China-EU trade reaches turning point with EV tariffs set to begin, but 'scope to compromise'

Provisional import tariffs on Chinese electric vehicles by the European Union represent a juncture for the bilateral relationship, but both sides would have enough time to avert "a serious trade war", analysts said, with the new levies set to take effect on Friday.

The European Commission confirmed on Thursday that the bloc's additional duties of up to a revised 37.6 per cent on Chinese battery electric vehicles (BEVs) would begin on Friday and would initially last for a maximum of four months.

"Based on the investigation, the commission has concluded that the BEV value chain in China benefits from unfair subsidisation, which is causing a threat of economic injury to EU BEV producers," said a commission statement.

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"The investigation has also examined the likely consequences and impact of these measures on importers, users and consumers of BEVs in the EU.

"Within that time frame, a final decision must be taken on definitive duties, through a vote by EU member states. When adopted, this decision would make the duties definitive for a period of five years."

Provisional tariffs of 17.4 per cent, 19.9 per cent and 37.6 per cent would be applied to Chinese carmakers BYD, Geely and SAIC, respectively, said the statement.

Other BEV producers in China which cooperated in the investigation would be subject to a 20.8 per cent weighted average duty, while the commission set the duty for other non-cooperating companies at 37.6 per cent.

"Before the last result comes out, I believe that both sides still have the space to discuss," said Liang Ming, director of the foreign trade institute under the Chinese Academy of International Trade and Economic Cooperation, which is a think tank within China's Ministry of Commerce.

The EU Commission statement confirmed consultations with the Chinese government had intensified in recent weeks, and that contact would continue at a technical level with a view to reaching a solution which addressed the concerns raised by the European Union.

"[The tariffs are] not a decisive battle, but one of the phases along the lengthy bilateral trade disputes," said Shanghai-based international relations scholar Shen Dingli.

"Both sides will continue to contest each other, but they will try to avoid the worst result through negotiation."

Earlier on Thursday, Ministry of Commerce spokesman He Yadong said that China had expressed its opposition "many times" towards the EU's anti-subsidy investigation.

"Both sides have already held many rounds of negotiations up to now," he said at a regular press conference in Beijing.

"We hope that the EU can show its sincerity to progress the dialogue in the coming four months, so that we can find resolutions both sides accept according to facts and rules."

In response to the EU's allegations of subsidies and overcapacity within its electric vehicle (EV) sector, China announced an anti-dumping investigation into certain pork products imported from the EU in June.

China's Ministry of Commerce is also reviewing complaints from machinery industry representatives against "biased practices" from the EU.

Frank Tsai, founder of the Shanghai-based China Crossroads consultancy, described the tariffs on Chinese EVs as "an inflection point" in the bilateral relationship.

Beijing would also experience such moves as "a setback to its efforts in the US-EU-China strategic triangle", added Tsai, who is also an adjunct professor at Emlyon Business School in Shanghai.

But Tsai also noted that the continuous disengagement of the US towards China would leave the EU the "only one major partner in the advanced West", meaning Beijing "has thus engaged in a charm offensive to stabilise the EU-China relationship".

The tariffs on Chinese EVs represent the first time that the EU Commission has executed its ex officio power to proceed unilaterally without a complaint from the industry.

"The EU measures announced are carefully tailored and leave plenty of scope to find a compromise ... there is much time until November to find ways out of a serious trade war," said Rolf Langhammer, a professor with the Germany-based Kiel Institute for the World Economy.

Langhammer noted that the EU Commission was "serious" about its mandate as the only institution lawfully deciding on trade policy issues, even with member states including Germany having different views, as it sees China's EV subsidies as a "threat".

German carmakers such as Volkswagen, Mercedes and BMW have opposed the trade barriers proposed by the EU amid fears of a tit-for-tat crackdown on accessing the huge Chinese market, while some other member states, including France, have backed the moves.

"More than one-third of the exported EVs from China to the EU are produced by the German carmakers," said Wang Yiwei, a professor of international relations at Renmin University in Beijing.

"So the tariffs are actually hitting their benefits hard."

Chinese carmakers are also making moves to mitigate the impact of the tariffs, with BYD planning to build its first passenger car facility in Europe in southern Hungary.

Chery Automobile also confirmed in April it had also sealed a deal to build its first European factory in Spain in a joint venture with Ebro-EV Motors.

In 2013, the EU threatened to impose provisional anti-dumping tariffs on Chinese solar panels, but the dispute was resolved after an agreement to set a minimum price after six weeks of talks.

"China and the EU will still communicate to ensure smooth bilateral trade and investment ... but the issue won't stop at tariffs," Wang added.

"It's the entire process of producing EVs that includes digitalisation, software, privacy and other standards."

He Weiwen, a senior fellow with the Beijing-based think tank Centre for China and Globalisation, pointed out the interdependence between both sides.

He cited the fact that EU law would require all new cars entering the market as of 2035 to have zero carbon dioxide emissions, and "they can't attain the goal only by themselves".

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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