OEM lobby welcomes proposed EU-UK rules of origin extension

The European Commission has blinked on maintaining an end-of-year cliff edge

OEM lobby welcomes proposed EU-UK rules of origin extension
The European Commission is supportive of a compromise in the EU-UK agreements as it covers EVs

Lobby group the European Automobile Manufacturers’ Association, or Acea, is calling on the European Council to back a proposal made by its fellow EU executive body the European Commission to a specific one-off extension — until end of December 2026 — of the current rules of origin (RoO) for EVs and batteries under the EU-UK Trade and Cooperation Agreement (TCA).

Interestingly, Acea, whose current president is Luca de Meo — an Italian but CEO of French OEM Renault — is asking that the EU member states that make up the Council, which is composed of the heads of state or government of EU members, to unanimously support the Commission’s proposal.

It has been widely reported that Thierry Breton, the French commissioner for the internal market, was the staunchest opponent of any Commission concession on RoO. The EU’s other traditional heavyweight Germany — perhaps unsurprisingly given the lobbying weight of BMW, Mercedes and VW — has been seen as supportive of striking a revised deal.     

The Commission stresses the proposed extension does not affect implementation of full TCA RoO, which will be applicable as of 2027 as planned. A clause will render it “legally impossible” for the EU-UK Partnership Council, the TCA's highest decision-making body, to extend this period further, locking in full RoO from 2027 — most likely a sop to those within the EU frustrated that UK EV exports to the bloc will not suffer penalties from 2024 following the country’s ill-advised Brexit decision.

What in essence the proposed deal amendment will do is abolish the 2024-2026 period when EVs moving between the EU and UK would have been subject to increasing levels of tariff if they were not meeting increasing thresholds of domestically sourced batteries and battery materials. This would have started at 10pc in 2024.

Funding boost

The Commission also proposes setting aside additional funding of up to €3bn ($3.24bn) under the auspices of the EU’s Innovation Fund over three years to boost the EU's battery manufacturing industry ahead of full RoO introduction at the start of 2027. Investment will be funnelled towards “the most sustainable European battery manufacturers” and aims to “foster faster and more cost-efficient support for the manufacturing of the most sustainable batteries in member states”.

As a driver of the need for an extension, the Commission cites circumstances not foreseen when the wide TCA deal was struck in 2020 — including Russia's aggression against Ukraine, Covid-19's impact on supply chains, and increased competition from new international subsidy support schemes — as reasons why the European battery ecosystem has scaled up slower than initially anticipated.

Some of this may have validity to a certain extent. But it is also a fig leaf to cover a failure to understand in 2020 the scale of the issue at hand which would likely have rendered a 2024 introduction of any level of RoO rules unsustainable even in the most benign of geopolitical circumstances.

The UK is the EU auto industry’s number one export market, Acea points out. And a 2024 start to EU-UK tariffs would have “come at a crucial moment in the scale-up of EU BEV production and the evolution of global BEV competition”, it argues.

Council approval “is vital to ensure the well-being of not only EU BEV manufacturing, but also of the whole European battery value chain”, according to Acea director general Sigrid de Vries.

"Failure to approve the proposal would result in reduced competitiveness of our exports. It would also have a negative knock-on impact on demand for European batteries and battery materials, based on lost BEV market share to third-country competitors,” she warns.

Acea has some by now familiar figures to back its argument for extension — €4.3bn of lost revenue over the next three years for EU vehicle makers, potentially reducing BEV production by some 480,000 units.

“Everything should be done to ensure the competitiveness of the mobility sector so that it remains a pillar of prosperity and employment in the European economy long into the future,” says de Vries. “Far beyond just trade, we need a holistic EU industrial strategy along the entire green value chain, from R&D, mining, refining and manufacturing; to charging networks, energy supply, purchase incentives, and recycling.”

UK relief

The UK government will be relieved that a potential deal has been struck, as its efforts to secure a compromise had been under fire from its political opposition. The UK automotive industry has been signalling its desire for an extension since at least May, although the preference of some was for not just a delay until 2027 but relief beyond that date also.

Unsurprisingly, UK automaking lobby the the Society of Motor Manufacturers and Traders (SMMT) is also calling on the Council to rapidly agree to the Commission’s proposal. It argues that even the 10pc initial tariff risks “rendering both UK and EU manufacturers uncompetitive in each other’s markets”.

“Adopting the Commission’s proposal would be a pragmatic solution, safeguarding the future of the EU and UK automotive industries, supporting motorists, the economy and the environment. Such an extension would avoid damaging tariffs on the very vehicles we need consumers to buy, allow UK and EU manufacturers to compete with the rest of the world and, crucially, give the European battery industry time to catch up,” says SMMT CEO Mike Hawes.

According to the SMMT, EU-UK trade in EVs has more than doubled under the tariff-free conditions provided by the TCA. Its data has the UK sourcing almost half of all new BEVs from the EU.

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