Following the United Kingdom’s withdrawal from the European Union, a Trade and Cooperation Agreement between the EU and the UK1 has been concluded, providing for duty-free trade of goods originating in the EU or in the UK.2 The TCA foresees a specific set of rules of origin (ROO) for hybrid,3plug-in hybrid4 and electric5 vehicles, covered by HS codes 87.02-87.04, according to which the vehicles will acquire UK or EU origin only if a certain maximum value of non-originating materials has not been exceeded.6 This maximum value will be lowered gradually over the years, with the first period starting from 1 January 2024, making it more and more difficult to obtain EU or UK origin as a substantial part of such vehicles is typically made up of non-originating materials (e.g., electric vehicle  batteries are still largely sourced from other countries). If these rules cannot be satisfied, customs duties of 10% will be levied on each vehicle shipped from the UK to the EU and vice versa. This may heavily impact the production and sales of hybrid, plug-in hybrid and electric vehicles in the UK and the EU as (part of) these costs will be passed on to customers. As currently drafted, such changes risk undermining the switch to electric vehicles, with those car manufacturers who have invested the most in the transition being hit hardest by tariffs. This explains the UK and EU car manufacturers’ calls to urgently review the TCA.

Overview of changes

Before Brexit, the UK and the EU formed part of the EU customs union and thus no duties were imposed when hybrid, plug-in hybrid and electric vehicles were traded between those territories, irrespective of the origin of the products.

Because of Brexit and since the entry into force of the TCA, such vehicles can only be traded between the EU and the UK without the imposition of duties if they have acquired EU or UK preferential origin, and preferential origin is claimed.7 The TCA grants originating status to products incorporating non-originating materials, provided that the product-specific ROO laid down in its Annex 3 have been complied with.8 Focusing on motor vehicles designed for the transport of persons and goods, covered by HS codes 87.02-87.04, and particularly on electric, plug-in hybrid and hybrid vehicles, these will only originate in the EU or the UK if a certain maximum value of non-originating materials has not been exceeded.9

More precisely, the definitive provision, entering into force on 1 January 2027, determines that these types of vehicles will have originating status if the maximum value of non-originating materials does not exceed 45% of the product.10 In other words, more than half of the value of these cars will have to consist of EU or UK-originating materials to avoid payment of import duties. An additional requirement applies for plug-in hybrid and electric vehicles; namely, the battery packs of heading 85.07 of a kind used as the primary source of electrical power for propulsion of the vehicle must also originate in the UK or the EU.11 This is the case when any non-originating material used in the production of the battery pack is classified under a HS heading other than 85.07, except for non-originating active cathode materials or when the maximum value of non-originating materials does not exceed 30% of the battery pack.12

However, to enable EU and UK car manufacturers to adapt their processes to the stricter rules, Annex 5 of the TCA sets out transitional product-specified rules for hybrid,13 plug-in hybrid and electric vehicles with lower maximum thresholds and thus easier origin-conferral, as follows:

  • From the entry into force of the TCA until 31 December 2023 the maximum value of non-originating materials cannot exceed 60% of the product;14 and
  • From 1 January 2024 until 31 December 2026 the maximum value of non-originating materials cannot exceed 55% of the product.15

As the deadline of 1 January 2024 is approaching fast, UK and EU-based car manufacturers (and trade associations) are calling to delay the deadline of 1 January 2024 and to review the TCA in general. Thus far, the EU and the UK have not given in to these requests.

The TCA can be consulted here.

If you have any questions about these changes, do not hesitate to contact a member of our international trade law team.

  1. Trade and Cooperation Agreement between the European Union and the European Atomic Energy Community, of the one part, and the United Kingdom of Great Britain and Northern Ireland, of the other part, OJ L 149/10, 30.04.2021, (hereinafter the TCA).
  2. Article 21 TCA.
  3. Covered by “others” under Column 1, HS codes 87.02-87.04, Annex 3 TCA.
  4. Described as “vehicles with both internal combustion piston engine and electric motor as motors for propulsion capable of being charged by plugging to external source of electric power” under Column 1, HS codes 87.02-87.04, Annex 3 TCA.
  5. Described as “vehicles with only electric motor for propulsion” under Column 1, HS codes 87.02-87.04, Annex 3 TCA.
  6. Article 39(1)(c) TCA; Annex 2, note 1(2) TCA and Annex 3 TCA.
  7. Article 21 TCA.
  8. Article 39(1)(c) TCA.
  9. Annex 3 TCA.
  10. Column 1, HS codes 87.02-87.04, Annex 3 TCA.
  11. Column 1, HS codes 87.02-87.04, Annex 3 TCA.
  12. Column 1, HS code 85.07, Annex 3 TCA.
  13. Described as “vehicles with both internal combustion engine and electric motor as motors for propulsion other than those capable of being charged by plugging to external source of electric power” under Column 1, HS codes 87.02-87.04, Annex 5 TCA.
  14. Column 1, HS codes 87.02-87.04, Section 1, Annex 5 TCA.
  15. Column 1, HS codes 87.02-87.04, Section 2, Annex 5 TCA.