Are bikes ‘made’ by Cotic that consist of frames built in Taiwan actually British products? That’s the question that Cy at Cotic is grappling with right now (as well as many other British based manufacturers) and until that question is answered Cotic have suspended orders destined for EU customers.
The tricky situation comes down to the detail of the trade deal between the UK and the EU. The UK has a trade deal that allows British products to be be exported to the EU tariff and tax free. However, that requires a legal definition of what constitutes a British product. Within the detail of the trade deal that has been defined as a product that consists of at least 70% British sourced components, materials or the ephemeral term of ‘added British value’. It sounds complicated (and it is) but you can also see the point.
A made up example
Here’s an example we just made up..
If a British company were to import cheap toasters from a country that does not have a trade deal with the EU and then simply added a made in the UK badge before selling them tariff free to EU customers then that would be a loophole. That’s why there are now rules about what constitutes ‘British’ when it comes to manufactured products. In a nutshell (and I’ll come back to nuts later) simply adding a ‘Made in UK’ badge does not constitute enough ‘added value’ to allow it to be defined as a British product.
The nuts and bolts of it all mean that if Cotic import their Taiwan made frames to their HQ and then build them up to sell them, even though the frame has been designed by Cotic as far as the EU is concerned that may not add enough ‘British value’ to the product to make it actually a British product. That means there is a big question hanging over the export status of bikes built up from frames and components sourced from outside the UK as to whether an EU customer would be faced with an import duty charge on delivery. In order to not land their EU customers with unexpected bills on delivery Cotic have decided to halt deliveries to EU customers until they get it all sorted out.
Here’s what Cy Turner, owner of Cotic, sent to their customers via their mailing list yesterday..
| EU Exports |
| Despite the trade deal having been signed between the UK and the EU, there is still some lack of clarity on the charging of import duty for certain Cotic product lines. However, some things we know: At the moment we are clear that UK made frames (so that is currently RocketMAX and Rocket) attract Zero duty when shipped to the EU. All purchases made by EU customers are now charged without 20% UK VAT, and they will attract VAT in the country of delivery which will be payable by the customer to the courier when it arrives. This will apply even if you ordered before 31st December 2020 and paid a deposit. Don’t worry, deposits don’t attract VAT, so you won’t end up over paying any taxes if you have a deposit with us. If you paid in full, this also leaves you unaffected because completed transactions made prior to 31st December 2020 are to remain under the previous rules. This situation will persist for 6 months whilst the new EU/UK VAT collection system is put in place. The unclear situation is with Taiwan produced frames, and possibly complete bikes using Taiwan made frames. The Zero duty situation is for goods that are “UK Origin” or have a significant proportion of UK ‘value add’. For the UK made frames they easily meet these requirements because they are more than 70% UK made or processed by value. What we are currently trying to ascertain is whether our EU customers who have bought Taiwan produced frames or bikes assembled using the majority of Taiwan sourced parts might need to pay some import duty. This is because the rules regarding items being of “UK origin” are a bit unclear, and the ‘value add’ by Cotic possibly doesn’t add up to a significant enough percentage of the value of the end product supplied to qualify for zero rating. I am currently going through the full trade agreement to try and figure it out, and we are in touch with our industry body to get to the bottom of this. The upshot of all this is that for this week at least and maybe longer, and until we know exactly what the duty situation is, we are not shipping anything to customers in the EU. We want to give ourselves time to understand and apply the new rules correctly, and then be able to explain them to customers. There will be increases in shipping prices as well due to the couriers having to clear products through customs now, so once we have all the costs understood, we will be in touch to agree any cost increases with you. If you have an order placed already, but don’t wish to pay the extra fees, then we will cancel and refund. No problem at all. At the very least, we will do everything we can to look after you whether you want to complete the order or not. What I really want to stress is that as soon as we have a firm operating procedure and pricing for our friends in the EU, we will start shipping again, but in the meantime you are more than welcome to place provisional orders with us so you can make sure you have a place in the queue for our upcoming deliveries. |
The situation for trading with the rest of the world remains unchanged but if you think the way bike sales are affected is complicated you should check out what it means for the food export industry when it comes to processed ingredients. Importing nuts in shells and then removing the shells in the UK before using them as ingredients in food products apparently does not add enough ‘British value’ to warrant the final product being permitted to be exported to the EU tariff free.
We are now outside of the EU but what is becoming clear is that there are uncertain times ahead of us before everything settles down to the new normal. Although, if anyone can predict what the new normal will look like we can add your addendum to our Predictions for 2021 story.
Brexit isn’t all bad, is it?
Finally, Brexit has happened – there’s no changing that now. We have been criticised over recent months for being overly negative about the transition. While it’s true that we don’t think it was a good decision and we’d have preferred a different result that’s now in the past. We will report stories objectively about Brexit and its effects on the bike industry but that doesn’t mean we will only publish the negative stories. We are actively looking for the good news stories too and if you have any to share with us then we’d be happy to hear them. Send your good news Brexit stories to us at newsdesk@singletrackworld.com or post them below.
I can’t believe this is happening, bikes are only one small product that are intrinsic to our daily lives and there are companies in Britain and Europe having difficulty doing business. We have a government who had 4 years to work this out and still companies can’t figure it out. This will surely leave their customers and potential customers confused and less inclined to purchase a British product, what a shame.
Generally speaking of course you’re correct but bikes (and frames) have a pretty liberal policy, far more than the stock 10% of costs for non EU/UK parts that most products fall under. You’re allowed a sufficiently high percentage of value that the ex works price for the completed article could be getting close to the normal factory or wholesale price assuming you’re not selling them super cheap. So if you can find a way to reduce your non EU/UK costs (polish wheels, maybe British brakes etc. Or perhaps just the frame itself could be enough for someone like Brompton) Then you’ll potentially find that it fits in the rules.
I can only assume it’s been done this way because it’s recognised that bikes are an assembly of parts not a singular manufacturing unit, and hence the policy is not damaging either side disproportionately (unlike say a car equivalent would damage the German/french car industries).
Early days yet but it looks doable.
Incidentally the EU has had a 48% anti-dumping tarif on bikes for some time and will be extremely vigilant on bikes from Britain which may try to avoid it. There’s a huge bike factory in Portugal which has boomed since the introduction of tarifs on cheap imports. Use Google translate if you don’t understand:
https://www.lci.fr/international/video-comment-le-portugal-est-devenu-le-premier-fournisseur-de-velos-d-europe-2170510.html
Should also say for those not familiay with the system you can’t import something and resell it as the same item so the example Educator gives is correct, you can’t import a frame, mark it up and resell it as british, but not based on the value of the mark up, it has to change hs codes essentially, or more specifically you can’t include any items in your assessment that are the same import type as what you’re selling, so if you import a frame and sell it again it’s not qualified for any relief. However if you import a load of parts under 8714xxxx codes and turn them into a bike exported under 8712xxxx then that is different.
But not unless the British/EU value is 70%, Ben. If all the parts a cleary from China just assembling them isn’t going to be enough. Is having a British brazed frame made with Renolds tubes and a few locally sourced components enough? That I think is the dilema companies like Cotic and Brompton are facing, and looking for guidance.
Use Google translate if you don’t understand:
I think youre going to need a bit more than Google translate 🙂
I think the problem is that the UK hasn’t published the tolerances yet, but the EU has, so its a question of having the information isn’t it? I am not a lawyer and I await the opinions of people that are hopefully in the next week or so, but the information published indicates that if you can show that your non EU-UK parts costs were under the right amount as a proportion of the Ex Works (onward Sales price excluding all taxes and pretty much everything else) then it would qualify for preferential rates.
This isn’t new, the EBA agreement with Cambodia gives the same kind of deal (I think maybe the tolerances are a touch wider) and there’s a ton of bikes coming into the EU from Cambodia – I can only assume because of the import rates, and of course they’re all laden with Taiwanese and other non-cambodian parts. More directly comparable Vietnam has a 5% discount on the standard tariff and they operate (as far as I can tell) an identical regime to that proposed / agreed for the UK and again they are sending the EU massive numbers of bikes, all running non Vietnamese kit.
In both cases the material mainly comes from China, its welded and painted in country and then assembled with overseas parts before export to the EU.
This is all getting very silly and i’m going to make it even worse…
What happens if Hope makes their bikes in the Uk but uses an American engineer to design the bike, a Polish person to operate the Japanese cnc machine powered by electric than is produced by a french power station (there are cables between countries) machining Chinese aluminium? Does this still count as a British product or a mix and if so who decides what percentage of production valve?
ahh, the great lie of Boris’s free-trade deal.I own and run Stooge, i design my frames in the UK but get them produced in Taiwan. This is nothing to do with pulling the wool over people’s eyes and rebadging a taiwanese frame as a British product or any other skulduggery, it’s about using somebody with the skills to produce my frames to a high quality but at a price that means i can sell them for what i think is a good price. I’d love to get my frames made in the UK but the option quite simply isn’t there, and if it were i’ve no doubt i’d have to charge nearly double what i charge now. Would the product be any different or better? No.. Hats of to Stanton for biting the bullet and making the no-doubt huge investment to bring production in-house, looks like it was a canny move when it comes to EU sales, and the same goes for Cotic using Fiveland. I’m no fan of Brexit, as a tiny one-man bike company it’s played havoc from the beginning to the bitter end, but onwards we march. More shocking is that we’ve been told to get ready for Brexit for months with no idea what we’re supposed to be getting ready for, and even now clear guidance is notable by its complete absence.
Isn’t this all to do with how you define “value” though?
If a generic hardtail frame from a TW factory is sold (in bulk) for the equivalent of 100 GBP (I have no idea, so I’ve just picked a round number), they are imported into the UK where a team of crack marketers and (cringe) influencers run a super-successful campaign, adverts, promos, demo days etc etc, to the point that these frames can be (and are) sold for 1000 GBP – then surely, the UK team have added 900 GBP of “value”? And that’s before you factor in things like the value of good customer support, warranty etc, which people are prepared to pay for.
Otherwise are we just defining value only in manufacturing/raw material terms?
Speaks to Jonestown’s point above – how does he quantify the “value” that his design adds to the frame he’s had built in Taiwan, if not in it’s “markup” over a generic one from the same factory – then how?
Sorry, genuinely don’t understand.
You can’t just mark up something. There’s a qualification you must meet for it transforming to a UK product which boils down to a change of tariff class as well as at least a ‘non simple assembly’ process occurring, both of which must be met. So buying a set of stickers and restickering a £100 frame won’t cut it, nor would just marking it up with no change to the class.
There’s documented examples and real life cases (eg Vietnam) that demonstrates that bikes qualify and how the exworks mark up works. So the only question is one of interpretation of ‘non simple assembly’, and where your product falls in terms of the cost thresholds.
I would think for the UK made frames cotic should be able to make it work, for the Taiwan frame only, no chance, Taiwan complete bikes, possibly.
FWIW I will add one more thing – the process we’re going through isn’t new or unusual, it is the same as with Canada when the EU signed its deal there, or the same as 100 countries went through before. We have a trade deal with the EU. Nothing more, nothing less. All trade deals are different, ours is more ‘generous’ than most.
The problem is that it’s been signed into law with literally a weeks notice, giving no one time to prepare for the actual rules. You cant get a certificate of origin for a bike if you don’t know the tolerance on non UK/EU parts. So there was no way to be ready.
All we have had is months of trolling from UK Gov telling us to prepare while giving no details on what to prepare for. Now the detail is out there (from the EU at least, nothing from the UK side) we can all get on and make the necessary applications for our certificates of origin etc. To be honest we should have started this process a few months ago ‘just in case’, but we couldn’t have completed it until the deal was known.
Does this work the opposite way? Ie will european “made” bikes built in Taiwan incur import duties into the UK?
Thanks for the insight Ben. So, whether a product is “British” or not is based soley on the product itself – not the design, or “soft” side of the business (marketing, after sales etc), but purely on the actual physical item?
Would be great to hear from Mr Dyson at this point – I wonder if he can be reached for comment?
The soft elements will be incorporated into the Ex Works price. The higher the EXW price the more likely you meet the tolerances. Yes I know that sounds a bit nuts but its the way it is. Remember this tolerance vs. EXW price isn’t on all products, only a limited number (like bikes) where its deemed necessary for the process of production to actually work.
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Does this work the opposite way? Ie will european “made” bikes built in Taiwan incur import duties into the UK?
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Yes it will, its a totally reciprocal arrangement, but you don’t think companies like YT and Canyon have been beefing up their UK presence over the last couple of years because they like the weather do you 😉 ?
“I would rather pay extra for a British made product, knowing that I am not only supporting that company but also its employees and their families.
Bring back the “BUY BRITISH” campaign.”
This is one of the many reasons Brexit, simple answers to complex problems. My numbers are somewhat out of date but Giant employ more people than Orange and Cotic combined so if you really want to support British jobs then your argument isn’t as simple as you think.
“Brexit isn’t all bad, is it?”
Are you ******* joking?
“Send your good news Brexit stories to us at newsdesk@singletrackworld.com or post them below.”
Two hopes with that.
I’ve just been trying to buy some skis for my son. All the usual Euro outlets are now not shipping to the UK. When the full picture of how Brexit is going to **** up the minutiae of everyone’s lives is clear the public is going to **** themselves.
“”Does this work the opposite way? Ie will european “made” bikes built in Taiwan incur import duties into the UK?”
———Yes it will, its a totally reciprocal arrangement”
Does that mean if I purchase some made in Tawain components from a German webstore then duty will be due at import? And what about Wiggle / CRC selling to the EU, or do they have a EU presence?
have you tried to buy from German websites recently? Bike Discount have implemented a minimum order value to get round the VAT bit of a mess. 2.5% + 20% vat + a couriers handling fee,. not sure of the order those are applied.