The countdown to likely countervailing duties on imports of electric vehicles from China has officially begun. The anti-subsidy investigation into imports of cars announced mid-September by European Commission president Ursula von der Leyen was published this morning in the European Union’s statute book.
The investigation is a very rare instance of an ex officio trade defence case initiated by the commission. The move follows pressing political demands from Paris, which is focused on promoting its domestic nascent electric vehicle industry.
A French decree that came into force in September conditions granting consumer subsidies for electric vehicles to their strict carbon footprint. This happens to favour French-produced cars using French nuclear power – posing competition and level playing field issues within the EU itself.
Political flavour
Usually the commission acts on the basis of a formal industry – or much rarer member state – complaint to initiate anti-dumping or anti-subsidy investigations. This investigation has a more directly political flavour.
The commission notice says “there is sufficient evidence demonstrating that imports of the product under investigation originating in the People’s Republic of China benefit from countervailable subsidies provided by the government”.
The notice cites no figures at this stage.
The commission says that it is looking into “inter alia, of (1) direct transfer of funds and potential direct transfers of funds or liabilities, (2) government revenue forgone or not collected, and (3) government provision of goods or services for less than adequate remuneration.”
This approach would make the EU’s investigation prima facie compatible with the World Trade Organization rule-book.
Commission officials allege that the market share of “Chinese brand battery vehicles” in the EU has increased from less than 1% to 8%.
Figures from the European car association ACEA show that Chinese brands of electric vehicles made up just 3.7% of total electric car sales in the EU in 2023. In 2019 this figure stood at 0.4%.
EU and US brands – not least Tesla – also export to the Europe from China. The investigation is expected to look into these exports too – posing new political dilemmas for the EU.
The process launched today could lead to temporary duties on imports of electric vehicles from China within the next nine months, and definitive import duties within the next 13 months. Import duties, if any, may be differentiated according to companies.
Note that the EU already charges a 10% import duties on cars entering its market. This is also a different scenario from the usual products subject to anti-dumping or anti-subsidy investigations such as steel, chemicals or biofuels, which fetch low or or zero tariffs at customs.
When the commission last initiated an ex officio trade defence investigation in 2013 against the telecommunications company ZTE it was obliged to withdraw the measure following strong backlash from China.
Watching China’s reciprocation
Many analysts expect China to retaliate against the measure in one form or another.
Simon Evenett and Fernando Martín from the Sankt Gallen Endowment for Prosperity through Trade argue that China could launch its own anti-subsidy investigations against EU imports at a time when the EU is rolling out its own industrial policy in the aftermath of the pandemic and due to its Green Deal.
“European firms wouldn’t be at risk of Chinese anti-subsidy investigation if little state aid was awarded within the EU. But that’s patently not the case,” Evenett and Martín write in a recent note.
The authors argue that the automotive, machinery and electric machinery, aircraft and plastics sectors from France, Italy and Germany are most exposed to potential Chinese reciprocation.
The authors also highlight that “since at least 2015, China has been reducing purchaser incentives for EVs. By reducing the incremental profits earned from selling [electric vehicles] in the Chinese market, the incentive to export has increased, relatively speaking”.
