Mayor of the West Midlands, Andy Street, has joined with business leaders in highlighting concerns about the need for the Government to secure vital tariff-free exports in any forthcoming trade agreement between the United Kingdom and the European Union.

In letters to Liz Truss, the Secretary of State for International Trade, and Lord David Frost, the UK’s chief Brexit negotiator, the Mayor has warned that if complex ‘Preferential Rules of Origin’ terms are not included in any trade agreement, West Midlands exporters could face tariffs of up to 10 per cent on their EU bound goods. This would see the region’s goods become more expensive and less competitive, and serve as a significant blow to the local automotive and aerospace sectors which rely heavily on their exporting credentials.

International trade rules mean a product has to pass a nationality threshold in order to be exported tariff free, but once the UK leaves the EU many high-value products made in the West Midlands would fail to meet this threshold and be classified as a UK product due to a large number of parts being sourced from around the world. The EU has said it will accept parts sourced from within the bloc to be counted towards the nationality threshold, but not those coming from other parts of the world – which is the existing arrangement, also known as ‘Preferential Rules of Origin’.

If the EU doesn’t cede on this point, then products such as cars and aerospace parts would not meet the nationality threshold, and face significant tariffs in a major blow to the region’s economy. Modelling by City-REDI at the University of Birmingham shows the impact of tariffs to the region’s economy could be a drop of more than 12 per cent of GDP, while around £3,000 could be added to the average cost of a West Midlands-produced car. 

To avoid this scenario, the Mayor and West Midlands business leaders have asked negotiators to push for ‘Preferential Rules of Origin’ to be included in any trade agreement, and have also written to West Midlands MPs to ensure they are aware of the concerns of business and can help make the case to Government.

Mayor Andy Street said: “We welcome the fact trade talks with the EU are continuing, and that the Government’s ambition remains to reach a deal that allows British businesses to export goods to the EU tariff-free.

“But this is such a vital issue for our region’s economy, and it’s important that leaders nationally and across the region are aware of the significant concerns raised by our exporting business community – and have the information they need to support efforts to secure a deal which includes ‘Preferential Rules of Origin.’

“Due to our strong manufacturing sector, which includes exporters that rely heavily on complex supply chains that span continents, the West Midlands is more exposed than other parts of the UK to a trade deal which doesn’t protect export industries.

“So we have today shared the detailed concerns of business with our region’s MPs and those in Government to emphasise the importance of the ‘Preferential Rules of Origin’ to our advanced manufacturing export sector, which is such an important part of the West Midlands’ economic output.”

Business leaders raised the issue in the weekly Economic Impact Group meeting, chaired by Mayor Andy Street, which brings together business, civic and trade union leaders to track the impact of the pandemic, mitigate economic damage and accelerate a recovery across the whole region. 

Margot James, Executive Chair of WMG and the first to raise the issue at the EIG, said: “Much of the value of UK exports to the EU is made up of products which have components that originate from outside of either the UK or the EU single market. This means that the precise structure of the Rules of Origin arrangement in any Free Trade Deal is crucial to West Midlands’ manufacturers”.

“This impact is particularly relevant for manufacturers in sectors such as Electric Vehicles where significant imports of components are currently from outside the EU. We therefore call on the Government to ensure that third country and sector specific Preferential Rules of Origin requirements are included in any Free Trade Agreement”.