E.U. Relaxes Trade Rules on Electric Cars from Britain

The News

The European Union plans to postpone strict local-content rules that would have led to costly tariffs imposed on cars traded between the bloc and Britain beginning Jan. 1.

“This removes the threat of tariffs on export of E.U. electric vehicles to the U.K. and vice versa,” Maros Sefcovic, the European Union’s executive vice president, told journalists in Brussels Wednesday.

Why It Matters: Relief for carmakers that were facing tariffs.

The proposal provides for a three-year delay in the trade rule, and represents a huge reprieve for many carmakers, especially those with plants in Britain. Eighty percent of cars made in Britain are exported, with 60 percent of them going to the European Union. The delay means that British electric vehicles with batteries made outside Europe will no longer face tariffs of up to 10 percent starting in three weeks.

European carmakers would have faced similar hits in their sales of cars to Britain, a major market. The delay will probably be seen as a win for Prime Minister Rishi Sunak’s British government, which lobbied for the change along with the European car industry.

Background: Europe and Britain do not make enough batteries.

The rule would have made it virtually impossible for cars made in Britain with batteries from Asia to be imported tariff-free into the European Union.

Neither Britain nor Europe is manufacturing enough batteries for the rising number of electric vehicles expected to be produced in coming years. Batteries are the most expensive components of electric vehicles.

Local origin rules are designed to discourage automakers from importing expensive parts, and to encourage local production. But this rule would have been counterproductive, the auto industry argued, by forcing consumers to pay more for many electric vehicles. Those higher prices could have opened the door for electric vehicles from outside Europe, especially China, whose makers are churning out low-cost models that have gained traction in Britain.

What Happens Next: Time for the battery industry “to catch up.”

The proposal still needs the support of European Union governments. Early indications are that it will be welcomed by auto industry. An extension would give “the European battery industry time to catch up,” said the Society of Motor Manufacturers and Traders, a British trade group, said Wednesday in a statement.

Mr. Sefcovic also said that the European Union planned to provide 3 billion euros ($3.25 billion) to encourage local manufacturing of batteries.