(Bloomberg) -- France has emerged as the main roadblock for those seeking to delay post-Brexit tariffs that are set to hit electric vehicles shipped between the UK and European Union in a move that could cost carmakers billions of euros in revenue.
The French government doesn’t want to delay the levy, which it worries may have the appearance of giving in to UK requests, potentially deterring battery investments in the EU, according to people familiar with the deliberations and documents outlining nations’ positions. This is in spite of damage the tariffs may cause Renault SA, which is partly owned by the French state, as well as Peugeot and Opel owner Stellantis NV.
Most of the EU’s 27 member states — led by Germany — are open to delaying the deadline as a one-off, said the people, who asked not to be identified because discussions on the matter are ongoing.
At stake is whether EVs traded between the UK and the EU will attract a 10% tariff from next year if less than 45% of their value comes from the region, as stipulated under post-Brexit agreements. European carmakers want to extend the planned phase-in period by three years, allowing more time for the region’s battery supply chain to develop. The industry has said the move could cost the sector €4.3 billion ($4.5 billion) over the next three years and would benefit Chinese competitors.
A spokesperson from the French finance ministry declined to comment.
France is concerned that allowing a delay would send a political signal that a country can get the domestic political gains of leaving the EU’s single market without the costs, according to one French official.
Some of the people involved in the talks said they are still confident that an agreement can be reached before the deadline at the end of the year.
The UK accounts for almost a quarter of EU EV exports and aren’t subject to tariffs, according to another document seen by Bloomberg. It notes that UK imports from China have surged and accounted for about a third of sales last year, despite a 10% tariff. Should European vehicles pay the same tariff, they will lose out.
The issue has also split the opinion within the European Commission, the EU’s executive arm. The bloc’s internal market commissioner, Thierry Breton, who is French, told the Guardian last month that the EU couldn’t change the Brexit agreements to appease the car industry.
The EU’s trade chief, Valdis Dombrovskis, told the German newspaper Frankfurter Allgemeine Zeitung the hope was to avoid tariffs and that could be done without re-opening the Brexit agreement. If the EU and Britain impose tariffs on each other, it will not help our industry, but only China, he said.
In recent weeks, the biggest lobby group for European car manufacturers dialed up pressure to delay the electric-vehicle tariffs, saying they could reduce production in the region by 480,000 cars over three years. The European Automobile Manufacturers’ Association and other local groups have been tapping other stakeholders, including German labor unions and even European battery makers, to drum up support for the delay, one of the people said.
Brussels has been looking to boost production in the EU especially in the wake of massive subsidies in the US that are pulling away investments from Europe and a strategic focus on becoming less dependent on Beijing. But critics say that changing supply chains takes time.
Manufacturers currently source most EV batteries — which typically make up around 40% of the value of a car — from Asia. Companies like China’s Contemporary Amperex Technology Co. so far have no meaningful competition from elsewhere and that is unlikely to change in weeks.
--With assistance from Alex Wickham and William Horobin.
©2023 Bloomberg L.P.
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