The UK wants its domestic automotive industry to continue to enjoy preferential treatment in the EU market. France and Germany have set conditions: regarding trade with China, the UK must remain consistent with the EU.
According to a draft French-German agreement obtained by the British Financial Times on October 15, both countries are willing to support the inclusion of British automakers within the EU’s proposed ‘Made in Europe’ policy framework. This would grant British cars the opportunity to benefit from public procurement and subsidy policies aimed at European companies. However, this requires London to comply with EU trade defense measures, including tariffs on Chinese electric vehicles.
This is not a condition that is easy for the British government to accept.
Currently, the UK imposes a 10% conventional import tariff on Chinese electric vehicles. In addition, the EU will impose countervailing duties on Chinese electric vehicles starting from 2024. Combined with the original tariffs, the maximum tax rate is approximately 45%.
Previously, the UK did not follow the EU in raising automotive tariffs on China. On one hand, the UK wants to protect its own automotive export enterprises and avoid triggering countermeasures from China. On the other hand, the UK also hopes to attract Chinese automakers to invest and build factories in the UK.
Now, France and Germany are trying to link whether Britain can participate in the EU's new industrial support policies with whether Britain will adopt stricter trade measures towards China, leaving London with a new choice.
The Financial Times reveals that France and Germany are in talks regarding EU automotive policy, attempting to reach compromises on issues such as automotive emission standards and ‘Made in Europe’ regulations.
One important aspect is allowing British car manufacturers to be included in the EU’s ‘European Manufacturing’ policy.
According to the plan being discussed by the EU, in the future, some public procurement, government subsidies, and industrial support policies will be given priority to automotive and parts companies that meet European local production requirements.
This policy aims to support the European automotive industry, but it could also have a negative impact on British automakers that have already left the EU.
Due to the highly integrated automotive industry supply chains between the UK and the EU, a large number of automotive components need to cross the English Channel. If vehicles and components manufactured in the UK cannot qualify as “made in Europe,” British companies may face an unfavorable position in the EU market.
Therefore, the British government and the automotive industry have always hoped that the EU would include the UK within the scope of relevant policies.
Franco-German now has proposed a compromise solution.
According to the draft obtained by the Financial Times, in the automotive industry, the scope of application for ‘European manufacturing’ can include all 27 member states of the EU, as well as other European partners that will remain part of the EU internal market on January 1, 2020.
This statement leaves room for the UK. Although the UK officially left the EU on January 31, 2020, it did not withdraw from the EU single market until the end of that year.
However, for the UK to receive this treatment, it must agree to the corresponding conditions.
The British newspaper The Guardian cited a joint French-German document on the same day, stating that relevant countries not only need to comply with reciprocal arrangements in the automotive industry, but also must maintain dynamic consistency with the EU regarding restrictions on investments from third countries and trade defense measures.
This means that the UK may need to cooperate with existing and future trade restrictions imposed by the EU on Chinese automobiles, including additional tariffs on Chinese pure electric vehicles, as well as the import restrictions on hybrid vehicles that the EU is currently implementing.
Additionally, France and Germany require participating parties to adopt relevant anti-abuse measures to prevent companies from using countries such as the UK to circumvent EU trade restrictions.
It is worth noting that according to the draft disclosed by the Financial Times, trade partners such as Japan, South Korea, and Turkey, which also hope that their automobile manufacturers receive ‘European manufacturing’ status, are not included in the proposed scope of application.
This indicates that the French-German proposal is not simply an open policy towards all trading partners, but aims to include the UK, which has a close connection to the EU industrial chain, in relevant arrangements under specific conditions.
Law's proposed conditions differed significantly from previous British trade policies towards China.
The Financial Times pointed out that the UK has so far not imposed high tariffs on Chinese electric vehicles like the EU does. Therefore, the share of Chinese brand cars in the UK market is significantly higher than that in the EU.
The British government has its own considerations regarding this matter.
British Secretary of State for Business Jonathan Reynolds previously stated that whether Britain should adopt trade defense measures should be determined by its own economic and industrial interests, rather than due to demands from other countries.
According to the Guardian's report on October 14th, during his visit to India, Reynolds made it clear that the UK will not change its tariff policies towards Chinese cars merely due to pressure from the EU.
He emphasized that the UK automotive industry is export-oriented, and when considering whether to impose additional tariffs, the government must fully evaluate the impact on domestic enterprises.
"When we make any decision on trade defensive tariffs, it is based on British interests, not because of demands from other countries." Renózs said.
He also stated that the British government had carefully studied the issue of tariffs on Chinese electric vehicles in 2024, and has continued to evaluate the situation, but has not yet decided to take the same measures as the EU.
The British government is particularly concerned that if it follows the EU in raising tariffs on Chinese automobiles, it may lead to countermeasures from China, thereby harming the interests of British automobile companies in the Chinese market.
The Financial Times specifically mentioned Jaguar Land Rover. As a British automobile manufacturer with operations in the Chinese market, Jaguar Land Rover may be affected by the escalating trade disputes between China and the UK.
Meanwhile, the British government also hopes to attract Chinese car companies to invest in their domestic automobile manufacturing industry.
If the UK further tightens the investment conditions for Chinese companies, the related plans may also be affected.
Regarding the concerns of some in the EU that Chinese automakers might use the UK as a “backdoor” to enter the EU market, Reynolds refuted these claims.
He pointed out that currently, there are no large Chinese automakers in the UK that produce vehicles locally and export them to the EU through the UK. Therefore, it cannot be concluded that the UK is helping Chinese companies bypass EU trade barriers.
However, according to the latest French-German proposal, the EU still hopes to reduce the potential impact of tariff differences between the UK and other EU countries by imposing trade policy coordination requirements on the UK.
Whether the UK can qualify as "European Made" is also one of the important differences in the automotive policy negotiations between France and Germany.
France previously argued that EU industrial support policies should be more strictly limited within the EU, in order to ensure that public funds are mainly used to support domestic manufacturing industries.
Germany believes that the European automotive industry's supply chain is highly internationalized, and should not exclude important trading partners like the UK.
German car companies have close connections with the British manufacturing industry. Too strict localization rules may also increase the production costs for European automakers.
According to The Guardian, France has now changed its previous stance against Britain's participation and agrees to support Britain in obtaining ‘European Manufacturing’ status under certain conditions.
Germany has also obtained concessions from France on another important issue: relaxing the EU’s carbon emissions targets for cars by 2035.
According to the direction established by the European Union, the carbon dioxide emissions of new vehicles by 2035 should be reduced by 100% compared to 2021. This actually means that new passenger cars and light commercial vehicles must achieve zero exhaust emissions by then.
However, facing the operational pressures of the European automotive industry, Germany has always advocated keeping more room for fuel-powered vehicles, plug-in hybrid vehicles, and vehicles that use alternative fuels.
According to a report by Reuters on October 15th, the European Commission has previously proposed adjusting the emission reduction target for 2035 to 90%, with the remaining emissions compensated through the use of low-carbon steel or sustainable fuels.
And the latest draft between France and Germany goes further, proposing to eliminate this compensation requirement, so that automobile manufacturers only need to achieve 90% of their emission reduction targets.
The draft also includes relaxing emission regulations for plug-in hybrid vehicles, giving more favorable treatment to renewable fuels, and increasing flexibility in meeting the requirements of electricizing corporate fleets.
These adjustments meet some of the demands put forward by the German automotive industry in recent years.
Therefore, France and Germany have gradually developed a compromise agreement on automotive policies: France gives up its control over the scope of "European manufacturing," while Germany gains more flexibility in automotive emissions reduction policies.
But for the UK, the cost of obtaining European industrial policy benefits could be having to move closer to the EU on issues related to trade with China.
The British government has not yet made a final decision on this matter.
According to a British government official quoted by The Financial Times, the French-German plan still needs to go through EU internal procedures. However, if it is ultimately approved, the UK welcomes its inclusion in the ‘Made in Europe’ policy, as this will benefit the UK's automotive industry, along with its employment and investment opportunities.
Meanwhile, there are also differing opinions within the UK regarding whether it should follow the EU in raising tariffs on Chinese cars.
British Parliament’s Chair of Committees on Business, Innovation, Science and Trade, Liam Bourne, told The Guardian that he believes it is an acceptable price to maintain consistency in trade defense measures with the EU in order to protect Britain’s manufacturing industry.
However, the British automotive industry still fears that raising tariffs on China may affect companies' exports and future investments.
British Prime Minister Andrew Burnham is pushing for improvements in relations between the UK and the EU. The two sides are expected to hold a summit in Brussels on November 20. The UK hopes to establish closer economic and trade ties with the EU through this event.
However, the draft French-German automotive policy has not yet been finalized. It still needs the support of other EU member states and the European Parliament before it can become an official policy.
For the UK, finding a balance between maintaining connections with the EU's automotive industry chain, protecting its domestic export interests, and developing economic and trade relations with China will be an important issue in the upcoming negotiations.
From a broader perspective of Sino-European economic and trade relations, France and Germany are trying to use their defense policies regarding trade with China as conditions for the UK's participation in the European industrial support system. This also indicates that the EU is seeking to maintain coordination with its surrounding trading partners on related policies.
