The European Commission looks set to propose a three-year delay to a 10% tariff on sales of electric vehicles between the EU and the UK, in a major boost for car industries across Europe.
Duties were due to kick in on 1 January 2024 but all the major carmakers in the UK and Europe including BMW, Volkswagen and Stellantis have been lobbying for a temporary reprieve.
Stellantis, which is responsible for 14 brands including Vauxhall and Jeep, warned it might have to close operations in Britain with the loss of thousands of jobs if the tariff came into force in January.
The proposal will go before the full cabinet of European commissioners on Wednesday, where it is expected to be approved.
At the same time the European Commission is proposing a €3bn (£2.57bn) fund for the battery industry to help accelerate the production of homegrown electric vehicles.
France had objected to the suspension of the tariff arguing it was wrong to reopen the Brexit trade deal and to give the car industry any protection when it had been slow to develop its EV production.
The EU and the UK agreed the tariff regime in 2020, when the trade and cooperation deal was sealed and at a time when European manufacturers felt they would have long enough to ramp up production of EVs.
However, the pandemic provided a huge setback with manufacturers protesting that China had been handed the advantage with its share of the EV market doubling over the last two years.
The EU has also announced an investigation into claims of state subsidies of Chinese EVs.
It is understood the European Commission proposal does not involve the re-opening of the Brexit deal but will need approval of the European Council of leaders before going to the Brexit partnership council, which governs the implementation of the Brexit deal.
The commission will also insist that the suspension of tariffs is a one-off and will not be repeated if the industry fails to scale up by 2027.
It is thought the proposal will be formally released on Wednesday lunchtime after the “college of commissioners” meet.
European carmakers had warned that failure to lift the tariff would add costs of up to €4.3bn (£3.7bn), which would be passed on to the consumer or absorbed by industry.
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It would have meant that electric vehicles imported to the UK from EU, already considered prohibitively expensive for many, would cost even more from next year.
There has been concern within the EU about the competitiveness of its own carmakers, and the foothold China may be able to build in key markets including cars, solar panels, wind turbines and medical devices by making extensive use of subsidies to bring down costs for consumers.
On Thursday the European Commission leader, Ursula von der Leyen, will meet the Chinese president, Xi Jinping, and warn that the EU cannot tolerate the growing trade deficit, now standing at about €400bn, with China.
In a briefing before the meeting, von der Leyen stressed that Europe was not trying to “de-couple” itself from the Chinese powerhouse, but to “de-risk” ties that had become too one-sided.
“We have seen a growing trade imbalance. The trade imbalance has doubled in the last two years to up to almost €400bn by now,” she said.