EU won’t grant preferential trade terms to UK car industry, admits Frost

The British car industry will face new barriers exporting to Europe even if a UK-EU trade agreement is agreed later this year, the UK’s chief Brexit negotiator has admitted.

In a letter to the auto industry, David Frost conceded that he had failed to convince Brussels to take a more flexible approach when it came to assessing how cars manufactured using non-EU parts could qualify for zero-tariff access to the bloc under a trade deal. 

The UK has been pushing during trade negotiations for manufacturers to be able to count, or “cumulate” Turkish, Japanese or other non-EU inputs as “local” for the purposes of exporting under the agreement but Brussels has rejected the request.

Under standard EU trade rules, a vehicle must typically be 45 per cent “locally made” in order to qualify for zero-tariff access to the bloc.

The letter raises fears in the industry that a lopsided trade deal will allow European cars from Germany or France to be imported to the UK without tariffs, but that British-built models will be penalised for not meeting the rules — pressuring manufacturers to raise prices or shift production to the continent to remain competitive. 

In the letter, first reported by the BBC but seen by the Financial Times, Lord Frost said that UK negotiators had argued that so-called “cumulation” would have “significant benefits for business and consumers” and that the UK had put forward detailed proposals.

“But once again the [European] Commission has made clear that it will not agree third country cumulation in any circumstances, which we regret, but obviously cannot insist upon,” he wrote.

The letter, dated September 7, said that the UK had lobbied Brussels’ negotiators for more flexible arrangements on so-called “rules of origin” — in line with requests from the auto industry — but without success.

“We have shared details of this approach with the commission but I am sorry to say that so far they have neither been willing to discuss these nor to share any proposed text with us,” he wrote.

Four out of five of cars made in the UK are exported, with the majority going to Europe. Plants owned by Toyota, PSA and Honda are all dependent on EU sales for most of their business.

While many of Britain’s car plants rely on parts from Europe some, such as Nissan and Toyota, also import a significant proportion of their components, such as hybrid systems, from Japan.

Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, said in response to the letter that the industry needed a trade deal that “safeguards the global competitiveness of the sector and consumer choice in the market”.

“Given its importance to the economy and livelihoods and the damaging consequences of tariffs, we need the sector prioritised in negotiations, not traded off against other industries,” he added

During last December’s general election campaign, Prime Minister Boris Johnson said on a visit to Nissan’s Sunderland plant that it was “absolutely vital we protect supply chains, we protect Nissan Motors, we make sure people continue to want to invest in our country”.

“As we come out, it’s all protected from the point of view of big motor manufacturing investors in our country,” he added.

The commission’s decision has not come as a surprise to British industry, according to one industry executive, who said there was “deep frustration” that the UK government’s current approach had “prioritised defending sovereignty over maintaining trade flows”.

Michel Barnier, the EU’s chief negotiator, has been clear that the EU’s longer term strategic economic interests will not be served by allowing the UK privileged access to the EU single market after Brexit.

International trade experts have described the UK’s proposals for “cross cumulation”, which have been seen by the FT, as highly ambitious and unique in scale and scope compared with other EU trade agreements.

EU negotiators are clear that they will only offer so-called “bilateral cumulation” in which EU and UK industries can count each other’s inputs as “local” for the purposes of obtaining zero-tariff access to the other’s markets.

Earlier this month, the FT revealed that the commission was poised to reject a British request for a more generous approach on electric vehicles, a category where neither EU or UK manufacturers can hit the 45 per cent “local content” requirement.

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