The European Commission (EC) is set to propose a compromise that will aim to limit the impact of proposed new tariffs on the import and export of electric vehicles (EVs) between the EU and the UK that are set to come into force next month.

A backup plan was presented to member states last week and will look to ease some of the concerns expressed by automakers without infringing on the terms of the post-Brexit Trade and Cooperation Agreement (TCA).

What is the issue about?

As things stand, from January, electric cars moving across the English Channel will be subject to additional tariffs of ten percent unless at least 45 percent of the total value of the car - and 60 percent of the value of the battery - originates in either the UK or EU. However, at present, the industry sees this as unachievable as the majority of EV battery components are still sourced from Asia.

Industry groups on both sides have warned that the proposed rules will be highly damaging to the sector and could limit the transition to electric technology. According to the European Automobile Manufacturers’ Association (ACEA), the rules would cost the sector €4.3 billion over the next three years. 

The UK's Society of Motor Manufacturers and Traders has also calculated the measures would add £3,600 to the cost of every British-built EV sold in the EU, and an additional £3,400 for EU-manufactured items entering the UK.

Both industry groups have therefore urged the EC to extend the transition period for another three years in order to give the sector more time to adjust. This has the backing of the UK government and some EU nations, such as Germany. However, the EC has been reluctant to pursue this as it believes it would constitute a breach of the TCA.

What is the EC proposing?

Instead, the Guardian reported that Brussels favors a backup plan that would cushion the initial impact of the new rules of origin. Central to this is an idea to extend the validity of the 2023 official “statements of the origin” until the end of June 2024. This would ensure that any EV delivered in 2024 but ordered in 2023 would be exempt from the new tariffs.

It is hoped that, with many vehicles having lead times of at least six months, this will give the sector more breathing room. However, the automotive sector believes this does not go far enough and is still calling for a full three-year extension. Meanwhile, some commentators have suggested that the plan would be subject to legal challenges.

With time running out to avoid a hike in costs in January, one car industry source told the Guardian: “We need a decision now. Everything vis a vis the relationship between the EU and the UK is completely last minute ... and we are super worried.”

What could the barriers be?

At the heart of the issue is whether any changes to the rules will breach the post-Brexit TCA signed between the EU and the UK. If this is the case, it may require the entire agreement to be reopened, which some in the EU have been firmly against. One of the largest voices in opposition to any extension has been France, which believes any deal would require the consent of all 27 EU members.

Luca de Meo, group chief executive of Renault and president of the ACEA, said that efforts to persuade the French government not to consider reopening the TCA had gone “very high in the hierarchy” because it was a “very important topic”. Last week, he also emphasized that a failure to lift the tariffs would cost billions of euros.

There are signs that an agreement may be within reach. Last month, Politico reported that France may be prepared to support a last-minute delay. One diplomat with knowledge of the talks told the news source: "The intention is to back an extension.”

However if it is not clear whether this would be the three-year delay the industry is seeking, the six-month plan proposed by the EC or another alternative.