The Council has approved a proposal to give manufacturers of electric vehicles in the EU and the UK more time to meet local content requirements for EVs and batteries under the Trade and Cooperation Agreement between the EU and the UK.
It has adopted a Decision that will allow the EU to reach an agreement with the UK to extend the current rules until December 31, 2026.
This will prevent stricter rules from coming into effect from January 1, 2024, and a 10% tariff being applied to products traded between the EU and the UK that do not meet these requirements.
The industry is expected to adapt to the more stringent local content requirements by 2027 through an increase in the production of electric vehicle batteries during this period.
To this end, approximately €3 billion in support will be provided from the Innovation Fund.
The extension of the current origin rules is complemented by a blocking mechanism, ensuring that the full regime for local content requirements under the Trade and Cooperation Agreement will apply from 2027, as stipulated in the agreement.
Consequently, no changes can be made before 2032.
The EU-UK Partnership Council, established under the Trade and Cooperation Agreement between the EU and the UK, will decide on the extension of the current rules before the end of the year.
Under the Trade and Cooperation Agreement between the EU and the UK, only electric vehicles that meet the origin rules, defining local content requirements for electric vehicles and their batteries, can benefit from tariff-free trade.
The agreement contemplates the introduction of local content requirements in two phases; the second phase will begin on January 1, 2024, and the full regime will commence on January 1, 2027.
The rules were designed as an incentive for investment in battery manufacturing capacity in the EU and the UK.
On December 6, 2023, the Commission proposed the extension of the current rules.
It was considered that the battery industry could not take off as quickly as expected due to Russia’s aggression against Ukraine, the consequences of the COVID-19 pandemic on supply chains, and the competition from new international aid programs, which made it challenging for electric vehicle manufacturers to comply with the origin rules under the Trade and Cooperation Agreement.
To support the development of the battery market in the EU, on December 6, 2023, the Commission also announced the creation of a specific instrument funded by the Innovation Fund, providing up to €3 billion in additional funding to boost the EU battery manufacturing industry.