Today, the EU Council has given the green light to extend the current rules of origin for electric vehicles and batteries in the EU-UK Trade and Cooperation Agreement until the end of 2026. This development aims to grant manufacturers more time to meet local content requirements, ultimately preventing the imposition of a 10% tariff on goods traded between the EU and the UK that fail to comply.
The decision, endorsed by the Council, empowers the EU to negotiate with the UK, ensuring the continuation of existing rules until 31 December 2026. This strategic move forestalls the enforcement of stricter regulations slated for 1 January 2024, and the associated tariff penalties.
Industry analysts anticipate that the sector will have ample time to adapt to heightened local content requirements by 2027, primarily through the expansion of battery production for electric vehicles. To facilitate this transition, a substantial financial injection of €3 billion will be allocated under the Innovation Fund.
The extension of the rules of origin comes hand in hand with a lock-in mechanism, reinforcing the commitment to the full implementation of local content requirements from 2027, as outlined in the Trade and Cooperation Agreement. As a result, no alterations are expected before 2032.
Next Steps:
The extension of the current rules is slated for approval by the EU-UK Partnership Council, a body established under the EU-UK Trade and Cooperation Agreement, before the year’s end.
Background:
Under the EU-UK Trade and Cooperation Agreement, electric vehicles qualifying for tariff-free trade must adhere to specified rules of origin, delineating the requisite local content for both vehicles and batteries. The agreement delineates a phased approach to local content requirements, with the second stage commencing on 1 January 2024 and the full regime on 1 January 2027. These measures were designed to stimulate investment in battery manufacturing within the EU and the UK.
The proposal for the extension of current rules was put forth by the Commission on 6 December 2023. It recognizes the challenges faced by the battery industry, including delays caused by Russia’s war of aggression against Ukraine, disruptions due to COVID-19 in supply chains, and heightened competition from new global subsidy support schemes. In tandem with the extension, the Commission announced the creation of a specialized instrument under the Innovation Fund on the same day, earmarking up to €3 billion to bolster the EU’s battery manufacturing industry.
