British businesses may have been dealt another huge Brexit blow with the news that the European Commission (EC) is advising businesses within the European Union (EU) to steer clear of using UK-made parts and components, because of a government decision to leave customs union.
Is this the EU looking to punish the UK? Or another legitimate problem that Brexiteers didn’t see coming or put down to scaremongering from Remainers*?
What’s the problem?
The problem is centred around the ‘rules of origin’, which means a product can only benefit from the low tariffs offered as part of a customs union if it originates from a nation, or nations, within that customs union – in this case the EU.
So, if 60% of a product’s components are made in the UK, but the final, completed product comes of the production line in France, then this product won’t be able to take advantage of the lower EU tariffs after Brexit, as the majority of that project originated in a country outside of the EU.
Who will be affected?
Any company that makes components for products made and distributed in the EU could find itself in trouble, but it seems the motor industry could be one of the hardest hit – another blow the industry could do without, after it was announced that Jaguar Land Rover (JLR) has said it will move production of its Land Rover Discovery SUV from the West Midlands to Slovakia from next year.
Any EU-based car manufacturers using British-made components could find their exports aren’t as competitive as they were, compared to manufacturers that use solely EU-sourced parts.
That’s just one example, the problem could hit a whole range of industries across the UK, who could lose out on much-needed business from other EU member states. And any business exporting from the UK to the EU could find themselves wrapped up in red tape, as they’ll have to prove they actually do originate in the UK to sell under the terms of any future trade agreement. This potentially lengthy and costly procedure could see many businesses lose their competitive edge.
And UK businesses that use components sourced from outside the EU may also not gain preferential access if they are found to be mostly worked on elsewhere.
Staying in the EU customs union would remove all of these issues because the UK would continue to coordinate its trade policy with the EU.
What does the EC say?
The EC has stated: “Economic operators are reminded of the legal repercussions concerning rules of origin for preferential treatment of goods, which need to be considered when the United Kingdom becomes a third country. In particular, as of the withdrawal date, the EU preferential trade agreements with third countries in the field of the common commercial policy and customs no longer apply to the United Kingdom.”
Adding: “EU27 exporters and producers intending to claim preferential tariff treatment in an EU FTA [free trade agreement] partner country as from the withdrawal date, are advised to treat any United Kingdom inputs as ‘non-originating’ when determining the EU preferential origin of their goods and take appropriate steps to be able to prove the EU preferential origin of their goods, in case of subsequent verification, without taking account of any United Kingdom inputs as ‘EU content’.”
Could your business be affected? Let us know in the comments below.