Observatory
the Institute for Government. It estimated that for every pound the UK car industry spends abroad, 44 pence is spent importing parts from overseas. It also declared the sector the most reliant of all UK 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 defense sectors that they could also be hampered by “rules of origin” after Brexit.
A Solution
One solution could be if UK carmakers are 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. That might require British 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 SA, which in turn is 15 per cent owned by the French state — to try to move its Sunderland manufacturing operations across the English Channel, said Holmes. “Ultimately, the French government would quite like to see the production that goes on in Sunderland replaced by production somewhere in France,” he said. “So the French government might have a long-term interest in making these rules of origin slightly stricter.” Nissan declined to comment. Sigrid de Vries, secretary general of European auto supplier association CLEPA, said that 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
— Bloomberg