EU's additional duties on Chinese EVs entail broad negative effects

The European Commission is expected to impose provisional duties on Chinese electric vehicles (EVs) starting July 4, amid concerns from various sides, including China and some European automakers.

The commission announced a plan on Wednesday to impose provisional tariffs of 17.4 to 38.1 percent, in addition to the existing 10 percent vehicle duty, as part of its preliminary ruling on the anti-subsidy investigation into Chinese EVs.

"The imposition of anti-subsidy duties must meet several requirements under WTO rules," said Li Yang, a professor at the China Institute for WTO Studies, University of International Business and Economics. These include the existence of subsidies and their adverse effects on the domestic industries of importing countries.

"There must be a clear link between the subsidies and their adverse effects, proving substantial harm to local companies," Li explained. "This ensures anti-subsidy duties are applied fairly and only in genuine cases of harm from subsidized exports."

Anti-subsidy investigations can be initiated in two ways: enterprises can file a complaint with evidence, prompting a government investigation, or the government can start its own. If procedural requirements are met, anti-subsidy duties may be imposed based on the findings.

"The EU's anti-subsidy investigation is still under discussion in terms of procedures," Li told CGTN. "The advantage of Chinese EVs lies in their complete industrial chain, not subsidies. The automobile industry, especially for EVs, is a high-tech sector requiring various parts and strict coordination between upstream and downstream industries."

China benefits from numerous industrial enterprises in regions like Shenzhen, Zhuhai and around Shanghai, lowering the cost of upstream raw materials compared to Europe, he added. "Also, lower labor costs further reduce production expenses, giving Chinese new energy vehicles a price advantage."

In recent years, China's new energy vehicle industry has developed rapidly. "Domestically, we can see that competition within China's new energy vehicle industry is fierce, leading to low prices. The same applies to exports to Europe," he added.

Ripple effects on Europe's EV market and energy goals

Sales of battery electric cars in Europe are rapidly growing, with 2 million sold in 2023, according to a March report by the European Federation for Transport and Environment. China's edge in battery technology has boosted imports, with 19.5 percent of electric cars sold in the EU last year built in China. The incoming duties pose a risk to European automakers with production hubs in China and reliance on the Chinese market for profits.

For Europe, this move also means negative effects for its energy development and carbon reduction goals, Li noted. It will likely reduce China's exports of new energy vehicles to the EU, increasing Europe's reliance on traditional energy vehicles.

The EU aims for net-zero emissions by 2050 and targets 30 million zero-emission cars by 2030. EVs are crucial since the transport sector accounts for about a quarter of the EU's total greenhouse gas emissions, according to the European Environment Agency.

"Europe's energy transition policy benefits from Chinese new energy vehicles. However, with higher export prices, consumers may opt for traditional vehicles instead," he said.

This move will also impact China-EU trade beyond automobiles, Li noted. In response, China may target other EU imports like brandy, pork and red wine. China and the EU are each other's second-largest trading partners, with average trade valued at nearly $1.5 million per minute and total two-way investment exceeding $250 billion, according to official data.

Potential long-term trade implications

After July 4, the European Commission will negotiate with member states for four months to convert the provisional duties into permanent tariffs, with the final rate determined in November.

Experts caution that additional tariffs could have broader implications.

"The key question is what step Europe will take next," Liu Bin, a professor at the China Institute for WTO Studies, told CGTN. "New tariffs involving energy taxes may follow this anti-subsidy move, significantly impacting trade and increasing frictions."

For Chinese EV producers, there are ways to mitigate the impact, such as expanding overseas operations and producing locally in Europe. "However, setting up factories in Europe will face cost pressures due to high labor costs," said Li.

"In the past, European carmakers like Volkswagen, Mercedes-Benz and BMW formed joint ventures with Chinese companies. In the future, it may become a trend for Chinese carmakers to go to Europe and form joint ventures with local companies," he added.