In a bid to prevent import tariffs on electric vehicles (EVs) traded between the European Union (EU) and the United Kingdom (UK), the EU has put forth a proposal for a three-year extension to the tightening of trade rules, originally slated to take effect next year.
The EU and the UK represent each other's primary markets for EV exports, as both regions promote EVs as eco-friendly alternatives to traditional gasoline or diesel-powered vehicles. To qualify for zero tariffs under the post-Brexit Trade and Cooperation Agreement (TCA), EVs must have a minimum of 55% of their value originating from either the EU or the UK, with higher thresholds set at 65% for battery cells and modules, and 70% for battery packs.
However, the TCA includes two transitional periods. The first, covering EVs requiring 40% local content and battery packs and components with 30%, will now be extended to 2027, as per the Commission's proposal. Importantly, the second transition period, spanning from 2024 to 2026, with requirements of 45% for EVs, 50% for battery cells and modules, and 60% for battery packs, will be eliminated.
The Commission's move comes as a relief to EU vehicle manufacturers, who had estimated that adherence to the TCA's original timeline could have resulted in tariffs costing them 4.3 billion euros. The European Automotive Manufacturers' Association (ACEA) expressed its support for the proposed extension.
Maros Sefcovic, Vice President of the European Commission overseeing EU-UK relations, cited Russia's Ukraine invasion, escalating energy prices, and competition from rival support schemes as factors slowing down the EU's battery production expansion. As batteries constitute a substantial portion (30-40%) of a vehicle's value, the majority of which are sourced from China, many carmakers argued that meeting the TCA's second transition period requirements would have been challenging. They emphasized that tariffs would have primarily benefited external competitors, particularly Chinese automakers whose exports to Europe have been on the rise.
Northvolt, a Swedish battery producer, lauded the EU's proposal as a "strong, strategic move" that could enhance Europe's competitiveness in the pursuit of more sustainable and circular batteries.
The proposal is set to undergo consideration by EU member states, the majority of which have expressed support, before being presented to the UK. The UK has also signaled its backing for an extension of the EV trade rules. This development reflects the evolving dynamics of international trade and cooperation in the EV sector, highlighting the importance of harmonizing trade regulations to facilitate global sustainability goals.
