EU, UK sign deal to extend EV, battery rules of origin under Trade and Cooperation Agreement

Policy & Regulation

When goods are exported under the terms of EU FTAs, they must comply with ROO to obtain tariff preferences

Source: Getty Images/Anton Opperman

The EU and the UK government have signed a deal to extend the current battery and electric vehicle rules of origin (ROO) under the Trade and Cooperation Agreement (TCA), the European Automobile Manufacturers’ Association (ACEA) said in a press note on Dec. 21.

ACEA said that the vehicle manufacturers in Europe welcome this solution, which will help support the competitiveness of Europe’s burgeoning EV manufacturing industry.

Commenting on the new deal, ACEA Director General Sigrid de Vries said, “The long-awaited deal to extend rules of origin by three years provides much-needed certainty to Europe’s growing electric vehicle battery supply chain. Instead of penalising green industries, today’s decision is recognition that it takes time to build up emerging value chains. It is also a strong signal that the EU is willing to uphold the competitiveness of its critical industries — the deal has potentially avoided a hefty €4.3 billion in tariff costs and saved some 480,000 units of electric vehicle (EV) production.”

De Vries further added, “Vehicle manufacturers want to lead Europe’s green transition and build the future of EV manufacturing in Europe — for the benefit of all Europeans. Building on the constructive decision from law makers, the focus should turn to framing a holistic EU industrial strategy for the entire green value chain, from R&D, mining, refining and manufacturing; to charging networks, energy supply, purchase incentives, and recycling.”

Notably, the UK is the EU’s largest market for vehicle exports by volume, including EU-made battery-electric vehicles (BEVs). The EU is also by far the largest market for UK vehicle exports. EU-UK vehicle trade flows are currently governed by the EU-UK TCA, including rules of origin.

According to ACEA note, when goods are exported under the terms of EU free-trade agreements (FTAs), they must comply with ROO to obtain tariff preferences. The standard ROO for vehicles is either 40% or 45% non-originating content (NOM), with the UK (temporarily) exempt from this rule. Given the relative value of a battery in a motor vehicle, if the battery does not originate, it is almost impossible for manufacturers or exporters to meet the rule at the vehicle level.

Notably, all batteries made in Europe qualify for European origin under this arrangement. This rule will apply until Dec. 31, 2023, and the compliance rate is about 99%.

However, from 2024 until the end of 2026, there will be a second transitional period with significantly more restrictive rules. The ROO from January 2024 onward will require all battery parts and certain battery materials to be originating from Europe and the UK, with the compliance rate expected to be about 10% in 2024.

According to a recent report by ACEA, the ROO compliance would add to the challenges for Europe’s EV manufacturing sector and thereby risks losing ground to competition from Chinese and US players.

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