Brussels is resisting an “urgent plea” for the European Union to extend zero-tariff Brexit trade rules on electric vehicles amid car industry concerns over a deadline of New Year’s Day that could lead to job losses.
Not rolling over a 2024 deadline on tariffs could lead to an extra €4.3 billion (£3.6 billion) in costs and reduced production of 480,000 electric vehicles for European car-makers as subsidised rivals in America and China tussle for market dominance.
The 2020 Brexit deal had a phased-tariff clause to exempt electric vehicles from levies until next year but the industry has fallen behind on targets on battery production and is pleading for more time for a sector that employs 13 million people.
Unless the European Commission backs down on extension, all electric cars that are less than 45 per cent made in the UK or EU will be hit with a 10 per cent tariff on January 1.
“Driving up consumer prices of European electric vehicles at the very time when we need to fight for market share in the face of fierce international competition is not the right move,” said Luca de Meo, the chief executive of Renault and president of European Automobile Manufacturers’ Association (ACEA).
“We will effectively be handing a chunk of the market to global manufacturers. Europe should be supporting its industry in the net-zero transition as other regions do — not hindering it.”
The ACEA represents all major European car and automotive makers, including BMW, Ferrari, Mercedes-Benz Volkswagen and Volvo Group and is a powerful interest group.
Normally, the commission would be receptive to the demands, and Brussels has already watered down EU legislation to help the industry compete internationally, but the Brexit trade agreement is highly political.
“This is a treaty that was negotiated over a long period and it is politically sensitive. Changing this treaty is not a straightforward ask,” said a senior commission official.
Under the Trade and Cooperation Agreement (TCA), which was agreed as tense negotiations went to the wire on Christmas Eve 2020, tariff exemptions on the “rules of origin” of electric vehicles were phased out to encourage battery production in Europe.
After three years of the TCA, European car-makers are warning that “more time is needed to build up the kind of scale needed to meet the rules of origin”.
While the political relationship between the EU and Britain has warmed considerably since 2020, the demand for an extension is politically difficult because it potentially impacts on a review of the treaty in 2025 that Labour is seeking to use to reopen the deal.
The tariff deadline of January 1, 2024 is the first, with a 2027 cut off for the grace period on “rules of origin” with the introduction of 55 per cent levies for vehicles that are not sufficiently European and British.
British and EU diplomats expect the TCA review to discuss a wider and later extension beyond 2027 but predict that the commission will take a tough stance to pressure industry as well as Britain.
Steep tariffs could make electric cars more expensive to produce, potentially pushing up prices and damaging investment at a time when European industry is complaining about US and Chinese subsidies distorting the market.
BMW’s recent announcement of a £600 million investment in Mini factories in Oxford and Swindon to prepare for all-electric production from 2030 have focused minds on the high stakes for industry on both sides of the Channel.
Trade officials from the EU and the UK meet this week in London but the talks are expected to go to the wire this winter.
Joël Reland, of the think tank The UK in a Changing Europe, suggested that, for the commission, “net zero transition and China’s dominance of green technology are top-priority issues for the rest of the decade”.
He said: “Trade with the UK is not. Therefore, it seems willing to accept tariffs on electric exports to the UK as collateral damage in its quest to upscale EU-based manufacturing. But a key question is whether member states like Germany and France are willing to accept this decision, given the major opposition from their car industries. Ever since the Brexit vote, member states have unflinchingly followed the commission’s lead on UK issues, but this could be a turning point.”
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Brussels urged to delay Brexit deadline amid fears of huge job losses for car industry