EU proposes three-year delay before EV tariffs hit UK trade

The European Union proposed delaying by three years tariffs on electric vehicles traded with the UK that are set to kick in on Jan. 1, in a win for carmakers that warned the rules would unnecessarily hurt their operations.

“This is a one-off extension that will not be possible in the future,” Maros Sefcovic, the EU chief for post-Brexit relations with the UK, told reporters Wednesday. He said the proposed change to the EU-UK Trade and Cooperation Agreement applies only to the one narrowly defined sector and is not part of a broader renegotiation of the deal.

The EU’s executive arm also said it would provide funding of up to €3 billion ($3.2 billion) over the next three years to support European battery makers.

“This new instrument will provide support, possibly as a fixed premium to the European manufacturers of the most sustainable batteries creating important spill-over effects on the entire value chain,” Sefcovic said.

Under current post-Brexit arrangements to be phased in from Jan. 1, EVs moving between the UK and the European Union would draw a 10% duty if less than 45% of their value comes from the region, with the policy meant to encourage development of Europe’s battery supply chain.

But carmakers, the UK and the vast majority of EU member states had been pushing to delay the measure until 2027 because local cell supply isn’t ready. France has long resisted a straightforward extension, preferring instead alternatives to mitigate the impact of the tariffs on the industry. Paris had signaled in recent weeks that it was open to finding a flexible solution.

“This balanced proposal provides much-needed predictability and stability to EU car and battery makers at a time of fierce global competitive pressure,” Valdis Dombrovskis, the EU’s trade chief, said in a statement Wednesday. “It is the result of intense engagement with industry across the entire EV supply chain and with trade unions, which had expressed concern about rules that would have seen tariff barriers hit our EV exports to the U.K., our largest export market.

The recommendation for a three-year delay needs to be approved by EU capitals first, and then followed by a joint decision with the British government. 

Swedish EV battery maker Northvolt AB praised the proposed EU extension as a strong strategic move. “If used correctly, this mechanism could further fuel the race towards creating more sustainable and circular batteries, giving Europe a competitive edge while also moving towards realizing the goals of the Paris agreement,” Anders Thor, the company’s vice president for communications, said in an emailed statement. 

European carmakers called on EU member states to approve the deal quickly, saying it will protect jobs and benefit consumers. 

 “Failure to approve the proposal would result in reduced competitiveness of our exports,” Sigrid de Vries, the executive director of the European Automobile Manufacturers’ Associations said in a statement on the group’s website. “It would also have a negative knock-on impact on demand for European batteries and battery materials.”©2023 Bloomberg L.P.