European Commission Proposes 3-Year Delay on Tariffs for Electric Vehicles in UK-EU Trade
In a significant development, the European Commission has proposed a three-year delay on tariffs for electric vehicles (EVs) traded between the UK and EU. This move comes as a response to concerns raised by carmakers on both sides of the Channel, expressing their lack of readiness for the impending changes to post-Brexit trade rules, initially planned to take effect from January.
The proposed 10% tariffs, intended to protect the EU car industry, were anticipated to incur substantial costs. However, the delay, still pending approval from EU member states at an upcoming meeting, aims to provide relief to the struggling European car industry. This sector is grappling with the enduring impacts of the pandemic, Russia's invasion of Ukraine, and competition from US subsidies.
The postponed rules were part of EU "rules of origin," scheduled to be implemented from January. These rules would have required cars produced in the EU or UK to consist mainly of locally sourced parts to qualify for tariff-free status. The objective was to safeguard the European industry against inexpensive imports, particularly from dominant players like China in the global electric vehicle market.
Crucially, the rules would have mandated that EVs traded across the Channel possess batteries produced in either the UK or the EU. Many carmakers voiced their concerns, citing difficulties in meeting these criteria, as local battery production progress has been slower than anticipated, necessitating a reliance on imports.
Industry bodies estimated that adherence to the rules would cost European manufacturers a staggering £3.75 billion over the next three years. Additionally, there were apprehensions that steep tariffs could inflate the production costs of electric cars, potentially leading to higher retail prices.
The UK government had actively lobbied the EU for a postponement of these rules. The recent move by the European Commission is expected to be a relief for carmakers on both sides, given that the tariffs were set to take effect from January.
The UK holds a prominent position as the largest export market for European manufacturers, with 1.2 million vehicles delivered to UK ports in the previous year. Simultaneously, the UK ranks as the leading seller of cars to the EU. While proposing a three-year delay, the European Commission clarified that a clause would be added to the Brexit trade deal, making any further extension "legally impossible" beyond this period, thereby locking in rules of origin from 2027.
In a bid to support European battery manufacturers, the Commission also announced a €3 billion funding initiative over the next three years. This development places the spotlight on the UK's electric car production plans, including the announcement of gigafactories like Jaguar Land Rover's in Somerset. However, challenges remain, with none of these facilities currently operational for battery production. Doubts persist over the Blyth site in Northumberland earmarked for car battery manufacturing.
As the automotive industry navigates these regulatory changes, the focus shifts to how this delay will impact the future landscape of electric vehicle production, trade, and innovation in the UK and the EU.
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