Insight
A tale of batteries, Brexit and EU strategic autonomy by Sam Lowe, 23 October 2020
Recently leaked proposals suggest the EU wants to use the EU-UK trade deal to help on-shore an electric vehicle supply chain. But this heavy handed approach risks undermining its claim to be a world leader on climate change and green technologies. In an ideal world, the EU’s trade policy would complement its other strategic, environmental and economic objectives. But this is not always the case. And despite the EU’s environmental ambition, its free trade agreements (FTAs) contain rules that discriminate against trade in lower-carbon electric vehicles (EVs). While normal cars readily qualify for tariff-free trade with the EU’s FTA partners, EVs struggle because the FTAs tend to include a local content, or rules of origin, threshold of 55-60 per cent, which is too high for EVs to clear. This is due to the battery of an EV accounting for a significant percentage of the final value of an electric vehicle (35 to 45 per cent), and invariably being sourced from outside the EU (usually Asia). Recently leaked European Commission proposals suggest the EU intends to tackle the issue in its trade negotiations with the UK. But rather than loosening the rules to accommodate trade in EVs, the proposed rules of origin suggest the Commission spies an opportunity to use the trade agreement to further its ambitions of ‘strategic autonomy’, and cajole European industry into hastily developing an on-shore domestic battery industry. The EU has long viewed the creation of a purely domestic battery value chain, and a reduced technological dependence on other countries, as a strategic imperative. In 2017, European Commission Vice President Maroš Šefčovič launched the European Battery Alliance (EBA). The EBA consists of the Commission, interested member-states, the European Investment Bank and over 120 interested industrial groups and companies. EBA members have signed onto a strategic action plan which commits to “make Europe a global leader in sustainable battery production and use, in the context of the circular economy”. The EBA has led to the approval of €3.2 billion of funding for battery research. But creating a domestic battery industry from the ground up was always going to be a challenge. McKinsey estimates that in 2018 only 1 per cent of the demand for EV batteries was supplied by European companies, with 97 per cent being supplied by companies in China, Japan and South Korea. And despite making positive noises, European car makers have been slow to branch out into battery and cell development. But the EU’s rules of origin proposal for EVs and batteries traded under a future EU-UK FTA suggest that the Commission is prepared to use other tools to pressurise European companies into aligning with the CER INSIGHT: A tale of batteries, Brexit and EU strategic autonomy 23 October 2020
info@cer.EU | WWW.CER.EU
1