I did a snap poll last night and over 75% of people weren't too clear on the details of "Rules of Origin" which are a key aspect of Brexit that's been given surprisingly little attention (it's been brought up a few times in debates). So here's a simplified overview.
Rules of origin determine where a product was "born" for trade purposes. With humans it's easy, because we're born in one place. With goods it's harder, because a car for example might be built with parts that have come in from a dozen countries.
So the rules of origin are an attempt to determine the legal birthplace of a product. This matters to trade agreements, because they usually apply only to goods from a specific country. In the EU's case, its trade agreements apply to the whole of the EU.
Let's dig into this a bit more. The EU's trade deal with South Korea requires the EU's goods covered by the deal to be at least 75% "made in the EU". In other words, they can't contain more than 25% of parts that originated outside the EU28 countries.
So a car may say "Made in the UK" on it if final assembly occurred in the UK, but from a trade perspective what matters is that it was "Made in the EU". In the case of South Korea, that means 75%+ of the parts in that car have to have been made in one or other EU country.
(It gets really detailed, because of course *those* parts may in turn have been made from other parts, which came from various places. So the provenance has to be tracked all the way back.)
How does all that mesh with Brexit. Well, after Brexit, we're out of the EU (that was kind of the point!) But that means any parts we supply won't count towards the "made in the EU" quota any more.
So EU-based manufacturers won't be able to source more than 25% of parts from the UK to meet the rules of origin requirement of the SK trade agreement. Other trade agreements will have other % levels. But broadly speaking we will become a problem when before we were not.
Why? Because everything from the UK will have to be squeezed into the small % of parts manufacturers already source from non-EU countries. We'll be on a par with other third countries. So that is bound to have a dampening effect on the ability of UK producers to sell into the EU.
But it's worse than that. Because rules of origin will also apply to our future trade deals. They made specify that something has to be 75%+ made in the UK, for instance. But only the UK will count as "made in the UK". So manufacturers will have to buy the majority of parts here.
Great! More business for local producers. Yes... except that we don't have manufacturers at all for many specialised parts because it has been cheaper and easier for everyone all over the EU to buy from the expert producer in Spain, Portugal, Germany or wherever.
Imagine having to go from a situation where you can buy all the bits to make your car from any firms anywhere in the EU to one in which you have to buy most of them in the UK. The cost and complexity will sky-rocket!
Of course, these sorts of problems can always be remedied with enough effort and negotiation. But we would have to get the EU to reopen every single trade agreement individually and persuade the relevant counterpart to count "the UK" as part of "made in EU" for RoO purposes.
NOTE: This is the simplified version (yes, really!) because there are many more ways to slice the situation e.g. what happens to stuff made in country A, processed in the UK, then exported to country B? The mind Boggles, and plays chess for an encore.
Why haven't we heard more about this? I can only speculate, but...
1) It's complicated and can't be summed up in a soundbite or two
2) Many people may not even realise it's an issue
3) In *theory* the problem can be negotiated away (though I explained how hard that will be)
1) It's complicated and can't be summed up in a soundbite or two
2) Many people may not even realise it's an issue
3) In *theory* the problem can be negotiated away (though I explained how hard that will be)
4) We haven't had to worry about that sort of stuff much for 40 years. All manufacturers have had to do is make sure they get over the minimum threshold of parts from the EU, and they were golden. But no more. It's about to get super-tough for them.
Note: this topic is one of many I've covered in my new book, Slaying Brexit Unicorns. It busts 2 dozen myths ("They need us more than we need them" etc.) & takes a hard look at no deal & at trade on WTO terms. It also lists 270+ examples of Brexit damage.
amazon.co.uk/dp/B07Z1FTRQW/…
amazon.co.uk/dp/B07Z1FTRQW/…
