POLITICO — 2023-09-27
Automotive Industry
It's a case of déjà vu all over again.
A looming cliff-edge on trade in electric vehicles between Britain and the EU is bringing back memories of the toughest Brexit talks: a stubborn France, a more flexible Germany and looming tariffs if a timely solution can't be found.
This time, though, there are more shades of grey, especially as U.K. Prime Minister Rishi Sunak heralded a new era of U.K.-EU relations.
But that can quickly change if trade tensions rise.
The issue at hand is a 10% tariff due to be imposed from January on vehicles that do not conform to stricter rules on sourcing inputs for electric vehicle batteries.
The U.K. raised the alarm on the hit that would result in to carmakers on both sides of the Channel and pushed for a deadline extension to give them time to adapt. Its officials also raised that question formally at a meeting with their EU counterparts on Wednesday.
London has found an ally in Germany, whose car industry is already under pressure. On top of the post-Brexit tariffs, Brussels plans to launch an investigation into the Chinese subsidies on electric vehicles. And Volkswagen, BMW and Mercedes could end up being the prime European victims of the investigation because of their exposure to the vast Chinese market.
At an intra-European meeting on Monday, a number of countries with automotive industries including Sweden, the Czech Republic, Belgium and Italy, backed Germany, three EU diplomats said.
The diplomats, who were granted anonymity to speak candidly, said France was the only EU country to vocally oppose the British call. A large group of EU countries was more agnostic on the issue.
Divisions also run deep within the European Commission.
In theory, the EU's executive should stand by the terms of the post-Brexit deal.
In the Brexit end game, Brussels considered it vital not to allow the U.K. to undermine the EU’s single market.
That is a position Internal Market Commissioner Thierry Breton, who is French, and others in the European Commission are advocating again in the current dispute. Giving the Brits a free pass would hamper efforts to build a European battery industry and reduce the EU’s dependence on China, the thinking goes.
A fourth EU diplomat said a postponement would be such a “political shock” from the Commission that it was unthinkable — especially as the Commission is looking into extra tariffs against Chinese EVs.
But the Commission is also split, with EU trade chief Valdis Dombrovskis agreeing with London that more flexibility is needed — in the near term, at least.
It will now fall to Commission President Ursula von der Leyen to break the deadlock, a delicate call when the EU’s two biggest countries disagree. In the meanwhile, London is putting pressure on Paris to soften its stance.
It’s still unclear when exactly a decision will be made.
One London-based lobbyist who works closely on the issue said they have been told to expect a decision very soon from von der Leyen, who has “yet to engage on the issue.”