Cars made in UK may struggle post-Brexit

Bloomberg

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 percent of a product’s components are from the originating country to avoid tariffs. But UK cars are now just 44 percent British-made 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 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 4 percent and 15 percent 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 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 2011 study by the Organisation for Economic Cooperation and Development estimated the UK used some $69 billion of inputs from the EU in producing goods that were exported.
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 percent owned by Renault SA, which in turn is 15 percent 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.
“Changes will be complex and painful,” she said.
“The automotive industry is an example of how the EU internal market has helped underpin competitiveness in the face of global competition: The sector operates on the global market place.”
The UK government has given assurances to Nissan and Toyota, two of the country’s biggest carmakers, that they will remain competitive after Brexit.

London asks EU to leave law
matters untouched by Brexit
Bloomberg

The UK wants to keep London at the centre of European commercial legal disputes after Brexit. Except, without the European Court of Justice.
A paper published by the UK on Tuesday gave little detail about how this might be achieved, but it was clear that Britain doesn’t want to lose lucrative litigation business. Government officials pointed to a paper on the ECJ due to be published on Wednesday.
Instead, it focused on why such a deal would benefit both sides, pointing to the UK’s current close links with the European Union. The danger for Britain is if EU members decide they want a larger share of international litigation business— according to the government, English law currently governs around 40 percent of global commercial arbitration cases.
“The optimum outcome for both sides will be an agreement reflecting our close existing relationship,” the document said. “Where litigating a cross-border case involving UK and EU parties under civil law, wherever it might take place, will be cheaper and efficient for all involved.”
The UK plans to continue its membership of international treaties that cover cross-border litigation, including the Hague Conventions focused on family disputes, and the Lugano Convention, which allows members of the European Free Trade Association to work with EU courts.
It will seek an agreement with the EU that allows “close and comprehensive” cross-border cooperation on a reciprocal basis, the paper said, and the new legal framework will “mirror closely the current EU system.”
The document is clear, though, that the ECJ will no longer have direct control over UK law after Brexit.