The EU-UK Partnership Council is extending the current rules of origin for electric vehicles and batteries for three years.
The rules had been set to change in the New Year to impose a 10% tariff on vehicles without a substantial European component, particularly batteries. However the battery plants needed for EU and UK supply are not yet fully up and running.
The decision adopted today will see the current rules adopted until 31 December 2026.
The rules of origin for electric vehicles and batteries under the TCA were designed in 2020 to incentivise investment in the EU’s battery manufacturing capacity. The EU points to circumstances not foreseen in 2020 – including Russia’s aggression against Ukraine, COVID-19’s impact on supply chains, and increased competition from international subsidy support schemes in the US and China that led to a situation where the scaling-up of the European battery ecosystem has been slower than initially anticipated.
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The European automotive, battery and chemical industries as well as trade unions had raised significant concerns about the change in regulations which would cost the UK and European car industry several billion euros.
“We welcome the agreement between the EU-UK to maintain the current Rules of Origin for batteries requirements until January 2027,” said Maria-Grazia Davino, Group Managing Director, Stellantis UK. “We can now focus on our planned acceleration towards electrification, keeping costs down for our customers. The agreement demonstrates the importance of the trading relationship between the EU and UK and keeping the UK competitive.
“We have been listening to concerns of the sector throughout this process, and I know this breakthrough will come as a huge relief to the industry,” said UK prime Minister Rishi Sunak.
“Today’s Decision of the Partnership Council will give legal certainty to European operators. In parallel, the EU will provide significant financial support to European producers of sustainable batteries with a view to strengthening production capacity of batteries in the EU. This is a balanced solution that protects the EU’s interests,” said Maroš Šefčovič, Executive Vice-President for European Green deal who has been driving the battery gigafactory development programme in Europe.
However this is a one-off extension of the UK tarrif that cannot be prolonged, as the Partnership Council is no longer empowered to modify these rules until 2032 says the EU, calling on EU industry to intensify its investments to increase and deepen its battery manufacturing capacities.
The industry also needs to evaluate its supply chains to ensure that vehicles destined for export to the United Kingdom are assembled with EU-originating (or UK-originating) batteries, in order to comply with the rules of origin applicable from 1 January 2027.
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In parallel, the EU is stepping up its efforts to support the production and development of more batteries in the EU. This includes the recently announced funding mechanism of up to €3 billion to boost the EU’s battery manufacturing industry. This will create significant spillover effects for the entire European battery value chain, notably its upstream segment, as well as support the assembly of electric vehicles in Europe.
The UK will also look to agree to extend the equivalent rules of origin in the UK-Turkey preferential trade agreement ready for the end of the year that it says will boost UK car companies who are major exporters to the Turkish market, such as Ford. This will ensure the existing rules of origin will last for a further three years until the end of 2026, and comes as the UK looks to start negotiations on a free trade agreement with Turkey next year.