Brexit uncertainty continues for the auto industry

author: FutureCar Staff    

The potential impact of new 'rules of origin' requirements for Battery Electric Vehicles (BEV) under the Brexit trade deal is examined by David Bailey. He argues that imposing tariffs on UK-EU BEV trade would be counterproductive when both the UK and the EU are trying to promote the switch to electric vehicles in order to reach net zero emissions.

There is growing concern in the UK and EU auto industry that 10% tariffs could be imposed on BEVs traded between the two regions next year. This comes at a time when governments are urging the industry to transition to electric vehicles.

Starting next year, the new 'rules of origin' requirements will only exempt car makers from tariffs if at least 45% of a BEV's components and 60% of its battery come from the UK or EU. However, the high proportion of non-EU content in BEVs, particularly batteries from Asia, means that trade between the EU and UK could face tariffs while Internal Combustion Engine (ICE) cars remain tariff-free.

The UK has been pushing for a delay in tightening the rules of origin, but the European Commission has been resistant. The Commission is concerned that relaxing the requirements would result in more US- and China-made batteries being used in domestically assembled BEVs, undermining the EU's efforts to build a domestic battery supply chain.

Stellantis, Ford, and JLR have all called for a delay in the implementation of the rules of origin. Stellantis warned that its UK operations would be at a competitive disadvantage and may have to close if the cost of EV manufacturing in the UK becomes uncompetitive. Acea, the European Auto Employers' Federation, has argued for an extension of the rules to 2026, citing potential customs duties on EU BEV exports to the UK.

The irony is that imposing tariffs may actually benefit the Chinese auto industry, as it could lead to UK and EU-made BEVs being undercut by cheaper Chinese-made ones. Talks between the UK and EU on this issue are ongoing, but a resolution would require agreement from both sides through the joint UK-EU Partnership Council.

The Society of Motor Manufacturers and Traders (SMMT) has emphasized that the real deadline for auto makers is not January 2024, but the present, as they are already planning for production and export for next year. The industry fears another 'cliff-edge' scenario over trade rules, similar to what was experienced during the negotiation of the trade deal.

The EU argues that auto makers have been aware of these requirements since the beginning of 2021 for production planning purposes. However, external factors such as increased support for battery making in the US and slower-than-expected development of an EU supply chain have changed the landscape since the trade deal was finalized.

This situation risks damaging the auto industry that the EU wants to support, as it may incentivize offshoring of BEV supply chains. It is hoped that the European Commission will listen to the industry's concerns and consider a change in position. A sensible resolution is possible if common sense prevails.

FutureCar Staff