UK and EU Reach Landmark Agreement to Sustain Electric Vehicle Trade

UK and EU Reach Landmark Agreement to Sustain Electric Vehicle Trade

In a landmark move for the automotive industry, the European Union and the United Kingdom have jointly agreed to extend trade rules, effectively averting tariffs on electric vehicles (EVs) from next year. This development is hailed as a significant step in the green transportation revolution.

The decision revolves around the critical Trade and Cooperation Agreement (TCA), under which businesses must establish a substantial proportion of EU or UK manufacturing in their products to benefit from zero tariffs. These 'rules of origin' are essential to determine the actual origin of products, thereby ensuring appropriate tariff applications and supporting competitive market practices.

Initially, the TCA implemented a staged approach for electric vehicles and batteries, mandating incremental increases in these rules of origin. The first of these increases was scheduled for January 1, 2024, followed by a final escalation in 2027. This strategy aimed to mirror the industry’s capabilities and promote investment in domestic battery production.

However, recent global supply chain disruptions, notably due to the COVID-19 pandemic and geopolitical tensions arising from Russia’s invasion of Ukraine, prompted a reevaluation. In response, the UK and EU have concurred to suspend the planned 2024 amendments. Consequently, the current rules will remain effective until the end of 2026. This move is expected to prevent impending 10% tariffs, potentially saving the automotive sector and consumers approximately £4.3 billion.

Prime Minister Rishi Sunak conveyed that this breakthrough was a response to the sector's concerns and aligns with the government’s objective to provide practical solutions while bolstering the domestic battery industry. Business and Trade Secretary Kemi Badenoch reiterated the UK’s dedication to establishing itself as a premier destination for automotive manufacturing.

Industry leaders have expressed their support for this decision. Mike Hawes, Chief Executive of SMMT, described it as a triumph for motorists, the economy, and environmental sustainability. Ford Britain's Chair, Lisa Brankin, and Stellantis UK's Group Managing Director, Maria-Grazia Davino, acknowledged the decision’s role in safeguarding jobs and investments, and in maintaining cost-effectiveness for consumers and businesses on the path to an all-electric future.

In an additional strategic move, the UK is looking to mirror these rule extensions in its trade agreement with Turkey, a significant market for UK car companies like Ford. This step is aimed at providing stability until the end of 2026 and forms part of the UK's preparations for upcoming trade negotiations with Turkey.

Complementing these trade decisions, the UK government has pledged over £4.5 billion through the Advanced Manufacturing Plan to invigorate key manufacturing sectors. This includes over £2 billion earmarked for the automotive sector, focusing on the manufacturing and development of zero-emission vehicles and associated supply chains.

The UK’s inaugural Battery Strategy was also unveiled recently, detailing plans to establish a globally competitive battery supply chain by 2030. This includes a £50 million investment to boost the UK’s battery industry and fortify its manufacturing supply chain, a sector projected to create 100,000 high-quality jobs.

This deferral of rules of origin requirements signifies a critical juncture in the journey toward decarbonizing road transport. It highlights the effective collaboration between the EU and the UK to maintain a competitive edge in the automotive industry. Moreover, this agreement lays the groundwork for a sustainable and economically robust future in electric vehicle production and usage.