China’s car industry is scrambling to cut a last-minute deal with the European Commission, as EU member states are set to vote in October on the imposition of tariffs on imports of Chinese electric vehicles. China is offering to set a minimum price and quota on imported EVs. Companies would in return be granted some amnesty from hefty import tariffs due to be slapped on Chinese-made EVs by the Commission by October. The EU has complained that cheap, exported Chinese vehicles threaten the future of Europe’s car industry. The companies would also be willing to put a limit on the volume of EV exports to the European Union should Brussels cut the punitive tariff, according to people familiar with the meetings. Above that volume, imports would face the duties the Commission proposed in August of up to 36.3%. Online hearings took place last week, with car companies including BYD, Geely and SAIC, and with the China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME).
Such a deal would closely mirror one reached 11 years ago during a trade war over cheap Chinese solar panel imports. Under that agreement, Chinese producers agreed to set a minimum price at which their panels would be sold. Panels sold at a higher rate or above a certain sales volume were subject to punitive import duties designed to bring the products in line with local market rates. The Commission is considering the proposals, but insiders thought it improbable that they would fly at this stage, given the fact that they were pitched as a “gentleman’s agreement” that would not be watertight. Nor does the Commission have fond memories of the solar panel resolution, which ultimately fell apart when powerful member states including France and Germany withdrew their support for EU measures. China had slapped trade tariffs on French wine and threatened the German car industry in response, and a decade later the EU solar industry has been decimated by Chinese competition.
Nonetheless, the proposal has given Brussels pause for thought. Even last week, it was thought that a negotiated settlement would be almost impossible to reach, given that car companies and the Chinese government denied that there were any undisclosed subsidies in their supply chains. Beijing has already lodged a complaint at the World Trade Organization (WTO) and launched retaliatory probes into EU brandy, pork and dairy products. Last week, China closed its brandy investigation and is expected to impose anti-dumping duties of up to 39% on French cognac brands at a later date, after declining to introduce provisional measures. “Our sector seems to be a collateral victim of a broader trade conflict, which will limit the access of Chinese consumers to products they greatly value and appreciate, if not resolved as a matter of priority,” said Adam Ulrich, Director General at Spirits Europe, a lobby group.
The EU has been open to making a deal on EVs, but it must have the same equalizing effect as the tariffs, which are designed to protect European-based companies from the market-distorting impact of subsidized Chinese competitors. While an official consultation period expired, the offer will be analyzed this week as officials return from their summer holidays. Since the deal would involve pledges from individual car companies rather than the Chinese government, it is unlikely that it would flout WTO rules that outlaw preferential treatment based on corporate nationality.
Chinese companies’ willingness to make such an offer comes as its industry faces being blocked out of other major markets. Last week, Canada joined the United States in slapping a 100% import duty on Chinese-made EVs. The EU tariffs, even after punitive duties are applied, would be comparably low. BYD's EVs, for example, would incur a 27% total tariff, while Geely would face a 31.3% rate. Even the EU’s top rate of 46.3% for companies such as SAIC – including the 10% base rate – is less than half the North American import tax. The deadline for introducing long-term duties is October 30. In a vote anticipated in the coming weeks, 15 of the 27 EU member states constituting 65% of the bloc’s population must vote against the tariffs to stop them.
Chinese companies are already planning for life under tariffs. Executives from BYD and Xpeng said that they were going to increase manufacturing in the EU as they look to avoid paying punitive duties. Xpeng’s CEO He Xiaopeng said the company was scouting Europe for sites for factories and data centers. BYD wants 50% of its revenues to come from overseas markets, and plans to set up its own data centers in European countries to avoid sending data back to China. The scramble for data centers comes amid mounting security concerns about the levels of data collected by electric and connected vehicles. Uber was fined €290 million by Dutch authorities for transferring European driver data to the U.S. BYD recently reached a deal to provide 100,000 EVs for Uber's fleet in Europe and Latin America.
Regardless of whether a tariff deal is reached, industry analysts expect Chinese EVs to remain competitive in Europe. “The Europeans are in denial. They don’t want to acknowledge that European carmakers have been out-engineered and outclassed,” said Tu Le, Managing Director of Sino Auto Insights, as reported by the South China Morning Post.
