France has dropped its opposition to Britain being included in parts of the European Union’s new “Made in Europe” industrial strategy, potentially removing one of the biggest post-Brexit threats facing UK manufacturers.
Paris and Berlin have reached a provisional agreement that would allow Britain to be treated as a European industrial partner under the EU’s forthcoming Industrial Accelerator Act, particularly in the automotive sector.
The change matters because the legislation is designed to favour European-made goods in areas including public procurement, subsidies and strategic industrial investment.
Britain had faced the prospect of being treated in the same way as other non-EU countries, despite UK factories remaining deeply embedded in European supply chains.
France had previously pushed for a much stricter definition of “Made in Europe”, effectively limiting preferential treatment to goods produced inside the EU itself.
Germany, alongside countries including Italy and the Netherlands, argued that excluding Britain would damage European manufacturers as well as British ones because car production on both sides of the Channel relies heavily on shared components, suppliers and factories.
The compromise now being backed by France and Germany would allow Britain to opt into parts of the system, but only if the UK accepts significant conditions on trade policy.
Britain would have to align more closely with EU trade rules
The most politically sensitive condition concerns China.
Under the Franco-German proposal, countries outside the EU could qualify for “Made in Europe” treatment if they were part of the European single market at the start of 2020 and agreed to full reciprocity with EU trade and investment protection measures.
Britain fits the first part because it was still operating within the EU’s internal market framework on 1 January 2020.
The second part is more complicated.
The EU has imposed much tougher tariffs on Chinese electric vehicles after concluding that state subsidies were giving Chinese manufacturers an unfair advantage over European competitors.
Depending on the manufacturer, EU duties can take the overall tariff on Chinese electric cars to roughly 45 per cent.
Britain currently imposes a standard 10 per cent tariff.
That means inclusion in the EU scheme could require the UK to move significantly closer to Brussels on China and potentially introduce substantially higher barriers to Chinese-made vehicles.
For Andy Burnham’s government, that would turn an industrial opportunity into a much bigger strategic choice.
Why this matters so much to British carmakers
Britain’s automotive industry has spent months warning that exclusion from the scheme could be extremely damaging.
Cars and components do not neatly belong to one national economy.
A vehicle assembled in Sunderland, Ellesmere Port or Solihull may contain parts made in France, Germany, Spain, Poland and elsewhere in Europe, while British-built engines and components are used in cars assembled across the EU.
The Society of Motor Manufacturers and Traders has estimated that UK automotive production supports around €24 billion of economic activity inside the European Union and approximately 250,000 jobs across the bloc.
UK automotive exports to the EU alone are estimated to generate around €5.6 billion of demand for EU-produced goods and services.
That is why manufacturers including Stellantis, Renault and Mercedes-Benz have argued publicly that Britain should be included.
Mercedes chief executive Ola Källenius warned this week that excluding the UK would make little industrial sense because European automotive manufacturing already operates across the Channel as one closely connected ecosystem.
Stellantis and Renault have made similar arguments.
For British factories, the danger was straightforward: if EU subsidies, government contracts and investment incentives increasingly favoured products classified as European, UK-made vehicles could suddenly find themselves at a disadvantage against factories only a few miles away on the other side of the Channel.
France had been the main obstacle
The disagreement had become another difficult issue in Britain’s attempt to rebuild relations with Brussels.
France had argued that the purpose of the Industrial Accelerator Act was to strengthen production inside the European Union, particularly as European manufacturers face growing competition from China.
Allowing too many neighbouring countries to qualify, Paris feared, could dilute the entire idea of European industrial preference.
Germany saw the issue differently.
Its automotive industry depends heavily on cross-border supply chains and Berlin argued that Britain should not simply be grouped with distant trading partners when UK and EU production remain so closely connected.
The new compromise reflects both positions.
France gets stronger protection against Chinese competition, while Germany gets a mechanism allowing Britain to remain inside the European automotive industrial system.
The proposal would not automatically extend the same privilege to every major trading partner.
Countries such as Japan, South Korea and Turkey would not necessarily receive equivalent treatment under the draft arrangement.
Burnham government has been lobbying hard
Britain has made inclusion in “Made in Europe” one of its priorities in negotiations with Brussels.
European relations minister Hamish Falconer warned earlier this month that shutting the UK out would make the whole continent’s industrial base weaker.
He said:
“I think it is vital that we don’t do things to make European industry weaker.”
Falconer argued that UK and EU manufacturing supply chains remained so integrated that erecting new barriers would damage companies on both sides.
He added:
“It would not be in either of our interests to see new barriers arising in our economic relations.”
The government has also made the issue part of Burnham’s wider reset with Europe ahead of his major summit with EU leaders.
The breakthrough with France therefore gives Downing Street something it badly wanted.
What it does not yet give Britain is a completed agreement.
The China question could be difficult
The biggest obstacle may now move from Paris to Westminster.
Britain has so far resisted following the EU and United States in imposing very high tariffs on Chinese electric vehicles.
That position has helped Chinese manufacturers including BYD, Chery and Jaecoo expand rapidly in the British market.
Chinese brands accounted for more than 20 per cent of UK electric vehicle sales in September, according to industry figures reported this month.
There are good reasons why ministers have been cautious.
Cheaper Chinese electric vehicles can make the transition away from petrol and diesel cars more affordable for consumers.
Britain also has exporters with significant exposure to China.
Jaguar Land Rover is one obvious example, and ministers are conscious that aggressive tariffs could trigger retaliation against British companies.
Business Secretary Jonathan Reynolds has nevertheless confirmed that the government is considering whether tougher action is required.
The government told Parliament earlier this year that it remained concerned about Chinese overcapacity and market-distorting subsidies and would consider trade remedies where necessary to protect British industry.
No final decision has been made.
Brexit has left Britain caught between two industrial systems
The dispute illustrates one of the less discussed economic consequences of leaving the EU.
Britain is no longer automatically included when Brussels designs programmes intended to protect European industry, even when British factories remain economically intertwined with the bloc.
That forces the UK to negotiate access individually and often accept conditions without having had a vote in designing the rules.
Supporters of Brexit would argue that Britain now has the freedom to make its own decisions on China rather than automatically copying Brussels.
The current negotiations show the other side of that independence.
If Britain wants the industrial advantages that come from being treated as part of Europe, the EU can ask it to follow European rules in return.
The Burnham government must now decide how much regulatory and trade alignment it is prepared to accept in exchange for continued access to one of Britain’s most important manufacturing ecosystems.
France and Germany have now reached a joint position
The wider Franco-German agreement is not limited to Britain.
Paris and Berlin have also reached a compromise on the future of European vehicle emissions rules.
France had pushed for tougher requirements designed to accelerate the shift towards cleaner vehicles, while Germany sought more flexibility for its carmakers.
The joint position would retain a major reduction in vehicle emissions by 2035 while easing some of the additional requirements manufacturers had faced.
In a joint statement, the two governments said their aim was to ensure that Europe could decarbonise while protecting its industrial base and keeping manufacturing jobs on the continent.
They said:
“Our objective is clear: a competitive, innovative and decarbonised European automotive industry, producing in Europe and creating the jobs of tomorrow.”
The agreement between Europe’s two largest economies gives the proposal considerable political momentum, but it is not the final word.
Other EU member states still need to agree, and the European Parliament will also have a role in shaping the legislation.
For Britain, however, the position has changed substantially.
Only weeks ago, UK manufacturers were facing the possibility that Brexit would leave them outside a major new European industrial protection scheme.
France is now prepared to let them in.
The next question is what Burnham is prepared to offer in return.
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