Downing Street is striving to secure agreements on steel and electric cars with the EU as it aims to strengthen the post-Brexit economic relationship.
Faced with economic uncertainty due to the conflict in the Middle East and tensions with the US, Keir Starmer is seeking closer economic ties with the EU.
The UK is seeking deals on steel and electric vehicles to prevent British industry from being disadvantaged by upcoming changes to trade rules.
This week, the EU agreed on trade restrictions on steel imports in response to a surplus of artificially cheap Chinese imports that have lowered global prices. The UK, being one of the EU’s major markets, is not the target but will be affected by the increased tariffs that come into effect on July 1.
The UK had already announced measures to protect its domestic steel industry earlier this month: it plans to reduce quotas for tariff-free steel by 60% and impose a 50% tariff on imports exceeding that level from July 1.
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Separately, stricter trade rules for electric cars are set to take effect in 2027.
The Cabinet Office minister, Nick Thomas-Symonds, told reporters in Brussels this week that steel and EVs “have to be a matter of discussion this year” due to the current context.
“Even if there was no broader reset discussion happening, steel would be a topic for discussion at this time,” he said. “There is a similar issue regarding rules of origin in the automotive sector,” he added, highlighting the high value of car batteries as the concern.
In 2023, UK and EU car manufacturers were given three years to meet more stringent local-content requirements. To qualify for zero tariffs under the EU-UK trade and cooperation agreement, car makers must prove that 40% of the value of an EV is made up of parts produced in the EU and the UK.
A shift to a higher local-content requirement was postponed until 2027, at the request of the industry, as limited battery production meant EU and UK producers would find it difficult to meet the criteria. The battery can account for up to 50% of an EV’s value.
Thomas-Symonds declined to specify which sectors the government is seeking to align with the EU, citing the negotiation process and the desire to keep market-sensitive information confidential. He said he would adopt a “ruthlessly pragmatic approach” to evaluate “where it is in our national interest to align.”
British officials are cautious of repeating the experiences from the Brexit years, when the government presented a wishlist to Brussels, only to see the proposals rejected even before they were published – reminiscent of Theresa May’s Chequers plan.
The EU commissioner responsible for UK relations, Maroš Šefčovič, told the EU-UK Forum conference this week, “we have taken good note of the UK’s desire to work on closer alignment with the EU and are exploring what can be done.” A commission spokesperson declined to elaborate.
The EU and UK will hold a summit in the summer aimed at finalizing agreements on food and drink, youth mobility, and energy. However, the agenda for deepening economic ties beyond these issues has not yet been established.
David Henig, the director of the UK Trade Policy Project, stated that the two sides were having an “unstructured” conversation about the future economic relationship, hampered by “struggling” talks on a youth mobility deal.
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Henig suggested that a deeper economic relationship could be developed under the concept of economic security, in response to Donald Trump’s tariffs and Chinese competition. “It could be a beneficial framework that allows you to address certain issues without reopening some of the difficult old ones,” he said, alluding to Brexit red lines.
Almost a decade after the 2016 EU referendum, some prominent EU voices argue that it is time to move beyond the Brexit years.
The president of the European Parliament, Roberta Metsola, said both sides had a “strategic imperative” to reset the relationship, calling for a customized approach to UK relations. “We need to be discussing a uniquely ‘British’ model,” she said, describing the UK as “not just another third country” but a former EU member that “needs to be treated as such.”
British officials are encouraged that Šefčovič has opened the door to a steel agreement. Last month, Šefčovič, who manages EU trade policy, called for a western steel alliance that included the US and UK in response to Chinese overcapacity.
However, the commission is prioritizing steel talks with the US over the UK. No agreement with either is expected before the increased steel tariffs take effect on July 1.
Regarding EVs, a commission spokesperson said there was no change to the 2023 decision: “In other words, the current rules of origin for electric vehicles and batteries are set to expire on December 31, 2026. Further discussions on these and related topics can take place within the framework of ongoing EU-UK negotiations.”
Mike Hawes, the chief executive of the Society of Motor Manufacturers and Traders, stated that the impending changes to rules of origin threatened €80bn a year in automotive trade between the EU and UK. Industrial capacity, particularly for batteries and their components, was “insufficient, despite significant investment,” he said.
“Both sides must pursue a solution that avoids the imposition of self-defeating tariffs – which means additional costs – on the very vehicles that government and industry want consumers to buy.”
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