Tariffs on electric vehicles traded between the UK and EU are set to be postponed for three years, as proposed by the European Commission. This decision follows warnings from car manufacturers on both sides of the Channel, expressing their lack of readiness for the impending changes to post-Brexit trade regulations scheduled for January.
Originally designed to safeguard the EU car industry, the proposed 10% tariffs were anticipated to result in substantial costs. The plan still requires approval from EU member states at a meeting scheduled for next week. Despite initial resistance from the Commission against delaying the rules, appeals from both carmakers and the UK government prompted a shift in stance.
The Commission justified the "one-off extension" on Wednesday, citing the necessity to bolster the bloc's car industry, which continues to grapple with the repercussions of the pandemic, Russia's invasion of Ukraine, and competition exacerbated by US subsidies. The EU's planned "rules of origin," slated for implementation in January, stipulate that vehicles produced in either the EU or UK must predominantly incorporate locally sourced components to qualify for tariff-free status. The overarching goal was to shield the European industry from the influx of low-cost imports, particularly from influential players such as China in the global electric vehicle market.
Concerns were raised by industry bodies, expressing that the proposed rules could incur a cost of £3.75 billion for European manufacturers over the next three years. There were apprehensions that substantial tariffs might elevate the production costs of electric cars, potentially leading to an increase in retail prices.
The UK government had actively advocated for the postponement of these rules within the EU. While the European Commission's decision aligns with expectations, it comes as a relief to carmakers on both sides of the Channel, especially considering the tariffs were slated to take effect in January.
The UK stands as the predominant export market for European manufacturers, with 1.2 million vehicles delivered to UK ports in the previous year. Simultaneously, the UK surpasses other regions in selling cars to the EU.
Despite proposing a three-year delay, the European Commission outlined its intention to include a clause in the Brexit trade deal, rendering any further extension "legally impossible." This measure is designed to solidify the rules of origin until 2027.
In addition to the delay, the Commission pledged €3 billion in funding over the next three years to support the growth of European battery manufacturers. This development puts a spotlight on UK electric car production plans, particularly the announced gigafactories like Jaguar Land Rover's in Somerset, although none have yet commenced battery production.
Uncertainties persist regarding the Blyth site in Northumberland earmarked for car battery production, raising questions about its viability and timeline.