MercoPress. South Atlantic News Agency

Tariffs on electric vehicles avoided as UK and EU extend trade rules

“The UK Government is delivering a pragmatic solution to keep costs down for businesses and for people at home who want to switch to electric vehicles”

The UK and EU have agreed to extend trade rules on electric vehicles until the end of 2026 to keep costs down for manufacturers and consumers, Prime Minister Rishi Sunak has announced.

To access zero tariffs under the Trade and Cooperation Agreement (TCA), businesses must prove their products include a minimum level of EU or UK manufactured content. These requirements are known as “rules of origin” and help determine where products originate rather than where they’re shipped from to ensure lower tariffs are correctly applied to eligible products and support market competition.

Under the existing Trade and Cooperation Agreement, a staged approach was introduced for electric vehicles and batteries which required phased increases in these rules of origin requirements - with the first increase due to take effect on 1 January 2024, before a final increase from 1 January 2027.

This phased approach would increase the content requirements for electric vehicles to be eligible for tariff free trade over the next three years. These were initially designed to reflect industry capability at the time and incentivize investment in domestic battery production.

However, in recognition of the disruption to the global supply chain caused by the COVID-19 pandemic and Russia’s illegal invasion of Ukraine, the UK and EU have agreed to cancel the 2024 changes, meaning the existing rules of origin will last for a further three years until the end of 2026.

This agreement facilitates UK-EU tariff-free trade in electric vehicles and prevents 10% tariffs being levied on this trade from January. Industry expects this will save car manufacturers and consumers up to £4.3 billion in additional costs and provide long term certainty to the sector as we continue to scale up our domestic battery supply chain and work to deliver our net zero commitments.

PM Rishi Sunak said, “we have listened to the concerns of the automotive industry, and we have made it a priority to find a joint solution with the EU on electric vehicle tariffs that works for both sides. Today’s agreement is further evidence that our more constructive relationship with the EU is delivering for UK citizens and businesses, building on the Windsor Framework and the bespoke agreement reached on the Horizon research program.

”The UK Government is delivering a pragmatic solution to keep costs down for businesses and for people at home who want to make the switch to electric vehicles.

“We are also leaving no stone unturned to bolster our domestic battery industry and deliver long term certainty for our thriving automotive sector to help them grow their roots in the UK.

Business and Trade Secretary Kemi Badenoch said”, “Government is determined to ensure the UK remains one of the best places in the world for automotive manufacturing. We listened to the concerns of the sector and worked hard with counterparts in Brussels and across Europe to deliver a solution that works for both sides.

”Resolving issues like this one is part and parcel of being an independent trading nation. This very good result is a visible demonstration that the UK is delivering for business with trading partners around the world.

“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, in a further boost for 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 for a new modern free trade agreement with Turkey next year.

”The agreement comes as both the UK and EU committed to working together to bolster our domestic battery supply chain. At the Autumn Statement the Chancellor announced that we’re making available £4.5 billion over five years through the Advanced Manufacturing Plan to unlock private investment in strategic manufacturing sectors across the UK.

“This includes over £2 billion in R&D and capital funding for the automotive sector to support the manufacturing and development of zero emission vehicles, their batteries and supply chain - building on existing support.

”Last month we published the UK’s first ever Battery Strategy, outlining our plan for the UK to attract investment and achieve a globally competitive battery supply chain by 2030. In the strategy, we announced an additional £50 million investment to develop the UK’s battery industry and to secure a resilient UK manufacturing supply chain. The battery sector alone could create 100,000 highly paid and skilled jobs in the UK.”