Electric vehicles made in China will soon be subject to additional tariffs when introduced into the European Union’s borderless market.
The subsidies injected by the chinese government to battery electric vehicles (VEB) impact both the prices of electric cars that additional tariffs are needed to counteract them and avoid unfair competition.
This is the preliminary conclusion of the European Commission’s trade investigation, announced on Wednesday after weeks of growing speculation. Diplomats and pressure groups were eagerly waiting to know how far the Executive would go to confront Beijing, a task that, despite its pressing nature, continues to divide member states.
The Commission has proposed a wide range of tariffs to balance the situation: 17.4% for BYD, 20% for Geely and 38.1% for SAIC. The other China-based BEV manufacturers that cooperated in the investigation, including Tesla and BMW, will be subject to a 21% tariff. Those who did not cooperate will fall into the 38.1% category.
Los Tariffs will enter into force on July 5 on a provisional basis. A proposal for permanent measures will be presented and put to a vote in November.
Wednesday’s announcement exceeded the expectations of industry and experts, who expected a 20% tariff, and highlighted firm determination to confront China’s unfair practiceswhich the bloc had previously excused for the sake of cooperation until it backfired.
The Commission’s conclusions are a damning accusation which seems designed to convince skeptics of the urgent need to take decisive action.
“In this particular case, we had no choice but to act in the face of increased imports of heavily subsidized BEVs produced in China and their growing share of this market in the EU“, declared Valdis Dombrovskis, Executive Vice President of the Commission. This is what has emerged so far.
Subsidies were everywhere
During the investigation, which began in early October, Commission officials discovered that subsidies were virtually omnipresent in the Chinese EV sector.
It was detected public money throughout the supply chain, from the extraction of raw materials to the production of battery cells and the manufacture of cars. Even the transport services needed to bring goods to EU ports received state support.
Some subsidies, such as preferential loans, tax reductions, direct subsidies and cheap land, were familiar to Brussels, having already been detected before in other fields.
But others, according to officials, were “case-specific” to fit the needs of EV production. Among them, the supply of lithium and batteries “below their market price”the issuance of “green bonds” that companies were forced to buy and the distribution of benefits to consumers that were, in fact, paid to producers.
The deployment involved authorities at all levels – national, regional and local – and favored VEB plants operated by Chinese and Western companies, such as Tesla y BMW.
More than 100 companies involved
The Commission’s investigation covered 21 producer groups based in China who were asked for financial information about their companies. Given the enormous size of the market, the Executive chose three companies – BYD, Geely and SAIC – as representative samples to know the scope of the subsidies.
“Tesla was not considered representative and was not included in the sample,” said one official, who spoke on condition of anonymity.
To the selected trio was asked to fill out a detailed questionnaire of several chapters in which questions were asked about its chain of command, production capacity, business volume, export volumes, supply chains and, above all, use of subsidies and relationship with the Chinese government.
This phase gave way to the on-the-spot verifications, which took place between January and March of this year and in which around 100 production centers were visited. The evidence collected in this period helped Strengthen the case and calibrate tariffs depending on the brand.
The researchers also contacted the Chinese government, but the approach was disappointing: Beijing was “very active” sending arguments to defend its industrybut was “very reticent” to give complete answers to the research questions, according to officials.
But not everyone cooperated
Once the facts were on the table, Commission officials set out to decide the rates.
ADVERTISINGBYD received the lowest rate (17.4%) because it collaborated with researcherswhile SAIC received a 38.1% fee for not cooperating. Furthermore, the subsidies received by the former were lower than those of the latter. As the proposed tariffs will be added to the existing 10%, SAIC will face a 48.1% import duty from July 5.
Faced with a dearth of information, Commission officials had to turn to the “best available facts”, that is, data and perspectives from “similar sources” that could fill in the missing links. This method -and the research as a whole- has been vehemently contested by the Chinese Ministry of Commercewhich claims that the Commission “artificially constructed and exaggerated” the existence of subsidies.
Vice President Dombrovskis insists that due diligence was carried out.
“We have given every opportunity to Chinese companiesand the Government of China, to provide their own data, so that we can create as accurate a picture as possible of the subsidy situation,” he said in a statement.
“We also gave as much time as possible for the Chinese parties to provide this information; in fact, we went beyond the strict legal deadlines. However, both the Government of China and several companies chose not to fully cooperate.”
ADVERTISINGThe “harm” is both present and future
The main objective of the investigation is to determine whether China’s use of subsidies may cause “harm” to EU industry. That is, if European companies run the risk of suffering unsustainable economic losses due to not being able to compete with low-cost imports.
When the President Ursula von der Leyen announced the investigation in September, the “harm” was described as a future threat that had to be avoided with preventive measures. But on Wednesday, the Commission indicated that some damage had already been done.
The market share of Chinese EV producers increased from 1.9% in 2020 to 8.8% in the third quarter of 2023, an astonishing increase in a very short period of time. “This market share is likely to increase up to 17% in 2025as Chinese producers also plan to increase their exports to the EU,” Dombrovskis said.
The sudden influx of Chinese-made EVs, with their attractive pricesput EU producers at an immediate disadvantage as it prevented price increases that should otherwise have occurred, decreasing profit margins, officials explained.
If this financial constraint worsens, EU car manufacturers will not be able to successfully complete their transition from fossil fuel engines to electric batteriesas anticipated community legislation. The automotive sector is responsible for 2.5 million direct jobs and 10.3 million indirect jobs, so the bloc’s inability to stay in the EV race could have painful consequences.
ADVERTISINGTherefore, the Commission has detected “a clearly foreseeable and imminent threat of harm” that justifies the imposition of measures to close the price gap.
