1 – Well, difficult not to expand a bit on this topic after this endorsement. Sooo....rules of origin and electric vehicles, bear with me for a rather complex thread. https://twitter.com/AnnaJerzewska/status/1194538200175403008

2 – Free trade agreements (FTAs) offer reduced or zero-tariff treatment to automotive goods complying with the deals’ rules of origin (RoO).

3 – RoO are meant to ensure that only products undergoing significant manufacturing activities in the territory of the trading partners get a duty discount.

4 – For a passenger car, including electric vehicles (EVs), RoO in EU FTAs set minimum value thresholds. CETA has the lowest threshold ever negotiated by the EU on cars (50%), but other FTAs have more stringent requirements up to 60% local value added.

5 –Fail to comply with RoO, you pay the full tariff. EU production of traditional vehicles with internal combustion engines has ensured that most EU cars could reach these thresholds. The shift to electric power trains could fundamentally change this picture.

6 – Today, an electric battery represents a large proportion of the value of an EV. This makes it difficult to comply with RoO on cars, unless the battery itself qualifies as originating in the territory of the FTA partners.

7 – Now, in order to qualify as originating material, an EV battery needs to satisfy the specific RoO for batteries set by each agreement. RoO for batteries vary even more than those for cars.

8 – Some FTAs contain value thresholds, but they are usually even more stringent than those for cars. E.g. FTAs with Mexico, South Africa, Switzerland, Norway, Euro-Med and Eastern European partners demand 70% local value added; Korea 55%.

9 – Most modern FTAs demand a so-called change of tariff heading (CTH) to allow an EV battery to qualify. CTH means that materials imported under a certain tariff line will change tariff classification after being processed in the territory of the FTA partners.

10 – For example, the FTA with Korea allows to import EV batteries’ raw materials under a certain tariff code (e.g. cobalt, lithium, nikel, etc), process them in the EU and Korea and have an EV battery with a different tariff heading of EU/Korean origin as a result…easy, no?

11 – Unfortunately no, not easy at all. The EU simply does not have in place a supply chain that can produce an EV battery starting from simple raw materials and, guess what? Imported battery parts share the same tariff heading as the finished thing so…CTH is complex...

12 – ...and it gets even more complex because some agreements put a value limit on the imported parts you can use in CTH (e.g. EU-Mexico FTA has 40% value cap to imported non-originating materials used for CTH purposes).

13 – Now, to make it even more difficult, add Brexit to the mix. For RoO, Brexit means that, today, no one can accurately differentiate UK and EU27 content. This makes it almost impossible to know whether businesses could comply with value thresholds or CTH.

14 – Hence, no one really knows whether we will be able to export UK EVs to the EU tariff free AND whether we will be able to import EU EVs tariff free – because this is as much a problem for the EU as for the UK.

15 – The key question then becomes: do we really want UK-EU RoO on EV batteries? Do we really want UK-EU RoO on cars? Do we really want UK-EU RoO on any automotive product at all? The answer is pretty simple: no, we don’t.