Europe’s car manufacturers have called on Brussels to take a less restrictive stance on future market access to the UK, warning that aspects of the bloc’s current position are “not in the long-term interests of the EU automotive industry”.
The letter from the European Automobile Manufacturers’ Association (ACEA) — a group that represents companies including BMW, Toyota and Fiat — urges Brussels to “reconsider its position” on rules for determining whether goods will qualify for tariff-free trade.
The group’s specific demands include that the EU should lower the percentage of components in a car that must be either European or British for the vehicle to qualify for the benefits of any EU-UK trade deal.
ACEA is also seeking a “phase-in period” of these new rules to help industry adapt to the changed business environment.
The letter, sent on October 15 and seen by the Financial Times, is a sign of how key EU industries are concerned about the potential economic fallout of Brussels’ approach to the negotiations.
EU-UK talks remain on ice following demands from UK prime minister Boris Johnson for a “fundamental” change of approach, but there is widespread hope in Brussels that they will soon be up and running again. Both sides’ stated goal remains an agreement providing tariff-free, quota-free trade on all goods.
But Michel Barnier, the EU’s chief Brexit negotiator, has said that businesses should be prepared to accept “short-term adaptation costs” in the name of protecting the bloc’s “long-term economic interests”.
He has been adamant that the EU should not sugar-coat Britain’s decision to leave the EU single market and customs union, and has questioned whether the bloc should allow the UK to retain the “prominent position” on the EU market that it currently enjoys.
The hardline stance is prompting increasingly urgent warnings from companies about the potential economic consequences for Europe of weaker trade ties. In June, more than 50 food and drink trade associations from the EU and UK wrote to Brussels urging it to take a more “flexible” approach to future arrangements, warning that a tariff-free trade agreement will be “meaningless” unless measures are taken to ensure companies can take advantage of zero-tariff rates.
ACEA confirmed the authenticity of the letter when contacted by the FT. The European Commission confirmed receipt of the letter but declined to comment beyond previous statements made by Mr Barnier.
The so-called rules of origin in a future EU-UK trade deal are a particular cause of concern for different EU industries.
These rules — a standard feature of trade agreements — establish the extent to which a company can source components from different parts of the world while still counting the finished product as European, and so eligible for the tariff-reduction benefits that a trade deal offers.
Britain entered future-relationship talks with the EU seeking arrangements that would allow companies to count all EU and UK content as local, as well as content from other countries with which Britain and Brussels both had trade deals — such as Japan. But Brussels resisted including goods from other trade partners in the arrangement.
The EU has also pushed a more restrictive line on how much foreign content is allowed — part of a strategy to prevent Brexit Britain from becoming a manufacturing assembly hub for the EU market.
Brussels has proposed that non-UK/non-EU content be limited to 45 per cent of the car, a figure ACEA wants pushed up to 50 per cent “in line with the UK’s position”.
It argues in the letter that technological advances, such as self-driving cars, will require companies to seek out “hardware, firmware and software” from abroad, even as manufacturers invest themselves in developing new technology.
ACEA is also requesting “a phase-in period” that allows greater use of non-local components for a limited time. “Brexit is a unique and unprecedented situation that creates new barriers in the shape of rules of origin where none existed before,” the association said in the letter.
“Long-term supplier contracts bind manufacturers to specific suppliers for many years and this should be taken into account in the FTA,” ACEA added.
Other concerns set out in the letter cover the approach for calculating whether rules of origin are met, as well as how these rules should be applied to batteries.
Additional reporting by Peter Foster in London and Joe Miller in Frankfurt
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