Made in Europe: Britain's ask is simple, the price is not

Emanuele Cappellano runs Stellantis's European brands, which take in Fiat, Citroën, Opel and Vauxhall. François Provost runs Renault. Speaking at the Paris motor show on 12 October, the pair said Britain should effectively be counted as one of the EU's 27 member states for the purposes of the proposed "Made in Europe" legislation. Carmakers of that size saying out loud that Britain should be treated as a member state for procurement purposes is not a small thing. What they did not say is what it would cost.

What the law actually does

The legislation is the Industrial Accelerator Act, known as the IAA, and it is still a draft. Under the proposal, cars will have to be "made in Europe" and contain enough European parts and materials to keep qualifying for electric vehicle grants and to be bought by public bodies in the EU. The point of the rules is to make sure EU subsidies and government procurement land on European industry rather than on manufacturers from somewhere else.

The somewhere else is China, which now runs a £1bn a day trade surplus with the EU. Brussels confirmed on 12 October that it will limit imports of Chinese hybrid cars to 350,000 a year from December, a four-year agreement struck in Beijing the week before. The EU expects the quota to halve China's share of its market, which stands at 6%.

Why carmakers want Britain inside

Ola Källenius, the Mercedes-Benz chief executive, made the industry case in Brussels on 14 October in his capacity as president of the European Automobile Manufacturers' Association (ACEA). Locking the UK out, he said, would amount to a "deliberate choice" by EU leaders to "hurt" the car industry across the bloc, and would "weaken the industry on both sides".

His longer answer was blunter. "It does not make any sense … We would hurt our industry in the UK and the EU. That would be a deliberate choice to worsen the competitiveness of your own [EU] industry," he said. He described the IAA as being about industrialising more in Europe and building local supply chains. That is the argument in its purest form: the people running the factories think a rule meant to protect European manufacturing would damage it if it stopped at the Channel.

What changed this week

On Thursday 15 October the politics moved. France dropped its opposition to UK inclusion, as the Guardian reported, on condition that the British government aligns with the EU's position on tariffs for Chinese electric cars. Paris came round to the position Germany has held throughout.

A joint Franco-German paper proposes that for the automotive sector, Made in Europe should comprise the EU27 plus an opt-in for European partners that were in the single market as of 1 January 2020. That description fits the UK, which was still a member then, and Norway, which is in the single market without being in the EU. The paper says the opt-in would carry conditions, including dynamic alignment with EU trade defence measures. Those measures include the tariffs the EU put on Chinese electric cars in 2024, and any future barriers such as the hybrid quota now being finalised.

Liam Byrne, the Labour chair of the parliamentary business committee, told the Guardian that imposing tariffs on Chinese EVs was a small price to pay to save the industry in both the UK and the EU. Bernd Lange, who chairs the European Parliament's international trade committee, said the UK should "of course" be included and called French opposition "not rational".

The price tag on the British side

Westminster has agreed to nothing. Jonathan Reynolds, the business secretary, said on a trip to India on 14 October that tariffs on Chinese vehicles were not on the cards at the moment. The EU had spent the previous month arguing that adopting its tariffs would help the UK's case for inclusion.

By 16 October the tone had shifted. Downing Street said it would "welcome the objective to have the UK included in the Industrial Accelerator Act", while a spokesperson called it "premature to speculate" on the terms of any deal and noted that the UK keeps all tariffs under review. The Chinese embassy in London said it was "firmly opposed to any discriminatory practice involving tariff hikes or restrictive measures on Chinese products". So Britain wants in without having agreed the terms, and the country the policy targets has already objected. That is the shape of the dilemma.

The other clock

There is a second deadline running alongside this one, and it bites sooner. Under the EU-UK Trade and Cooperation Agreement, car exports in both directions are tariff-free only if they are mainly made in Europe. Neither side has built enough battery capacity to clear that bar comfortably, and batteries can be about 45% of the cost of a new car. A 10% tariff on electric cars traded across the Channel is due to start next year, having already been suspended once for three years.

ACEA wants a further suspension of two or three years. Its international trade director, Jonathan O'Riordan, said the industry is "getting very anxious", with the deadline less than three months away and "our feet to the fire in terms of the tariffs". Read those two arguments together and the logic is uncomfortable: the same carmakers asking for Britain to be treated as European are also asking for more time before the tariff wall goes up, which tells you how confident they are about the supply chain meeting the local content test.

What is still undecided

Almost everything. EU lawmakers are expected to finalise the text by the end of the year or in early 2027, and MEPs have already tabled 5,100 amendments, one of which would bring the UK in. A package with 5,100 amendments is a package nobody has finished writing, and Downing Street's "welcome the objective" is a long way from a signature.

The stakes are easiest to see at the plants. A car built in Sunderland or at Vauxhall's Ellesmere Port is made in Britain and sold across Europe, and these rules decide whether European public bodies can buy it on preferential terms. We set out the factory side of this in our piece on the three UK plant commitments, and the tariff question hanging over Chinese cars in this one.

What changed this week is not the law. It is that France and Germany have found a form of words that could let Britain in, and that the price is now visible in public: alignment with EU trade defence. No British government has taken that decision, and it will be argued over in Westminster for as long as it is argued over in Brussels.

For a buyer, the practical read is narrow. Nothing in the IAA changes what you pay in a showroom this month. What it changes is which factories get the next round of investment, because a plant whose output is shut out of European public contracts has a weaker case for the next model line. That is the argument Cappellano, Provost and Källenius are making, and it is being made to a government that has not yet said yes to the terms.