tag:blogger.com,1999:blog-8156972773801079896.post4377374125160060592..comments2023-10-23T14:20:52.192-07:00Comments on My10MinuteBlog: Thoughts on UK Governments "Future Customs Arrangements" paperPaul Reynoldshttp://www.blogger.com/profile/04991999984214758071noreply@blogger.comBlogger15125tag:blogger.com,1999:blog-8156972773801079896.post-71830959419246282832017-08-18T08:42:23.273-07:002017-08-18T08:42:23.273-07:00Thanks Paul - I remain puzzled by these SMMT figur...Thanks Paul - I remain puzzled by these SMMT figures though I note they are talking about the value of spend **in the supply chain** which to me implies bought-in materials and components rather than value-added. These concepts are not equivalent. You could in principle source 100% of your **supply chain** from ROW but still have a very high local content in value added terms if labour input was high and materials input very low.Potwalloperhttps://www.blogger.com/profile/17441000187089728787noreply@blogger.comtag:blogger.com,1999:blog-8156972773801079896.post-41416005764250098272017-08-18T05:26:20.175-07:002017-08-18T05:26:20.175-07:00Haven't found the article I read, but I have f...Haven't found the article I read, but I have found the source of figures quoted : https://www.smmt.co.uk/wp-content/uploads/sites/2/SMMT-KPMG-EU-Report.pdf <br /><br />"In the UK, 37% of the total value of spend in the supply chain<br />(£33 billion in 2012) is currently sourced locally. Depending on<br />the manufacturer, between 20-50% is imported from the EU<br />and the rest from outside the EU." (page 6) <br /><br />This is consistent with other reports I've seen, including efforts by UK to increase local content in UK cars from low 30's 20+ years ago. UK+EU content according to 2012 report will range from 57%-87%. Note also, this just measures the location of suppliers - EU suppliers will have some non-EU content in their parts.<br /><br />I suspect many UK exporters are not 100% sure about RoO compliance as they've never had to worry about it. Some sectors outside cars will have higher thresholds of course. All UK exporters (cars & other sectors) ought to do due diligence and look at RoO compliance in anticipation of a UK-EU FTA (assume PEM RoO as baseline) - some may find the need to make supply chain decisions.<br /><br />If we do not end up with an UK-EU FTA, then RoO is irrelevant of course. Mitigations against tariffs then should consist of:<br />- Ensure complex supply chains which criss-cross the channel make use of inward / outward processing rules to avoid import duties on parts. Tariff should only need to be levied on the export of the finished product.<br />- Invest in UK supply chain. Nissan called om UK Govt to do this in car sector. http://uk.businessinsider.com/article-50-brexit-nissan-says-the-uk-car-industry-needs-100-million-of-government-support-2017-3 <br />- Exporters margin will be critical. Govt can help via Lower tax burden & WTO-compliant Government targeted assistance.<br />- Even with an FTA, routine customs control (declarations, RoO, VAT) will become a hurdle. Government must accelerate IT / infrastructure programs and also trade facilitation measures ("streamlining the customs process" in Govt paper).<br /><br />Paul Reynoldshttps://www.blogger.com/profile/04991999984214758071noreply@blogger.comtag:blogger.com,1999:blog-8156972773801079896.post-79796022654189489352017-08-18T02:18:01.175-07:002017-08-18T02:18:01.175-07:00Actually Paul it is possible to get a finer breakd...Actually Paul it is possible to get a finer breakdown of foreign content in UK exports from the OECD/WTO database. https://stats.oecd.org/index.aspx?queryid=75537<br /><br /><br />For all industries inc services the numbers are<br />% 2000 2011<br /> <br />Foreign 18.0 22.9<br />EU 8.3 9.5<br />ROW 9.6 13.4<br />EU+UK 90.4 86.6<br />UK 82.0 77.1<br /><br />For motor vehicles and trailers<br /><br />% 2000 2011 <br /> Foreign 29.6 44.4<br />EU 16.8 23.9<br />ROW 12.8 20.5<br />EU+UK 87.2 79.5<br />UK 70.4 55.6<br /><br />I shall now desist from using up your bandwidth<br />Potwalloperhttps://www.blogger.com/profile/17441000187089728787noreply@blogger.comtag:blogger.com,1999:blog-8156972773801079896.post-33778555968107797202017-08-17T15:23:07.535-07:002017-08-17T15:23:07.535-07:00Paul - I would have thought as a first approximati...Paul - I would have thought as a first approximation you can estimate ROW content in UK exports by applying the non-EU share of UK imports to the total foreign content data from WTO/OECD but this won't be precise at a sectoral level. It may be possible to derive more information from world input output tables.<br /><br />http://www.wiod.org/home Potwalloperhttps://www.blogger.com/profile/17441000187089728787noreply@blogger.comtag:blogger.com,1999:blog-8156972773801079896.post-72508002905231587372017-08-17T15:18:01.580-07:002017-08-17T15:18:01.580-07:00Thanks Paul- I agree re. diagonal cumulation. That...Thanks Paul- I agree re. diagonal cumulation. That I suspect is one of the reasons (apart from sheer trade weight) that getting a grandfathered and perhaps extended deal with Korea has been highlighted by HMG as one of the priorities.<br /><br />I'm interested as to why there should be a divergence between the WTO/OECD figures on local content for the motor industry and the HoL quoted numbers, it may be there is a definitional difference or the full universe of manufacturers is not being covered by the latter study. <br /><br />I think we can conclude overall that in an FTA case this threshold issue is unlikely to be a big problem, given normal and sensible cumulation rules. The more pressing issue would be how to work round a situation where we don't get an FTA I think.Potwalloperhttps://www.blogger.com/profile/17441000187089728787noreply@blogger.comtag:blogger.com,1999:blog-8156972773801079896.post-18656849340117066512017-08-17T11:30:08.668-07:002017-08-17T11:30:08.668-07:00Thanks - I was aware that in many cases importers ...Thanks - I was aware that in many cases importers simply pay the tariff to avoid RoO.<br /><br />The Open Europe 4% RoO estimate is an across the board estimate. There'll obviously be variations in actual cost depending on size of the production run and complexity of the supply chain. <br /><br />So while car manufacturers have complex supply chains, the cost of RoO is spread across large number of units and big companies are obviously more able to absorb this admin cost. For car companies, the main concern is meeting the threshold. If UK-EU FTA includes cumulation (inevitable I'd say), then most will meet the threshold.<br /><br />I'll keep looking, but still can't find the article I saw which gave a range of figures for non-EU content, suggesting some car companies might struggle. but a few points to bear in mind:<br />- Parts imported from the EU will often have non-EU content as well. Supply chains do extend beyond the EU. USA supplies some parts. <br />- There may also be an issue with grand-fathering EU's FTA's. EU-Korea FTA requires 55% EU content on cars exported to Korea. Unless we agree diagonal or extended cumulation with EU & Korea, UK exporters will have to fulfill 55% UK content (not UK+EU content). EU manufacturers would also find UK content does not qualify, meaning they source components elsewhere.<br />- Similarly, UK car companies sourcing content from Korea, either directly or via EU company, will find Korean content doesnt count towards threshold for EU exports unless we agree diagonal/extended cumulation.<br /><br />The figures I've seen suggest UK car manufacturers struggle to reach 40% local content (after years of trying to improve UK supply chains). See para 136 of evidence to HoL select committee: https://publications.parliament.uk/pa/ld201617/ldselect/ldeucom/129/12908.htm Paul Reynoldshttps://www.blogger.com/profile/04991999984214758071noreply@blogger.comtag:blogger.com,1999:blog-8156972773801079896.post-75155212710425109212017-08-17T10:23:30.088-07:002017-08-17T10:23:30.088-07:00Thanks Paul. You might note there are several stud...Thanks Paul. You might note there are several studies of FTA arrangements that show a substantial share of firms in some sectors choose to pay the MFN tariff rather than go through the RoO process.<br /><br />That said, are RoO costs actually recurring at 4% (or whatever - there are various estimates) or is a chunk of this going to be a one-off cost (assuming your input mix isn't constantly changing)?<br /><br />btw 55% for UK+EU content sounds incredibly low for a car firm - that would have to be some kind of assembly plant for an Asian firm or similar. The OECD/WTO data suggests total foreign content in UK motor vehicle exports was 44% in 2011. That may have come down a touch now.Potwalloperhttps://www.blogger.com/profile/17441000187089728787noreply@blogger.comtag:blogger.com,1999:blog-8156972773801079896.post-25818099786018547272017-08-17T09:17:00.869-07:002017-08-17T09:17:00.869-07:00I saw an article recently on UK car supply chains ...I saw an article recently on UK car supply chains which estimated UK + EU content of UK exported cars as ranging from ~55% to ~90%. So some might have problems with RoO even allowing for EU content as local. Typically, I can't find this article now !<br /><br />If we have a UK-EU FTA including cumulation (bi-lateral or PEM) then broadly speaking European content is "local" content, RoW is not. Most UK exporters should then meet the mimimum threshold, but they'll need to analyse their supply chain to be sure & some may well fall short.<br /><br />If we dont have an FTA with EU, then as per my blog, RoO is a moot point as there is no preferential route - the tariff will have to be paid. Given that Open Europe estimate RoO as being equivalent to 4% tariff and in many sectors (including car components) tariffs are 5% or less, the value of tariff-free trade for many industrial goods is perhaps marginal.Paul Reynoldshttps://www.blogger.com/profile/04991999984214758071noreply@blogger.comtag:blogger.com,1999:blog-8156972773801079896.post-48661785349041557892017-08-17T09:05:51.078-07:002017-08-17T09:05:51.078-07:00Hugh Bennett has provided me with his source: http...Hugh Bennett has provided me with his source: http://uk.businessinsider.com/credits-suisse-brexit-supply-chain-britain-trade-with-eu-2016-8<br /><br />Having looked at this source , I think you are right, Hugh & I are wrong. <br /><br />UK exports of $322bn to EU breaks down as follows: <br />- $158bn UK VA (UK origin goods consumed in EU);<br />- $115bn RVA (UK origin goods exported to EU & consumed outside EU)<br />- $49bn FVA (non-UK origin goods re-exported & consumed in EU)<br />As far as I can see, the FVA figure covers goods imported from EU *and* ROW which are then re-exported to EU.<br /><br />Then again, the article also states "many of the raw materials that go into the $158 billion (£121.9 billion) worth of UK-made goods exported to the EU are likely sourced overseas too". So there appears to no clear measure of RoW content in UK exports.Paul Reynoldshttps://www.blogger.com/profile/04991999984214758071noreply@blogger.comtag:blogger.com,1999:blog-8156972773801079896.post-17438108786884984212017-08-17T04:48:42.779-07:002017-08-17T04:48:42.779-07:00Cars would be one of the highest sectors for non-U...Cars would be one of the highest sectors for non-UK content, but most of that content would be EU so again I can't really see the issue here in an FTA context. In a non-FTA context, RoO are presumably no longer an issue anyway and is the government's option 2 even viable then?Potwalloperhttps://www.blogger.com/profile/17441000187089728787noreply@blogger.comtag:blogger.com,1999:blog-8156972773801079896.post-30195127572533926332017-08-17T04:21:44.894-07:002017-08-17T04:21:44.894-07:00I'd hope expect UK would be part of pan-Euro-M...I'd hope expect UK would be part of pan-Euro-Mediterranean (PEM) cumulation if we get negotiated settlement with EU - giving a wider pool of "local" content including UK, EFTA, EU & some other neighbouring countries.<br /><br />Rules of Origin vary by sector. For cars, I believe 60% local content is required, leaving up to 40% for RoW. Even so, some manufacturers are worried about the location of their supply chains.Paul Reynoldshttps://www.blogger.com/profile/04991999984214758071noreply@blogger.comtag:blogger.com,1999:blog-8156972773801079896.post-67879611907721544692017-08-17T03:31:33.950-07:002017-08-17T03:31:33.950-07:00Paul - about 30% import content in goods exports i...Paul - about 30% import content in goods exports is right. But the government paper is implying 30% non-EU import content. This cannot be right I think.<br /><br />In the context of an FTA with the EU, EU imported components then re-exported would presumably be counted as local under bilateral cumulation? If so, then this 30% number is going to slump to probably 15% or even less which I would have thought was OK for content rules?<br />Potwalloperhttps://www.blogger.com/profile/17441000187089728787noreply@blogger.comtag:blogger.com,1999:blog-8156972773801079896.post-77159286433711029302017-08-17T03:26:03.290-07:002017-08-17T03:26:03.290-07:00I got the figures from Hugh Bennett's article ...I got the figures from Hugh Bennett's article on Brexit Central. I've asked him for source. <br /><br />The OEC stats suggest 22.9% import content of UK exports (total). 30% RoW content in UK goods exports to EU does not seem so far removed. Given that a Customs Union avoids Rules of Origin and minimum content rules, you might expect higher RoW content in EU exports.<br /><br />The 30% figure is in line with what I've seen for car manufacturers supply chains. This is the source of some anxiety as some current supply chains may not qualify for tariff-free trade under minimum content of EU's rules of origin once we move outside Customs Union.Paul Reynoldshttps://www.blogger.com/profile/04991999984214758071noreply@blogger.comtag:blogger.com,1999:blog-8156972773801079896.post-85510778915939485562017-08-17T01:38:53.539-07:002017-08-17T01:38:53.539-07:00Re, the above - the OECD stats show the import con...Re, the above - the OECD stats show the import content of UK exports (total) was around 20% in 2011. Therefore a figure of 30% for non-EU foreign content (even if it's just exports to the EU) looks highly implausible.<br /><br />https://data.oecd.org/trade/import-content-of-exports.htmPotwalloperhttps://www.blogger.com/profile/17441000187089728787noreply@blogger.comtag:blogger.com,1999:blog-8156972773801079896.post-24669257379201779602017-08-16T15:10:31.405-07:002017-08-16T15:10:31.405-07:00Paul - do you know where this 30% figure for non-E...Paul - do you know where this 30% figure for non-EU foreign content of exports comes from? It looks very high.Potwalloperhttps://www.blogger.com/profile/17441000187089728787noreply@blogger.com