EU’s Brexit Deal Could Pave the Way for Transatlantic Clean-Tech Trade
Brexit proved prolonged and messy. To continue doing business with the European Union, its largest economic partner, the United Kingdom had to negotiate a deal covering most aspects of trade in goods and services. Ten agonizing months of bargaining ensued. Yet, after many twists and turns, the negotiations yielded not just a bilateral deal for the EU and UK, but also an unexpected glimmer of hope for transatlantic trade in clean energy technologies.
Notably, the deal agreed on December 24th gives important exemptions that will allow the UK to continue to export electric vehicles without facing tariffs. The EU’s concession on this point didn’t arise from Christmas spirit, but due to strong commitments both sides made to fight climate change. The EU, through its European Green Deal, aims to build an economic recovery on the back of clean technologies. The UK meanwhile has positioned itself as a leader in global climate diplomacy, hosting the UN COP26 summit this year, and has adopted its own bold agenda for a “green industrial revolution.” In this context, concluding a trade deal that put obstacles in the way of clean-tech trade would have been a political misstep.
EU trade negotiators’ extraordinarily flexible approach to the UK—exempting (some) clean-tech from tariffs—now could open the door to an EU-US clean-tech agreement. Given the approach of the Biden administration to the climate agenda, it would be hard for Europe’s leaders to object to showing a similarly flexible approach to boost transatlantic clean-tech trade.
A key issue in the Brexit deal was the EU’s standard “rules of origin,” which could have killed the prospects for UK auto-makers to export EVs into Europe by hitting them with a 10 percent tariff. Zero-tariff access to European markets would typically require that the majority of each vehicle be manufactured in the UK. But UK manufacturers can’t hit that standard today because so much of an EV’s value comes from its batteries, which are predominantly imported from Asia. The deal’s generous exemption sidesteps this problem for now, giving the UK time to build up a domestic EV battery sector, which it has committed to do.
At first, EU negotiators did not want to make this exception. However, such inflexibility would have resulted in a politically unacceptable obstacle to clean-tech trade by creating a perverse situation in which conventional vehicles would have qualified for zero-tariffs while EVs did not.
The EU’s flexibility opens the door to transatlantic cooperation in the same vein. With the Brexit EV agreement on the books, EU trade negotiators will have a mandate to approach the United States and other allies with similar offers to cut tariffs and open markets for clean solutions. While no one expects a new major trade agreement to be struck in the wake of the failed and politically controversial “Transatlantic Trade and Investment Partnership” (T-TIP), the EU and United States have the space to negotiate less controversial “sectoral agreements” to boost EVs and other clean-tech products.
A transatlantic clean-tech agreement would send a strong signal that the EU and United States can cooperate on shared objectives at the global level. It would dovetail with the World Trade Organization’s call for more action on trade and climate change, given efforts to cut tariffs and non-tariff barriers under the Environmental Goods Agreement, which stalled in 2016. A clean-tech deal would also pivot the EU away from China and toward the United States at a crucial moment. It might be a step toward building a “climate-tech club,” that other partners who support fair, rule-abiding, and non-mercantilist trade and industrial policies, could be invited to join. Fair trade is essential if home grown clean tech is going to be scaled into viable global solutions to the climate challenge.
Rob Boyle (@RobBoyle85) is a Brussels-based senior policy analyst for the Clean Energy Innovation Program at the Information Technology and Innovation Foundation (ITIF), the leading think tank for science and technology policy.