EU-UK relations: Council greenlights extension of current rules of origin for electric vehicles until the end of 2026

Today the Council approved a proposal to give manufacturers of electric vehicles in the EU and the UK more time to comply with the local content requirements for electric vehicles and batteries under the EU-UK Trade and Cooperation Agreement.

It adopted a decision which will allow the EU to agree with the UK on the extension of the current rules of origin for electric vehicles and batteries until 31 December 2026. This will prevent the entry into force of more stringent rules from 1 January 2024 and the application of a 10% tariff on goods traded between the EU and the UK which do not meet those requirements.

The industry is expected to be able to adapt to the higher local content requirements by 2027 by expanding battery production for electric vehicles in this period. Support in the order of €3 billion will be provided for this purpose under the Innovation Fund.

The extension of the current rules of origin is complemented by a lock-in mechanism, which ensures that the full regime for local content requirements under the Trade and Cooperation Agreement will apply as from 2027, as set out in that agreement. Consequently, no changes will be possible before 2032.

Next steps

The extension of the current rules is due to be decided by the EU-UK Partnership Council, which has been set up under the EU-UK Trade and Cooperation Agreement, before the end of the year.

Background

Under the EU-UK Trade and Cooperation Agreement, only those electric vehicles that comply with the rules of origin, which define the required local content for electric vehicles and their batteries, can benefit from tariff-free trade. The agreement provides for a two-stage phasing in of the local content requirements, with the second stage starting on 1 January 2024 and the full regime on 1 January 2027. The rules were designed to incentivise investment in a battery manufacturing capacity in the EU and in the UK.

The extension of the current rules was proposed by the Commission on 6 December 2023. It was understood that the battery industry could not get off the ground as fast as expected against the background of Russia’s war of aggression against Ukraine, COVID-19’s impact on supply chains and the competition from new international subsidy support schemes, which made it more difficult for electric vehicle manufacturers to comply with the rules of origin under the Trade and Cooperation Agreement.

In order to further support the development of the battery market in the EU, on 6 December 2023 the Commission also announced the creation of a dedicated instrument under the Innovation Fund, which will provide up to €3 billion of additional funding to boost the EU’s battery manufacturing industry.