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4 January 2024
Guest author David Henig is Director of the UK Trade Policy Project at the European Centre for International Political Economy (ECIPE). He has written extensively on the development of UK Trade Policy post Brexit, in the context of developments in EU and global trade policy on which he also researches and writes.

There was relief for Europe’s automotive sector at the start of December when the UK and EU agreed to maintain current product specific rules of origin for electric vehicles within the Trade and Cooperation Agreement (TCA) until the end of 2026. A scheduled intermediate stage of tightening on the way to even more stringent final rules to take effect from January 2027 was abandoned. Industry in both the UK and EU had been warning of potential 10% tariffs without an agreement and welcomed the move.

At the most basic level, this extension demonstrated that the UK and EU can find ways to improve their trading relationship. This had previously been shown with the agreement of the Windsor Framework to supplement the Northern Ireland Protocol to the Withdrawal Agreement, reached in February 2023, as well as full UK accession to the Horizon science research programme, scheduled to take effect at the start of 2024. Many commentators on both sides had doubted such progress would be possible at the start of the 2023.

With the TCA being the most valuable preferential trade arrangement to both the UK and EU, any indications of a better relationship should come as a relief. According to a November European Commission report “on the Implementation and Enforcement of EU Trade Policy”, in terms of EU preferential trade deals 22.5% of their value in goods is with the UK, rising to 46% for services. Meanwhile, despite the UK government’s aspirations for Global Britain, over 40% of its total trade remains with the EU.

Details of the negotiation and agreement over electric vehicles suggest however that it would be premature to expect plain sailing from this point onwards. There were suggestions in October that the broad principles of an extension for electric vehicles had been agreed, yet there were concerns on the EU side about whether this should be done legally inside the TCA or through a separate instrument. Final text which includes a prohibition of further extension showed a certain sensitivity in Brussels. In time this restriction could itself by renegotiated, but a marker not to do so has been laid.

For the EU, sensitivity is almost certainly based on their continued fears of a Brexit UK still expecting the market access of a Member State, in particular in areas of its specific interest. Experience was further that this attitude came with petulance and aggression from UK negotiators when not granted, in public and possibly to a degree inside negotiating rooms. These fears and memories should be of particular concern to a Labour Party committed to seeking TCA enhancements, particularly in terms of mutual recognition through agreements on food and drink, and professional qualifications. While the EU has shown a willingness to talk and does have its own interests, it should be obvious that no deal will be straightforward particularly if the EU is concerned about protection against future UK governments.

Meanwhile UK and EU automotive sectors face the challenge of being some way behind their Chinese competitors. For the time being, with this extension, and with the EU’s investigation into subsidies that may lead to countervailing duties, the industry is being given some time to catch up. There is clearly the expectation of this happening in the next three years, something which industry experts are already suggesting to be optimistic.

Extending and changing preferential trade agreements is never an easy matter, even between the friendliest trade partners. Particular circumstances of the UK-EU relationship make this even more difficult. Given such a background, one should probably see progress this year including on electric vehicles as being as good as it could get. That can perhaps be the foundation for a new approach, in a new year, and possibly even a new UK government, but they would do well to take nothing for granted.

The opinions expressed in this blog are those of the authors alone and do not necessarily represent the opinions of the University of Sussex or UK Trade Policy Observatory.

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