France and Germany have proposed a tighter geographic definition of “Made in Europe” and a research and development (R&D) requirement for cars to qualify for subsidies or public procurement, which industry insiders say would put further pressure on Chinese carmakers to invest in production within the bloc. The automotive sector’s “Made in Europe” classification would include only the 27 member states of the European Union, with an opt-in to include European partners that were part of the EU single market as of January 1, 2020. Despite allowing for some concessions for carmakers’ carbon emission targets in its discussions with Berlin, Paris succeeded in convincing Germany to adopt a strict definition of “Made in Europe”. “What this agreement also brings, it’s a ‘Made in Europe’ that is truly European, our position is based on the 27-member European Union, and that is what we managed to secure with Germany,” a source at the Elysée said.
Starting in 2028, vehicles eligible for public-purchase support or public procurement would have to be assembled in Europe, with at least 70% of total value creation in components excluding the battery. At least 10% of the batteries would need to contain three principal components produced in Europe, including cells, according to the proposal. The legislation would mean that only a handful of countries, notably the UK – which only finalized Brexit at the end of January 2020 – and European Economic Area members such as Norway could potentially qualify, while countries like Turkey, Serbia, Japan and South Korea would be left out.
Countries like the UK and Norway would only be eligible for inclusion after they adopted the European preference scheme for the car sector and aligned with relevant European anti-circumvention measures such as conditions on third countries’ investments and Europe’s trade defense measures, according to the document. This would mean that the UK, before it could be considered a European partner, would have to introduce similar tariffs on China-made electric vehicles and impose import quotas on China-made hybrid (HEVs) and plug-in hybrid electric vehicles (PHEVs). The UK has recently been engaged in a back-and-forth with the EU regarding tariffs on China-made vehicles. UK Business Secretary Jonathan Reynolds said that the country would not bow to calls from other countries for it to impose higher taxes on Chinese vehicles, but British Trade Minister Anas Sarwar said the UK and the EU should work together to tackle the challenge of Chinese cars.
The tight definition might be a blow not only to Chinese brands such as BYD, which was planning a factory in Turkey, but also to Japanese and Korean brands. The Japanese government has mounted intense lobbying efforts to be included as a partner, with its Ambassador to the EU urging that the requirement should not penalize close partners. On top of the strict “Made in Europe” definition, the joint position also outlines that carmakers should carry out “a significant share” of their R&D in the EU, without providing a specific number. “This will likely become an issue for Chinese carmakers,” said an executive of a Chinese auto brand in Europe, adding that the lack of clarity was also an obstacle for brands which are willing to invest. While many Chinese brands have R&D centers in Europe, it remains unclear whether they could meet the proposed requirement.
The automotive sector has been a key point of tension between China and the EU. While both sides averted a full-blown trade war after negotiating a curb on Chinese HEV and PHEV exports to the EU, the EU maintained the curb would not fix the trade imbalance. The President of the European Commission Ursula von der Leyen vowed further safeguards and said during a press conference following the European Council Summit that the bloc would develop a mechanism to immediately limit access to the EU market. China’s Ministry of Commerce (MOFCOM) denied that the export cap was giving in to Europe and urged the EU to “harbor no illusions about extracting concessions through pressure, still less underestimate China’s determination and ability to defend its own interests”, the South China Morning Post reports.
