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May 20, 2020

Proposed UK import tariffs raise big questions for UK’s auto industry

The UK government is preparing a new set of import tariffs which would include a 10% tariff applying to all imported new cars when the UK's Brexit transition period ends at the end of this year.

By Sam Duke

The UK government is preparing a new set of import tariffs which would include a 10% tariff applying to all imported new cars when the UK’s Brexit transition period ends at the end of this year.

With the UK automotive sector facing a long recovery from the COVID-19 crisis that has decimated sales this year, new tariffs on UK-EU car trade would be an additional and unwanted concern. The hope will be that tariffs can be avoided in a yet-to-be-struck UK-EU agreement covering trade.

The new provisional measures assume there is no new trade deal with the EU and would therefore introduce tariffs applying to some goods imported from the EU, including food and new cars. The new UK tariffs would replace the EU’s Common External Tariff (CET ) on 1 January 2021 at the end of the current Brexit ‘transition period’ agreed under the terms of Britain’s formal exit from the bloc earlier this year.

The Department for International Trade said Britain would scrap all levies on GBP30bn of imports as part of its new “MFN (most favoured nation) tariff regime” called the “UK Global Tariff”. It would form the basis on which the UK will trade with other countries after the end of the Brexit transition period on December 31 unless and until it has struck new trade agreements with them.

World Trade Organisation (WTO) rules mean the UK would have to impose the same tariffs on goods from the EU and from other countries around the world if it left the EU trade bloc without a deal. Other countries are under no obligation to reciprocate by cutting their own tariffs for British imports.

The UK government is still negotiating with the EU in the current ‘transition year’ in the hope of avoiding new tariffs on UK-EU traded goods in the future, but the politically sensitive negotiations have yet to achieve a breakthrough.

The UK auto industry will be especially wary of new tariffs applying to UK-EU trade in new cars.

The UK auto industry will be especially wary of new tariffs applying to UK-EU trade in new cars. Tariffs on imports from the EU will mirror tariffs in the other direction – UK shipments to the EU bloc will face the EU’s 10% CET applying to cars unless the UK and EU strike a free trade deal this year. The export orientated UK auto industry will fear the potential consequences of tariffs applying to UK shipments to the EU. The UK’s auto industry is highly integrated with that of the EU, in terms of both manufacturing supply chains and a high proportion of car exports being bound for customers in the EU. Over half of the 1 million cars exported from Britain last year went to the EU27 market.

If those EU-bound vehicles face a 10% import tariff levied by the EU under WTO trading rules, that potentially makes UK manufacturing much less attractive to car companies that have alternative options to produce at plants inside the EU’s tariff free customs union.

Additional border checks would also be a concern for an industry heavily reliant on just-in-time logistics and with razor-slim margins.

Moreover, a 10% import tariff would likely make new cars considerably more expensive in the UK, while potentially also creating problems for the retail sector either in absorbing higher prices or passing them on to consumers.

However, on a partially compensating upside, there could be more UK assembly activity to supply the UK market, a way to keep plants busy and avoid new tariffs on imported finished vehicles. Some manufacturers may also opt for strategies that focus on a bigger ‘rest of world’ export element to UK manufacturing plants, put them more on a global sourcing footing.

The auto industry in the UK – and Europe – will nevertheless be hoping that new tariffs on UK-EU traded cars can be avoided.

See also: UK government prepares new 10% tariff for car imports

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