Electric Cars Facing Barriers Between UK and EU: Possible Solutions
With the looming post-Brexit tariffs imposed on cars, the UK needs to find a way to prevent damage to its car industry. The EU’s post-Brexit trade deal with the UK stipulates that electric vehicles (EVs) traded between the two regions starting next year must have at least 45% of their components sourced from the two regions or face tariffs of 10%. The plan is problematic since the UK and EU still import many EV components from Asia, particularly batteries, and lack battery production capacity within Europe.
London has asked the EU to postpone introducing the levies until 2027, a move backed by both UK and EU carmakers. However, two Brussels officials suggest that instead of requesting a postponement, the UK should join a pan-European trade in goods deal that will treat goods assembled in one country from parts made in another signatory state as originating from exporting countries. By doing so, the UK can avoid the introduction of tariffs and ease damage to its car industry. The simplest way to solve this issue is for the UK to join the pan-Euro-Mediterranean convention, which has “harmonized trade rules,” according to a senior official in Brussels. Nevertheless, after leaving the EU, the UK chose not to join the EMP.
The European Commission has rejected the idea of an extension of the current EU-UK tariff exemption. The commission sees the change to rules of origin requirements as leverage to encourage EU carmakers to invest in battery plants in the region instead of relying on EV components from Asia. For the UK to access the PEM, which could support its car industry, some trade experts argue that it would do little to resolve the tariff issue between the UK and the EU since batteries remain mostly imported from Asia. Still, David Henig of the European Center for International Political Economy think tank believes it would help remove barriers to UK producers by preventing future post-Brexit tariffs, especially in other sectors like food.
Possible Solutions for the UK Car Industry
One of the UK’s biggest concerns post-Brexit is the imposition of tariffs on EVs, where components imported from Asia make up a significant portion of EV batteries’ value. For the UK car industry to remain competitive, it needs to find ways to avoid near-term tariffs and mitigate future post-Brexit tariffs in other sectors.
Joining the Pan-Euro-Mediterranean Convention
One possible solution is for the UK to join the Pan-Euro-Mediterranean Convention, backed by two senior officials in Brussels. The convention is a comprehensive system of free trade agreements covering trade in goods between the EU, EFTA (Iceland, Liechtenstein, and Norway), and 27 Mediterranean partner countries. Joining the EMP will treat goods assembled in one country from parts made in another as though they were exported directly from that country, avoiding duties and quotas. Nevertheless, the UK declined access to joining the convention after leaving the EU. However, joining the PEM can only address part of the problem because batteries are mainly imported from Asian manufacturers.
Building Domestic EV Battery Supply Chains
Meanwhile, the EU seeks to use the upcoming change to rules of origin requirements to encourage its carmakers to invest in battery plants within the region to compete with Asian-made components. The Commission sees this as an opportunity for Europe to develop its battery industry. In this sense, the UK can also invest in domestic EV battery manufacturing to comply with the new rules, thus preventing tariffs and ensuring its car industry’s sustainability.
Assuring Partnership Between the UK and EU
To make progress in the automotive industry, the UK needs to prioritize collaboration with the EU and build a strong partnership to foster more cooperation. The UK can also have closer cooperation with Norway, which joined the PEM, signed a trade deal with the UK, and also possesses electric vehicle charging infrastructure and a domestic EV battery-making facility. The UK has signed a trade agreement covering zero-tariff mutual trade with the EU, and it needs to work with the EU to make progress in reducing tariffs and other trade barriers.
Conclusion
Electric vehicles have slowly become a popular option for car owners worldwide, partly thanks to the climate crisis and the world’s shift towards clean energy sources. However, tariffs on EV components remain a significant challenge for the UK car industry. As suggested, joining the Pan-Euro-Mediterranean Convention or investing in domestic EV battery manufacturing could help the UK avoid tariffs on EVs’ components. Meanwhile, the UK must prioritize building a strong partnership with the EU to foster cooperation in the automotive industry.
Summary
The UK’s automotive industry seems to be facing significant challenges due to the looming post-Brexit tariffs on electric vehicles (EVs). According to a post-Brexit trade deal between the EU and the UK, EVs traded between the regions must have at least 45% of their components sourced from the two regions, or the two sides face tariffs of 10%. Since the UK and EU still import most of EV’s components from Asia, particularly batteries, electric car manufacturers from both regions have found it hard to comply with the post-Brexit rules. The UK is currently in talks with the EU to delay the introduction of the levies until 2027. However, two senior officials in Brussels suggest that instead, the UK could join the pan-European trade in goods deal to prevent the introduction of tariffs. Joining the pan-Euro-Mediterranean Convention could solve the UK’s tariff issues. Still, the country declined to join after leaving the EU. Another solution is for the UK to invest in domestic EV battery manufacturing, build a strong partnership with the EU, and increase cooperation with countries such as Norway to cope with the challenges posed by the post-Brexit tariffs and ensure the automotive industry’s sustainability.
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The UK should join a pan-European trade in goods deal to limit the damage to its car industry from looming post-Brexit tariffs instead of asking for a postponement of their introduction, according to senior officials in Brussels.
From next January, EVs shipped between the UK and the EU will need to have at least 45% of their components sourced from the two regions or face tariffs of 10%, under “rules of origin” terms set out in their post-Brexit trade deal.
The limit rises to 60 percent for batteries, which make up a significant portion of one’s value IVand is particularly problematic as the UK and EU still import many from China, South Korea or Japan.
London wants the EU to postpone introducing the levy until 2027. The move is backed by UK and EU carmakers, who have warned that will not be able to comply with “rules of origin” from next January due to lack of battery production capacity in Europe.
But two senior officials in Brussels said they would instead encourage the UK to sign an existing pact among more than 20 other European, Middle Eastern and North African countries that treats goods assembled in one country from parts made in another signatory state as originating from exporting country, thus avoiding duties and quotas.
“The simplest way to solve this problem is for the UK to join the pan-Euro-Mediterranean convention,” one said, citing its “harmonised trade rules”. After leaving the EU, the UK decided not to join the EMP.
The European Commission has rejected the idea of an extension of the current EU-UK tariff exemption. “If you go that route [of an extension] we will never be able to build our battery supply chain in Europe because [companies] it will block long-term supply from China,” Maroš Šefčovič, vice president in charge of UK relations, told the Financial Times.
The concession for electric vehicles was originally agreed as part of the UK’s post-Brexit trade and cooperation agreement with the EU to allow fledgling battery industries to flourish on both sides of the Channel.
Commission sees forthcoming change to rules of origin requirements as leverage to encourage EU carmakers to invest in battery plants in the region, partly at the expense of UK industry, which has struggled to attract investment in the field.
The UK’s accession to the PEM could help European automakers, as signatory states like Norway and Turkey, develop a domestic industry for manufacturing electric vehicle batteries, but trade experts have warned that soon term would do little to resolve the tariff issue between the UK and the EU given the need to import batteries from Asia.
“PEM might help in some areas, but it’s not necessarily an instant fix,” said Sam Lowe, a commerce expert at consulting firm Flint Global. “PEM membership does not solve the main problem at the moment for EU and UK car makers, which is the need to import batteries from Asia that is not part of PEM,” he added.
But David Henig, of the European Center for International Political Economy think tank, said the move would help avoid future post-Brexit tariffs in other sectors such as food. “It would go some way towards removing barriers to UK producers remaining part of supply chains.”
He added that commission officials had told him the EU and other EMP signatories would approve UK membership, but warned of a possible delay. “PEM rules are being updated and the UK probably could not join until that process is complete.”
Government insiders said ministers believe a solution avoiding electric vehicle tariffs from 2024 could be achieved under the TCA. The government declined to comment.
https://www.ft.com/content/465b8ee1-7d32-4c62-bbbc-de6a3ed9d185
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