The EU and UK car industries are urging the European Commission to adjust the Brexit trade deal and suspend, for a second time, tariffs on imports of electric vehicles. They have expressed concerns that they will not be able to meet the conditions set for 1 January 2027 for tariff-free sales.
This is because of strict rules of origin over what products can qualify for tariff-free trade under the EU-UK Trade and Cooperation Agreement which has applied since 2021. Under the 2020 Brexit deal, 55% of a car’s value had to be made in Europe by 1 January 2027 to avoid tariffs, but 70% of the battery pack and 65% of the battery cell also had to be made in Europe.
It was originally envisaged that 30% of battery packs and battery cells would be made in the EU or the UK within years of the deal – with the rules of origin regime incentivising investment in domestic battery manufacturing. By 2023, it was clear this was not the case, partly because of Covid and partly because of shortages of semiconductors caused by Russia’s invasion of Ukraine.
Under mounting pressure from the car industry, the European Commission agreed to suspend the rules for three years until the end of this year. But with seven months to go, the industry has told the commission that it cannot meet the “made in Europe” battery targets this time either.
Jonathan O’Riordan, international trade director at ACEA, the European Automobile Manufacturers’ Association, said the industry had forecast that 60% of batteries across all segments, from cars to trucks, would be made in Europe by 2027 when the tariff schedule was first suspended in 2024. It is now estimated that by 1 January 2027 “just under 20%” of batteries will be made in the EU, said O’Riordan.