UK offers automakers post-Brexit tariff boost

LONDON -- The UK government will offer a degree of post-Brexit protection to the country's auto industry by keeping a 10 percent tariffs on cars imported from countries with which Britain has no trade agreement, while lowering levies on raw materials used in car production.

The government on Tuesday announced a new tariff regime that will provide a baseline for negotiations for free trade agreements with the European Union, the U.S. and other countries. The 10 percent tariff will apply to EU exports to the UK unless Britain and Europe agree to a trade deal.

The new UK Global Tariff will take effect in January 2021 when EU regulations no longer apply in Britain, the government said.

The UK left the EU at the end of January but will follow the bloc's tariff program this year during a transition due to end on Dec. 31, 2020.

The British government hopes to agree on a deal with the EU to continue tariff-free trade.

"Our new Global Tariff will benefit UK consumers and households by cutting red tape and reducing the cost of thousands of everyday products," International Trade Secretary Liz Truss said.

The government's announcement reinforces "the critical need for the UK to secure free trade agreements, starting with our biggest trading partner, the EU, but also with other key global markets, including the U.S., Japan and Turkey," the SMMT industry association said.

"We must avoid any tariffs or barriers that add cost and reduce choice for consumers, and which would result in like-for-like barriers to export, undermining UK manufacturing competitiveness," SMMT CEO Mike Hawes said in a statement.

The British Chambers of Commerce welcomed the clarity provided by the announcement but said it showed a trade deal with European Union by year end was vital "to avoid substantial increases in costs for businesses on both sides of the Channel."

The World Trade Organization allows nations to implement tariffs of up to 10 percent on cars brought in from abroad but many countries reduce or eliminate them through free trade deals, such as a pact struck between the EU and Japan.

Volume automakers with UK car factories such as Nissan and Toyota rely on tariff-free trade between Britain and the EU to maintain the viability of some of their operations.

Jaguar Land Rover's domestic sales would continue to benefit from the 10 percent tariff because BMW and Mercedes-Benz SUVs built in the U.S. and exported to the UK would be subject to the levy, as they are now under EU rules.

Last year, 46 percent of cars built in the UK were premium vehicles from Jaguar Land Rover and BMW's Mini brand.

In 2018, 85 percent of the 2.34 million cars sold in the UK were imported from the EU, according to the SMMT.

After the EU, Japan was the second biggest exporter of cars to the UK with 135,775 imports, with South Korea at No. 3, Turkey at No. 4, South Africa No. 5 and the U.S. at No. 6.

After Jan. 1, the government will drop import tariffs on raw materials used in car making, giving a boost to UK automotive factories. Examples include chromium trioxide, used to chrome-plate plastic parts, whose tariffs will fall to zero from 5.5 percent currently.

"We are backing UK industry by. maintaining a 10 percent tariff on cars and removing tariffs on 30 billion pounds worth of imports entering UK supply chains," the government said in a statement.

Automakers in the UK have repeatedly warned about the dangers it faces if the country cannot agree a deal with the EU that removes tariffs and border checks that would disrupt just-in-time logistics.

The SMMT said that 81 percent of the 1.5 million cars produced in the UK in 2018 were exported, of which 51 percent went to the EU. In the same year 32.4 percent of European-built cars were exported to the UK.

Talks on a future relationship between the UK and EU have reached an impasse, with both sides trading barbs before a crunch meeting next month. Britain published its draft legal text for a trade deal on Tuesday.

The EU is demanding that the UK agrees to stick to some of the bloc’s rules in return for a trade deal to safeguard its own economy.

Its own version of the draft treaty, published in March, devoted almost 30 pages to how the UK should stick to the bloc’s rules in areas such as state subsidies, environmental standards and workers’ rights. The UK text includes three sentences on "upholding levels of protection” to encourage trade.

The EU's chief negotiator, Michel Barnier, welcomed the publication, but said the two sides "must make tangible progress" in the June talks.

"Why should we help British businesses provide their services to Europe when we would have no guarantee that our businesses would get a fair play treatment in the UK?" Barnier said at a news conference on Friday.

UK Cabinet Office minister Michael Gove told the House of Commons in London on Tuesday: "The EU essentially wants us to obey the rules of their club, even though we are no longer members. It remains difficult to reach a mutually beneficial agreement while the EU maintains such an ideological approach."

The two sides have until the end of this year to reach an agreement or the UK will default to trading with the bloc on terms set by the World Trade Organization -- meaning tariffs on goods such as cars.

Reuters and Bloomberg contributed to this report