New FTAs Are Reshaping Automotive Landed Costs – and Many Importers Are Not Ready

Three major trade agreements reached conclusion between mid-2025 and early 2026, each carrying substantial automotive provisions.

The UK–India FTA, the EU–India FTA, and the EU–Mercosur partnership agreement together cover markets responsible for over 35% of global vehicle production.

For European and UK-based automotive manufacturers and importers, the duty management landscape is shifting faster than many compliance teams have mapped.

At the same time, the EU–UK Trade and Cooperation Agreement’s rules of origin for electric vehicles are entering their strictest phase from January 2027. The amount of non-originating content allowed in an EV or its battery is falling sharply – and the extension that bought the industry time cannot be repeated.

In this article, we look at what each agreement changes, how origin composition rules are tightening, and what the combined effect means for your landed costs.

Contents:

• The EU–India FTA: automotive tariffs cut from 110% to 10%
• The UK–India FTA: a parallel deal with its own quota structure
• EU–Mercosur: a 15-year phase-in for vehicle tariffs
• Origin composition rules as a green policy lever
• What this means for your landed costs
• Why this matters for your business
• How Customs Support Group can help
• Join our free webinar on automotive customs

The EU–India FTA: Automotive Tariffs Cut From 110% to 10%

The EU and India concluded their free trade agreement on the 27^th of January 2026, ending nearly two decades of negotiations. The automotive chapter is one of the most commercially significant elements of the deal.

India’s current tariffs on imported vehicles – up to 110% on fully built units – have long made direct export from European plants unviable for all but the highest-margin models.

Under the agreement, customs duty on EU-manufactured vehicles with a CIF value above €15,000 drops from 110% to approximately 35% in the first year. A staged reduction then brings this to 10% over the full transition period. This applies within a quota of up to 250,000 vehicles per year.

For ICE (internal combustion engine) vehicles valued between €15,000 and €35,000, a first-year quota of 34,000 units applies at the reduced rate. These are not blanket reductions. Each segment has its own quota ceiling and transition timeline.

Completely knocked-down (CKD) kits – unassembled vehicles – receive separate treatment.

A quota of 75,000 ICE vehicle CKD kits will qualify for duty reductions from 16.5% to 8.25%, supporting EU manufacturers operating Indian assembly lines. Parts and components tariffs are scheduled for full elimination within five to 10 years.

Electric vehicles are excluded from the agreement for the first five years. After that period, phased duty reductions within limited quotas will apply. This carve-out reflects India’s intention to build domestic EV manufacturing capacity before opening the segment to direct competition.

The European Commission estimates the agreement will eliminate or reduce tariffs on almost 97% of European exports to India, saving up to €4 billion annually in duties across all sectors. Automotive is named alongside pharmaceuticals, machinery, and agri-food as a primary beneficiary.

The UK–India FTA: A Parallel Deal with Its Own Quota Structure

The UK finalised its own bilateral agreement with India on the 6^th of May 2025, making it one of the most commercially significant post-Brexit trade deals to date. Implementation is expected from mid-April 2026.

The automotive element of the UK-India deal follows a similar logic to the EU deal but with distinct parameters. Tariffs on UK-manufactured vehicles entering India fall from over 100% to 10% under a managed quota. The UK Government estimates the agreement will reduce tariffs on UK exports to India by up to £400 million per year at entry into force, rising to £900 million after 10 years.

For UK-based manufacturers and component suppliers, this creates a direct export channel into one of the world’s largest vehicle markets. India’s annual market exceeds four million units, with growth projected across both passenger and commercial segments.

However, India’s tariff reductions are phased over several years, whilst UK market access for Indian exporters takes effect sooner. This asymmetry means UK automotive businesses need to consider the domestic ramifications of the India deal now, even though the export opportunities build incrementally.

EU–Mercosur: A 15-Year Phase-In for Vehicle Tariffs

The EU-Mercosur partnership agreement was formally signed on the 17^th of January 2026, with provisional application beginning from the 1^st of May 2026. Full ratification depends on European Parliament approval – a process that may be extended following the Parliament’s decision to seek an opinion from the Court of Justice.

The automotive tariff structure uses a 15-year phase-in. Mercosur countries currently apply duties of up to 35% on imported vehicles. Under the agreement, passenger cars with internal combustion engines will be fully reduced over this period, with a transitional quota of 50,000 units during the first seven years at half the base tariff rate.

Electric vehicles receive different treatment: an 18-year transition period, with tariffs reduced immediately to 25% from the current 35%. This longer timeline reflects Mercosur’s sensitivity around its own manufacturing base, particularly in Brazil and Argentina, whilst still creating preferential access for European EV manufacturers.

The European Commission projects a threefold increase in EU automotive exports to the Mercosur region by 2040. The European Automobile Manufacturers’ Association has publicly welcomed the agreement and called for swift ratification.

Origin Composition Rules as a Green Policy Lever

Rules of origin have traditionally served one purpose: ensuring that preferential tariff treatment goes to goods genuinely manufactured within the partner territories.

In the automotive sector, this is changing.

Origin composition requirements are increasingly being designed to drive investment in green manufacturing infrastructure, not just to prevent transhipment.

The clearest example is the EU–UK Trade and Cooperation Agreement. The TCA sets product-specific rules of origin for electric vehicles and batteries that are designed to tighten in three stages. Each stage demands a higher share of UK or EU content, lowering the ceiling on how much of the vehicle’s value could come from third countries.

From the 1^st of January 2027, the maximum non-originating materials (MaxNOM) allowed in a finished battery electric vehicle (BEV) or Plug-in Hybrid Electric Vehicle (PHEV) drops from 60% to 45% of the ex-works value.

But, it is not just an overall value threshold for BEVs and PHEVs.

The battery pack must also meet a separate origin requirement. That is a dual condition: meet the MaxNOM threshold for both the battery and the vehicle as a whole.

The cathode active material (CAM) exemption is the element that makes the battery cliff-edge so steep. Until the end of 2026, the current rules allow a change of tariff sub-heading or assembly from non-originating cells as a route to origin — without restricting where the cathode material comes from.

From 2027, the CTH route explicitly excludes non-originating active cathode materials.

In practice, a battery pack assembled in the UK using cells with cathode material from South Korea or China may qualify under the current rules. From 2027, those same materials count against the threshold. The pack must either stay within the 30% MaxNOM cap or ensure its cathode material originates in the UK or EU.

The EU Battery Regulation – an additional compliance layer.

From 2027, all EV batteries require a Battery Passport – a digital record covering carbon footprint, recycled content, and supply chain due diligence. Compulsory minimum recycled content levels take effect for lithium, nickel, cobalt, and lead.

Although this is not an FTA, these requirements interact directly with origin rules.

A battery assembled in the EU from imported cells with insufficient recycled content may meet origin thresholds but will still fail regulatory compliance. The two regimes are converging.

For automotive businesses, the question is no longer just “Where was this made?” but “Where was this made, from what, and can you prove it?”.

(Related: UK Electric Vehicle Exports and the Origin Rules Reshaping Them)

What This Means for Your Landed Costs

Each of these agreements changes the import duty component of your or your buyer’s landed cost calculation. But the interaction between them creates a more complex picture than any single tariff line suggests.

Consider a European automotive component manufacturer exporting to multiple markets.

• Under the EU–India FTA, parts tariffs will phase to zero over the next five to 10 years.
• Under EU–Mercosur, preferential access opens at reduced rates with a 15-year runway.
• Under the EU–UK TCA, components containing battery cells or packs must meet progressively tighter origin rules to hold zero-tariff status.

Each trade lane now has its own thresholds, transition periods, and documentation requirements – and all of them change where the opportunities will be in the short and long term.

(Related: Automotive import costs explained: how customs value, duty, and tax add up)

The cost exposure sits in the gaps between eligibility and proof. A product classified correctly and declared at the right customs value can still attract full duty if the origin documentation does not meet the specific protocol of the relevant FTA.

And, the documentation, threshold, and origin determination rules can vary between each agreement.

For businesses trading with multiple FTAs, the challenge is cumulative. Where supply chains involve third-country components – a battery cell from South Korea, a semiconductor from Taiwan – the origin arithmetic becomes a compliance discipline in its own right.

The US–EU trade environment adds another variable. The reduction of US tariffs on EU-manufactured vehicles from 27.5% to 15% under the 2025 framework agreement shifts the economics of serving the US from European plants. For manufacturers adjusting to India and Mercosur at the same time, the combined effect is a fundamental reset of production and sourcing decisions.

Why This Matters for Your Business

The automotive trade agreements concluded in 2025 and 2026 are not incremental updates. They represent the largest expansion of preferential market access for European vehicle manufacturers in over a decade, arriving at the same time as the tightest origin composition rules the sector has faced.

The businesses that stand to gain the most are those treating these agreements as a landed-cost restructuring opportunity – mapping each trade lane, validating origin eligibility product by product, and building the documentary infrastructure to claim preferential rates from day one.

The businesses most exposed are those still paying full import duty on goods that qualify for preference, because nobody has formally verified origin or built a reliable claims process.

In an industry where margins sit in single-digit percentages, the difference between a 35% tariff and a 10% tariff on a single trade lane can determine whether an export programme is viable.

The tightening of EU–UK origin rules for EVs from January 2027 adds urgency. With no possibility of a further extension until 2032, manufacturers and their customs compliance partners have a fixed window to secure battery sourcing arrangements that meet the new thresholds — or absorb a 10% tariff that was never part of the original business case.

How Customs Support Group Can Help

Navigating multiple FTAs with overlapping origin rules, transition periods, and documentation requirements is a specialist discipline.

Customs Support Group provides practical assistance with:

• FTA eligibility assessment across EU–India, UK–India, EU–Mercosur, and EU–UK trade corridors
• Rules of origin verification and supplier declaration management for automotive components and finished vehicles
• Landed cost modelling to quantify the duty impact of each preferential rate against the standard baseline
• EU–UK TCA origin compliance for electric vehicles and battery packs, including cathode material sourcing ahead of the 2027 threshold changes
• Customs classification review to ensure commodity codes align with the tariff schedules of each agreement
• Ongoing compliance monitoring as transition periods progress and quota structures evolve

It all begins with a customs compliance scan, where our experts assess your current trade flows and return actionable insights on where preferential rates can reduce your duty spend.

Contact us to review your automotive trade flows across each of these agreements.