France, Germany strike deal on car emissions and UK special status

By Philip Blenkinsop

BRUSSELS, Oct 16 (Reuters) - France and Germany struck a deal on Friday to soften proposed EU car emissions rules and open the door for Britain to be treated as a trusted partner under the bloc's "Made in EU" rules.

The European Commission proposed last year that automakers cut CO2 emissions by 90% from 2021 levels in 2035, with the remaining 10% offset through measures such as the use of low-carbon steel and alternative fuels.

Under the Franco-German plan, the 2035 target would be set at 90%, but without the need for additional compensatory measures. The approach is broadly in line with the wishes of German automakers.

European automotive stocks gained after the deal was announced, lifting the STOXX 600 Automobile and Parts Index nearly 2%.

The joint plan also addresses an EU proposal introducing local-content and low-carbon requirements for products bought through public procurement, public auctions or subsidy schemes.

France has pushed for these products to be limited to those manufactured in the European Union. Other EU members, including Germany, argue that countries closely linked to EU automotive supply chains and free-trade-agreement partners should also be included.

The Franco-German plan says that for the automotive sector, "Made in EU" should cover the EU's 27 countries and other European partners that were part of the EU internal market on January 1, 2020.

That would include Britain, which left the EU single market at the end of 2020.

Volkswagen, Europe's largest automaker, said the compromise would help the industry contribute "to climate protection without jeopardizing its competitiveness."

The German company said the "Made in EU" proposals "provide a clear incentive for production and investment in Europe".

An official at British Prime Minister Andy Burnham's Downing Street office said inclusion in the "Made in EU" scheme would boost Britain's automotive sector. However, he said the Franco-German proposal requires wider European backing and that details had yet to be seen.

The Franco-German plan also says that inclusion should be subject to an agreement on full reciprocity, along with "dynamic alignment with EU conditions for investment from third countries and with EU trade protection measures".

That could mean Britain adopting measures the EU has taken to restrict imports of Chinese-built hybrid and battery-electric vehicles.

Speaking to reporters in London, Renault CEO Francois Provost said "obviously, the UK should be part of" the "Made in the EU" scheme as it is part of Europe's automotive "ecosystem."

But he said Britain should in turn ditch its EV sales mandate and adopt the same rules as the EU.

"The two automotive industrial policies should be consistent," Provost said.

A GOOD DAY FOR JOBS OR A 'HISTORIC MISTAKE'?

The Franco-German paper also proposed compliance periods spanning multiple years for CO2 emission targets, no revision before 2030 of the utility factor for hybrid vehicles, which measures the share of driving done electrically, and recognition of cars powered by renewable and low-carbon fuels as zero-emission vehicles.

German Chancellor Friedrich Merz called the deal "a good day for motorists and for jobs in Germany, France and Europe", adding that Italy largely agreed with the proposals.

The deal will not please all automakers. Toyota's European division, which sells cars in Europe from plants in the EU, Britain, Turkey and Japan, said on Thursday that including partners such as Britain, Canada, Japan, South Korea and Turkey would give the EU the scale needed to compete with China.

Turkey's trade minister said this week on a trip to Brussels that trusted partners like Turkey should not be excluded.

Green and environmental groups criticised the emissions proposals.

German Greens lawmaker Swantje Michaelsen said Germany's government was holding back the industry as high fuel prices accelerate EV demand.

Anna Krajinska of transport and environment campaign group T&E called the deal a "historic mistake" that would reduce the incentive for automakers to invest in EVs.

"German and French political leaders claim they are acting to save jobs, but this may well be the deal that buries Europe’s auto industry," she said.

France and Germany must convince other EU members and the European Parliament for their plans to enter into force. They are unlikely to reach a final common text before early next year, after an EU-UK summit planned for November 20.

(Reporting by Philip Blenkinsop and Makini Brice. Additional reporting by Alistair Smout, Nick Carey, Rachel More and Kirsti Knolle. Writing by Charlotte Van Campenhout and Philip Blenkinsop. Editing by Xevi Fontdegloria and Mark Potter)