European car makers are asking the European Union to soften its stance in trade talks with the UK, warning there could be significant economic fallout from its current tough approach on origin.

Manufacturers are calling for a less stringent interpretation of what percentage of a car’s parts must be British or European to qualify for EU or UK origin.

The warning came in a letter written to the EU on 15 October which counted BMW, Toyota and Fiat among its signatories and was seen by the Financial Times today (21 October).

Rules of origin

The origin of a product determines whether tariff reductions can be applied for under free trade agreements (FTA).

Rules are set in FTAs to determine how much foreign content can be included in a product while still defining it as locally produced.

Trade body backs UK position

Brussels is currently proposing that the percentage of non-UK or non-EU content in a completed or assembled car should be limited to 45%.  

The European Automobile Manufacturers’ Association (ACEA) has argued that this should be increased to 50% in line with the UK’s current suggested rules for origin.

Phased in deal

If the UK and EU do reach an agreement on the future trade relationship, ACEA has called for new rules affecting the car industry to be phased in.

With the talks currently stalled, the ACEA said that the current approach is “not in the long-term interests of the EU automotive industry”.

The car industry’s warning echoes that made by food and drink manufacturers in June, who also urged both the EU and UK to take a more flexible approach to origin.

Worse than coronavirus

Ratings agency, Moody’s has predicted that a no-deal Brexit will have a longer negative impact on carmakers than the coronavirus pandemic, according to the Financial Times.

Last year, exports comprised four fifths of UK car industry sales with more than half going to the EU.

Moody’s said permanent tariffs and other trade barriers would erode UK carmakers’ profitability. A no-deal outcome in the negotiations could result in tariffs of up to 10% on cars.