After the 27 European Union countries failed on Friday to agree on whether to slap China-made electric vehicles (EVs) with steeper tariffs, the European Commission under President Ursula von der Leyen may now finally get its controversial proposal to raise EU import duties on the environmentally friendly automobiles from China off the ground.
The protectionist tariffs were proposed in June by the Commission, which claimed that China-made EVs were benefitting from government subsidies creating an unfair advantage.
Beijing has steadfastly denied the existence of the subsidies and on Friday reacted to the EU nations’ vote by saying that it “firmly opposes the unfair, illegal and unreasonable protectionist practices of the EU in this case, and resolutely opposes the EU additional countervailing duties on China electric vehicles”.
The issue has been highly controversial among the EU member states. In order to pass or reject the tariffs suggested by the EC, any side needed to garner support from at least 15 EU countries representing over 65 percent of the bloc’s population of 450 million.*
As neither side reached the 65 percent threshold, it is now up to the Commission to uphold or withdraw its contentious proposal.
The outcome of Friday’s vote was not publicly available, although several diplomats told the Lyon-based pan-European TV news channel Euronews how each member state positioned itself:**
10 were in favour: Bulgaria, Denmark, Estonia, France, Ireland, Italy, Lithuania, Latvia, the Netherlands and Poland (45.99 percent of the EU population);
12 abstained: Belgium, the Czech Republic, Greece, Spain, Croatia, Cyprus, Luxembourg, Austria, Portugal, Romania, Sweden and Finland (31.36 percent);
Five were against: Germany, Hungary, Malta, Slovenia and Slovakia (22.65 percent).
I found the high number of abstentions puzzling as it includes several countries known to have sought closer relations with China in the recent past. But, as a Brussels-based media colleague told me a decade ago, it is easier to solve even a peculiarly abstruse riddle than to understand how EU member states interact with the Commission
The crux is that the Commission has the exclusive powers to determine the bloc’s external commercial policy – and, in this darned case, to ensure that its desired tariffs on EVs imported from China finally get off the ground.
The Commission boasted in a post-vote statement on Friday that its “proposal to impose definitive countervailing duties on imports of battery electric vehicles (BEVs) from China has obtained the necessary support from EU Member States for the adoption of tariffs.”
The problem is that the EU’s number one car-manufacturing member state, Germany, voted – understandably – against the proposal, considering that its automobile giants such as Mercedes Benz, Volkswagen and BMW have heavily – and profitably – invested in China. This has set German Chancellor Olaf Scholz of the centre-left Social Democratic Party (SPD) against his compatriot von der Leyen, whose conservative Christian Democratic Union (CDU) is Germany’s main opposition party.
Friday’s vote hurts Germany’s national interest, i.e., the interests both of its carmakers (employers, employees and their families) and its consumers looking for affordable, environmentally friendly vehicles.
The Commission also said in its statement that Friday’s vote represents another step towards the conclusion of its anti-subsidy investigation. However, it was quick to add that, “in parallel, the EU and China continue to work hard to explore an alternative solution that would have to be fully WTO-compatible…”, pointing out that “a Commission Implementing Regulation including the definitive findings in the investigation must be published in the [EU] Official Journal by October 30, 2024, at the latest.”
Also on Friday, a spokesperson for the Ministry of Commerce (MOC) in Beijing urged Brussels “to take concrete actions to implement its political will and get back to the right track of resolving trade frictions through consultations.”
The spokesperson stressed that while China firmly opposes the draft final ruling of the EU side, it “has also noted its political will to continue to resolve the issue through negotiations, noting that technical teams from both sides will continue with their negotiations today.
The spokesperson also insisted that “the EU’s protectionist practices seriously violate WTO rules and disrupt the normal international trade order,” pointing out that since June, China and the EU have held more than 12 consultations on the case, apart from talks held last month between Minister of Commerce Wang Wentao and European Commission Executive Vice President and Trade Commissioner Valdis Dombrovskis where both “clearly expressed the will to resolve differences through consultation and agreed to launch price commitment talks to avoid escalating the trade frictions”.
I believe that the “price commitment” approach could be a way out of the conundrum. In this compromise solution, Chinese carmakers would commit to setting up minimum prices for their EVs sold in the EU. However, I hope that the minimum prices would be as low as mutually acceptable by Brussels and Beijing so that the pockets of price- and environmentally-conscious EU consumers aren’t hurt unnecessarily.
As a German and EU citizen living in China’s Macau Special Administrative Region (MSAR), I can only hope that both sides will be able to hammer out a win-win deal by the end of this month. I would like to add that I grew up a mere 40 km driving distance from Volkswagen (VW) AG’s headquarters in Wolfsburg, Lower Saxony, so I know first-hand how important a safe – and relatively well-paid – job in the automobile sector is for many Germans. Von der Leyen should be fully aware of the predicament, as her late father was the minster-president (governor) of Lower Saxony between 1976 and 1990.
No wonder that Germany’s association of automobile manufacturers has strongly opposed the imposition of “countervailing duties” by the EU on EVs imported from China. Anyway, the term “countervailing duty”, i.e., a duty supposedly levied on an imported article to offset the unfair price advantage it holds due to a subsidy paid to producers or exporters by the government of the exporting country if such imports cause or threaten injury to a domestic industry, is often little more than a euphemism for punitive and/or protectionist tariffs.
Incidentally, the auto industry accounted for nearly one-quarter of Germany’s total domestic industry revenue in 2022.
Germany’s Finance Minister Christian Lindner of the pro-business Free Democratic Party (FDP) reacted to the troublesome outcome of Friday’s EU Member States’ vote that the Commission “should not trigger a trade war. We need a negotiated solution.”
After all, politics should be seen as the art of compromise.
The auto sector involves 2.5 million direct and 10.3 million indirect jobs – such as those by suppliers and subcontractors – across the 27-nation bloc.
Last year, EVs made in China accounted for 19 percent of the EU’s EV market, and analysts have forecast that the share could reach one-quarter by the end of this year.
If this month’s negotiations fail, the EU’s tariffs on affordably priced EVs from China could be implemented as of October 31 and last five years.
Currently, China-made EVs are already subject to a 10 percent tariff.
The Commission claims that the proposed extra tariffs aim to offset the “damaging” effects of the Chinese government’s purported subsidies and would close the price gap between Chinese and EU firms. Reportedly, the tariffs would vary according to the car brand and their “level of cooperation” with the Commission’s investigation: 7.8 percent for Tesla, 17 percent for BYD, 18.8 percent of Geely, and 35.3 percent for SAIC. Those Chinese carmakers that did not cooperate with Brussels would face tariffs of 35.3 percent – always on top of the existing 10 percent. This means that some Chinese carmakers would soon face tariffs of over 45 percent.
Understandably, Beijing has denounced the Commission’s move as a “naked protectionist act”.
The EU auto market is much more important to China’s than the one in the US because of which Washington’s recent decision to impose 100 percent tariffs on China-made EVs is politically annoying, but economically less so.
The Commission’s obvious aim is to make it more difficult for Chinese automakers to compete in the EU, many of whose automakers are still struggling to catch up with the world’s rapid transition to EVs, by their Chinese rivals in particular. In fact, European carmakers sleepwalked into the industry’s historic change triggered by global awareness of the urgent need to protect our already badly battered environment from the climate crisis.
Instead of resorting to 19th-century style protectionism to cope with competition from EVs made in China, European governments ought to do everything in line with WTO rules to assist their countries’ automakers’ efforts in speeding up the development of EVs.
Protectionism hinders industrial modernisation – in which the EU and other Western countries are lagging behind China’s on many fronts. Instead, they should roll up their sleeves and be ready to learn from their competitors, including those in China, even on the price front.
It is nothing new that certain countries complain about the supposedly adverse impact of cheap imports of goods – in the 19th century the British targeted German imports by forcing the “made in Germany” label on them which later became a quality mark which it still is –, well, to a certain degree. North American and Western European politicians used to lash out against cheap merchandise imports from Japan only a few decades ago, and I expect the same to happen before long to India, Brazil and other countries in the Global South.
So,let’s hope that the last-ditch China-EU negotiations will succeed in striking a compromise that it acceptable to both sides and, most of all, in line with WTO rules. Incidentally, the WTO could finally demand that Brussels amend or even remove its tariffs on Chinese EVs if it finds them inadmissible.
Currently, the world is in turmoil, politically, environmentally, economically and militarily, and a trade war between the EU and China is the last thing that the world needs right now. In terms of trade, China and the EU ranked second and third in the world, after the US, last year.
What we need most urgently is trade that is as mutually beneficial, free and fair as practically possible, all this always being subject to political comprise, ideally to be achieved by consultations and negotiations, as well as, if needed, arbitration mechanisms.
Without good will from all sides involved this can never be achieved and would merely result in – ultimately doomed – foul compromises.
So I hope that negotiators from Brussels and Beijing can reach a mutually acceptable deal by the end of the month. I am sure that car factory bosses, their workers and, last but not least, consumers, both in China and the EU, would be grateful for their success.
– Harald Brüning
*Europe Votes to Slap China-Made EVs With Tariffs—but Tesla Gets Off Easy, by Zeying Yang
**Brussels breaks impasse after EU countries fail to agree on Chinese EV tariffs, by Jorge Liboreiro
