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I warned of this situation even before we voted to exit the EU. Whenever the EU arranged a trade deal with a country outside the EU bloc in order for the goods (not just cars) to be considered European and therefore qualify for free tariffs the majority of the product, in this case the car, had to be manufactured within Europe.

Some reports suggested 51% others as high as 60% had to be manufactured within the EU. I raised the question at the time that whilst we would possibly end up with a deal with Europe resulting in duty free sales of cars both to and from the EU it still meant that we would be outside the EU.

So what did this mean? Whilst in  Europe we have movement of components backwards and forwards but as long as the majority of the cost of a car was sourced in Europe it met the conditions attached to free trade with other countries.

So let’s look at an example, not genuine but for illustration. The EU has a Free Trade deal with South Korea. Mercedes sell cars to South Korea duty free based on the cars being predominantly manufactured in Europe by value. So currently the Mercedes is made using UK parts, say dashboards, screens, interiors etc. all considered to be EU parts.

The UK content accounts for say 10% of the cost of the car contributing to say 55% made in the EU. The rest is sourced from say China, India, US etc. Once out of the EU the EU content drops to 45% as we no longer contribute to the EU portion which means that the car now falls outside the free trade rules and becomes subject to duty charges.

I was ignored at the time as I was told that this would all come out in the trade deal. It hasn’t and could easily lead to European manufacturers replacing UK parts with parts manufacture in the EU.

And it gets worse.

When we manufacture items in the UK we often source components from outside the EU but under the rules of origin we have been able to use parts from outside the UK but the finished item can still be sold as British. The technical term is Cumulation.

It seems that many of the components used in UK car manufacturing come in from Turkey and Japan. It seems that according to our chief negotiator David Frost the EU has thrown out the practice of cumulation insisting that 60% of the component cost of anything sold to the EU must be sourced in the UK to qualify for free trade.

Component parts from Turkey and Japan that have traditionally been regarded as part of ‘made in the UK’ under cumulation rules will in future fall outside the UK content. Which means that whilst we could have a free trade deal between us and the EU if vehicles don’t contain sufficient UK components to meet the rules, tariffs will have to be paid.

This will certainly be bad news for Jaguar Landrover, Ford, Nissan and Vauxhall all of which use a lot of parts from Turkey and Japan and sell many vehicles into Europe.

Frost has also confirmed that the EU has rejected the UK’s request for electric cars, batteries and bicycles to be treated leniently under the rules of origin if the majority of components come from elsewhere.

Sadly it seems that the originally agreed Theresa May withdrawal agreement had addressed and resolved this issue – according to the Guardian. 2 years ago the average British produced content of cars built in the UK was about 44% which means they will all fall foul of the country of origin rules.

As I understand it if we come out with a deal, components that are made in the EU that feed into British made items will pass the rules of origin test but components from outside the EU won’t in the future. We have some difficult times ahead. By Graham Hill