The United Kingdom finds itself at a critical juncture as it navigates the challenges posed by post-Brexit trade agreements. With looming tariffs on electric vehicles (EVs) set to impact the country’s car industry, Brussels officials are urging the UK to consider an alternative approach. Instead of seeking a delay to the introduction of tariffs, the proposal is for the UK to join a pan-European agreement on goods trade. This move could provide a potential solution to the issue, offering relief to both the British and European automotive sectors. However, trade experts caution that this approach may not provide an immediate fix to the problem at hand.

Brexit Tariffs on EVs:

Under the post-Brexit trading agreement between the UK and the European Union, new “rules of origin” terms have been established. From January 2024, electric vehicles traded between the UK and the EU will require at least 45% of their parts to be sourced from within the two regions. Failure to meet this requirement would result in a 10% tariff. The situation is further complicated by the fact that batteries, a significant component of EVs, must have 60% of their parts sourced regionally. As both the UK and EU continue to import batteries from countries such as China, South Korea, and Japan, meeting this requirement poses a significant challenge.

The Call for UK Membership:

In light of the impending tariffs, senior officials in Brussels have proposed that the UK join an existing pan-European trade agreement. This agreement includes over 20 countries from Europe, the Middle East, and North Africa. The accord treats goods assembled in one country from parts made in another signatory state as originating in the exporting country, thus bypassing tariffs and quotas. The officials believe that UK membership in this agreement, known as the Pan-Euro-Mediterranean (PEM) convention, would provide a straightforward resolution to the tariff issue due to its harmonized trade rules.

European Commission’s Position:

While the UK seeks a delay in introducing tariffs, the European Commission dismisses the idea of an extension to the current EU-UK tariff exemption. Maroš Šefčovič, the vice-president responsible for UK relations, explains that granting an extension would hinder the development of a European battery supply chain, as companies may secure long-term supply contracts from China. The commission views the impending change in rules of origin requirements as an opportunity to encourage EU carmakers to invest in battery plants within the region, potentially impacting the UK industry’s investment prospects.

Trade Expert Opinions:

Trade experts emphasize that while PEM membership may assist in the long run, it is not an immediate solution to the UK-EU tariff issue. The main challenge lies in the need to import batteries from Asia, which falls outside the PEM convention. Sam Lowe, a trade expert at consultancy Flint Global, acknowledges that while PEM might address some areas, it does not directly solve the current problem faced by both EU and UK carmakers. The reliance on Asian battery imports continues to pose a significant obstacle.

Future Implications and Delays:

David Henig, from the European Centre for International Political Economy, suggests that joining the PEM convention could potentially help the UK avoid future post-Brexit tariffs in sectors beyond automotive, such as food. However, he cautions that the UK’s accession process might face delays due to ongoing updates to the convention’s rules. Government insiders remain optimistic, believing that a resolution to the tariff issue could still be achieved within the framework of the Trade and Cooperation Agreement (TCA). At present, the government has chosen not to comment on the matter.

Conclusion:

As the UK grapples with the challenges of post-Brexit trade, the proposal for joining the Pan-Euro-Mediterranean convention emerges as a potential solution to mitigate the impact of looming tariffs on the country’s car industry. By treating goods assembled in one country from parts made in another as originating in the exporting country, the convention could alleviate the burden of tariffs and quotas. While experts caution that this approach may not provide an immediate fix, it could pave the way for future relief across various sectors. As the negotiations continue, the UK must carefully weigh its options and consider the potential benefits and drawbacks of joining the trade pact.