UK-made cars may not be British enough post-Brexit

Thomas Seal and Jill Ward
Bloomberg News

Manufacturers of “Made in the U.K.” cars face a worrying dilemma: Their vehicles might not be British enough to escape expensive tariffs after Brexit.

Current trade pacts generally require exporters to prove 50-60 percent of a product’s components are from the originating country to avoid tariffs. But U.K. 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 U.K. to strike trade deals that will most likely require them to source more vehicle parts from within Britain. The demands 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 U.K. really are considered British cars,” said Peter Holmes, an economist at the U.K. 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, U.K. 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 production costs for manufacturers and burdening them with paperwork. A report by the opposition Liberal Democrats last year said trade costs stemming from such demands could increase 4 percent to 15 percent for all sectors.