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Brexit to put UK OEMs at risk of failing local content rates?
Even if Britain manages to secure a zero-tariff deal with the European Union (EU), UK-based OEMs face the threat of tariffs imposed on vehicles that fail to meet local content requirement (LCRs) in the post-Brexit transition period, which begins on January 1st 2021.
The EU has rejected calls from Brexit's chief negotiator Lord David Frost to include components as 'local content' if they imported from countries with which both the EU and the UK have trade deals with or are in the processing of finalizing, such as Japan and Turkey.
Under this so-called cumulation scheme - which is typical in bilateral trade agreements - UK-based OEMs exporting their vehicles to the EU will be subject to tariffs averaging at 10% on vehicles and nearly 5% on components if they fail to achieve a local content threshold that is often set at 50-55%.
More than half of the vehicles made in the UK are exported to the EU, and eight out 10 British vehicles are exported worldwide. While only around 15% of automotive components for UK-manufactured vehicles are sourced from outside of the EU, this percentage varies wildly for the different OEMs and even for the line-up of vehicles produced by a carmaker in the same facility. It could become critical for some nameplates to achieve the LCR under typical bilateral agreements. Should no agreement be achieved, the UK will trade on WTO (World Trade Organization) terms with individual countries.
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