On Friday, October 16, France and Germany reached an agreement on the EU automotive policy, agreeing to allow conditional participation of the UK in the “Made in Europe” program. However, the UK may have to follow the EU’s trade restrictions on Chinese automobiles as a result. The UK government stated that it does not rule out the possibility of increasing tariffs on Chinese-made electric cars and will continue to review all tariff options.
The EU’s “Industrial Accelerator Act” includes the “Made in Europe” rule, which plans to prioritize European products in government procurement and subsidies. The UK industry is concerned that being excluded from this program will put them at a disadvantage in the EU supply chain, resulting in the loss of billions of pounds in business opportunities.
Currently, the UK imposes a standard import duty of 10% on Chinese electric cars. The EU, on the other hand, imposes additional anti-subsidy taxes on pure electric cars manufactured in China, totaling up to approximately 45%. If the UK follows suit, it may alleviate the pressure of low-cost imported cars on domestic car manufacturers but could also face trade retaliation from China.
Chinese automobiles have been expanding their market share in the EU and the UK due to government subsidies and cost advantages, forcing local manufacturers to compete by lowering prices and squeezing profit margins. The European automotive industry is concerned that an influx of low-priced Chinese cars could weaken the competitiveness of the domestic automotive and parts industry, affecting employment, corporate investment, and technological transformation.
According to reports from Reuters, France and Germany agreed to include the 27 EU member states and other European partners who were still within the EU single market as of January 1, 2020, in the “Made in Europe” automotive rules. While the UK exited the single market by the end of 2020, it still qualifies for inclusion.
Initially, France insisted on only benefiting EU member states, while Germany advocated for the inclusion of partners closely related to the European automotive supply chain like the UK, leading to a compromise between the two sides.
France and Germany also requested full reciprocity and dynamic alignment on investment conditions in third countries and EU trade defense measures. As a result, the UK may need to follow the EU’s tariffs on Chinese pure electric cars and proposed import restrictions on hybrid cars.
The Financial Times pointed out that countries like Japan, South Korea, and Turkey were not included in the agreement.
A spokesperson for the UK Prime Minister’s Office welcomed the goal of including the UK in the “Made in Europe” program. Regarding the possibility of taxing Chinese cars, the spokesperson stated it is still early to speculate on the conditions of the agreement, as the EU still has procedures to follow.
The spokesperson said, “However, from a broader principle, the UK clearly has its own trade policy, and all tariffs will continue to be reviewed. We work closely with the UK automotive industry to ensure that such measures are in the best interest of the sector.”
Jonathan Reynolds, Secretary of State for Business, Innovation, Science, and Trade, earlier this week stated that the UK will not adjust its trade policy under pressure from the EU. The Financial Times suggests that Reynolds may be concerned that imposing tariffs could provoke retaliation from the Chinese authorities, harming UK car exports.
However, Anas Sarwar, the UK’s Minister of State for Trade, told Politico on Thursday that the UK and the EU should “work together and maintain a consistent approach,” especially in response to China’s dominant position in the automotive industry.
The Guardian noted that about 80% of cars manufactured in the UK are for export, with over half going to the EU and around 6% to China. UK car manufacturers are worried that without participation in the new program, their supply chain cooperation will be affected.
Tax increases could raise the costs of purchasing cars and potentially result in retaliation, affecting exporters like Jaguar Land Rover. The UK government also hopes to attract Chinese automotive companies to establish plants in the UK.
François Provost, CEO of Renault, believes that the UK is already part of the ecosystem of the European automotive industry and should be included in the program. He also stated that the UK and the EU should maintain consistency in their automotive industry policies.
The Franco-German agreement also adjusted the original 2035 goal of 100% carbon reduction (zero emissions) to a 90% reduction by 2021, simplifying compliance mechanisms and removing the requirement for offsetting remaining emissions with low-carbon steel or alternative fuels.
German Chancellor Friedrich Merz hailed the agreement as “a good day for drivers, employment in Germany, France, and Europe.”
The Franco-German proposal still needs support from other EU member states and the European Parliament, with a final common text expected not before early 2027.