The European Union and the UK have finalised a three year extension to trade rules, avoiding the imposition of a 10% tariff on new electric vehicles.

This agreement will postpone ‘rules of origin’ requirements and the imposition of 10% tariffs on EVs until the end of 2026.

AM reported earlier in December that the European Commission was offering a three year postponement.

Under the original rules, the Society of Motor Manufacturers and Traders (SMMT) had predicted a 10% tariff on EVs traded in both directions would result in billions in costs, increased consumer prices, and diminished competitiveness for manufacturers in each other's markets - a potential setback could significantly impede the transition to zero-emission mobility.

As part of the Brexit deal, the UK-EU Trade and Cooperation Agreement (TCA) initially exempted electric vehicles (EVs) from rules requiring products to be substantially made in either Britain or the bloc to qualify for the EU's zero tariff, zero quota regime, due to the predominant importation of EV batteries from Asia. These tariff exemptions were set to expire on January 1, 2024.

The Society of Motor Manufacturers and Traders (SMMT) had warned that battery electric vehicles (BEVs) made in the EU could be hit with a £3,400 tax hike when sold in the UK if new rules of origin were implemented in January.

Mike Hawes, SMMT chief executive, said: "Deferring the rules of origin is a win for motorists, the economy and the environment. Maintaining tariff-free trade in EVs will ensure consumers retain the widest and most affordable choice of models, at a time when we need all drivers to make the switch.

"Governments have listened to the sector and acted to safeguard the competitiveness of the EU and UK automotive industries and give the Anglo-European battery industry the critical time it needs to catch up. The measure will help cut carbon, support growth and jobs, and is the right decision for the decarbonisation of road transport."

The UK-EU Trade and Cooperation Agreement (TCA) temporarily exempted electric vehicles (EVs) from the rules that said products must be substantially made in Britain or the bloc to qualify for the EU’s zero tariff, zero quota regime, because EV batteries are predominantly imported from Asia.

Under the more restrictive rules the only way to avoid these duties would be to source all battery parts and some critical battery material in the EU/UK, which manufacturers say is practically impossible to achieve today.

The UK will also look to agree to extend the equivalent rules of origin in the UK-Turkey preferential trade agreement ready for the end of the year, in a further boost for UK car companies who are major exporters to the Turkish market, such as Ford. This will ensure the existing rules of origin will last for a further three years until the end of 2026, and comes as the UK looks to start negotiations for a new modern free trade agreement with Turkey next year.