In early June, the European Union Commission informed Chinese electric vehicle companies about tariff matters. Previously, the EU Commission had investigated the subsidies provided by the Chinese authorities and state-owned banks for electric vehicle manufacturers. The Biden administration has announced a 100% tariff on Chinese electric vehicles.
The interim tariffs in the EU are set to be implemented on July 4th or 5th, with the final tariffs scheduled to begin in November. Currently, the EU and Beijing have agreed to negotiate on the tariffs.
According to a source who wished to remain anonymous, the EU slightly modified the proposed tariffs after receiving more information from affected companies. The new temporary tariff rates will increase on the existing 10% tariff base, with SAIC Motor’s new rate at 37.6% (previously proposed at 38.1%), Geely Automotive at 19.9% (previously 20%), and BYD remaining at 17.4%.
Other Chinese electric vehicle manufacturers not sampled but cooperating with the investigation will face a weighted average tariff of 20.8% (previously proposed at 21%), while non-cooperating companies will face an additional 37.6% duty.
In the highest case scenario, a punitive tariff of 37.6% will be imposed, in addition to a standard 10% import tariff on all cars from China, making the total maximum tariff 47.6%.
Chinese-made electric vehicles account for about 25% of the European market, with China exporting 430,000 such vehicles to the European mainland in 2023.
The temporary tariffs and future developments, as well as the differences in tariff practices between the US and Europe, will be further discussed in the following paragraphs.
If the EU Commission deems it necessary to prevent damage to EU industries, interim tariffs can be imposed within nine months of the start of the EU anti-subsidy investigation.
These measures can last a maximum of four months, during which the Commission will decide whether to implement final tariffs. For the electric vehicle case, the deadline is November 3rd.
Interim tariffs will only be executed once the investigation ends and formal tariffs are determined. If the final formal tariffs are lower or not needed at all, the previously calculated interim tariffs will be adjusted accordingly. Typically, customs authorities only require importers to provide a bank guarantee before this.
Interim tariffs can also apply to previous imports, with a maximum retroactive period of 90 days, which in the case of electric vehicles can be traced back to early April this year.
Last Saturday, EU Trade Commissioner Valdis Dombrovskis and Chinese Commerce Minister Wang Wentao held a phone call, with both sides to continue engagements on various levels in the coming weeks.
BBC reported that an EU spokesperson emphasized the EU’s opposition to China’s financing methods in the electric vehicle industry. They stated that any negotiation outcomes on the proposed tariffs must address the “harmful subsidies” for Chinese electric vehicles.
China also released a statement last Saturday, expressing disagreement with the EU’s perspective.
German Economy Minister Robert Habeck mentioned that Dombrovskis will engage in specific negotiations with the Chinese side regarding tariffs.
Due to the significant interests of the German automotive industry in China, making Germany vulnerable to any retaliatory measures from Beijing, China has initiated an anti-dumping investigation on EU pork products.
Germany criticizes the EU’s decision to raise import tariffs on Chinese electric vehicles.
By July 4th, the EU Commission will publish a detailed document in the official journal, outlining the ongoing investigation and results. The interim tariffs will take effect the following day.
China, electric vehicle manufacturers, and other related parties must submit comments on the investigation results by July 18th. They may also request a hearing.
The EU Commission has visited over a hundred car manufacturers’ factories in China and Europe and has completed most of the investigation.
The final report usually confirms the interim investigation results and can be adjusted based on feedback received.
As an alternative to tariffs, exporters can commit to sell their products at the lowest price or above the minimum price. Ten years ago, Chinese exporters agreed to such commitments regarding solar panels. However, as cars are not commodities, it is challenging to see how minimum pricing can be applied.
During the interim phase, the EU Commission has full authority to levy tariffs, although consultation with EU member states is done, taking into account their positions.
Member states must submit their positions by July 15th.
After the investigation, the EU Commission can propose final tariffs, typically effective for five years.
If a sufficient majority of the 27 EU member states oppose, the measure can be blocked. A sufficient majority means that 15 EU member states oppose it, representing at least 65% of the EU’s total population.
Any company not included in the BYD, Geely, and SAIC sample group can request an “accelerated review” immediately after implementation of the final measure if they wish to have tariffs imposed individually. This review can last up to nine months.
If the EU Commission deems these measures unnecessary after the official tariffs are implemented, or if they are insufficient to counter subsidies, a “mid-term review” can be conducted a year later.
The Commission often investigates whether manufacturers evade tariffs by exporting components to be assembled elsewhere. For the EU, if 60% or more of the component value is imported from a taxed country and the assembly value doesn’t exceed 25%, it is considered tariff evasion.
The EU Commission began investigating Beijing’s massive subsidies to key industries in October 2023. The focus was on the threat posed by cheap Chinese imports flooding the European market, lowering prices, and harming the European auto industry. The investigation reflects a thoughtful approach consistent with the EU’s new de-risking approach, but still centered on compliance with World Trade Organization trade defense regulations.
Unlike the US levying tariffs on entire industries, the EU’s new tariffs target specific Chinese companies. Tariffs on electric vehicles in Europe will cover a broad range of companies, including Western brands with production facilities and joint ventures in China. This gives automakers the option to shift production to Europe to avoid tariffs.
A significant part of the differences between the US and EU lies in the different direct market threats posed by Chinese electric vehicles. Last year, the US imported fewer than 3,000 electric vehicles from China, with part of the tariff aimed at preventing the growth of China’s market share. In contrast, China’s manufacture of electric vehicles holds about 25% of the European market, quadrupling in the past five years. Hence, the EU’s decision is seen as an attempt to balance protecting the European auto industry and avoiding escalating to a trade war with Beijing.
However, a key point is that the new tariffs on both sides of the Atlantic indicate a more unified approach towards China.
(References: Reuters and Atlantic Council)