European Union at regulatory crossroads

Editor's note: Freddie Reidy, a special commentator for CGTN, is a freelance writer based in London, specialized in international politics. The article reflects the author's opinions and not necessarily the views of CGTN.

On October 4, Friday, the European Union (EU) voted on the outcome of what it terms an "anti-subsidy investigation" into the import of Chinese-manufactured electric vehicles (EVs) into the 27-member bloc.

The case represents a regulatory watershed, not just for relations between the EU and China but also for the EU's desire to accelerate its energy transition. Added to this, the position of EU member states on slapping tariffs on Chinese EVs was revealed to be far from united.

The motion to impose 35.3 percent tariffs on top of the existing 10 percent represents the highest punitive measure ever meted out. Tesla for example has a tariff of just 7.8 percent. The EU claim is that Chinese manufacturers can offer prices which undermine competitors thanks to state aid – a claim that has raised eyebrows given the EU's own protectionist nature and the support many of the EU's auto giants have received over the years.

The short-term risk is that the "nuclear option" of 45 percent tariffs could lead to tit-for-tat measures. European brandy, dairy and pork products are already under review, for example. Such a standoff is not in the interest of either European or Chinese consumers and businesses, especially at a time of global economic unease.

Many within the automotive industry share this opinion such as Mercedes-Benz CEO Ola Kallenius, who pressed the German government to vote against the measure, saying, "The EU should seek a negotiated solution with China instead of imposing tariffs." Kallenius's call was echoed by his counterpart at BMW and on October 3, German Chancellor Olaf Scholz shifted Berlin's position to "no," after abstaining in a non-binding indicative vote in July.

There had been hopes that Germany's position could lead to a rally behind a "no" vote, but this required an ultimately insurmountable 65 percent membership support to prevent the bill being enforced. However, the shift in position does indicate an internal desire at the top of the EU table to find a "negotiated settlement," as Kallenius suggested. Indeed, the possibility of a "third way" was given some credence by an EU spokesman, who said the European Commission (EC) would "continue to work hard to explore an alternative solution."

Previously, EC spokesman Olof Gill had said, "We are open to negotiation" but resisted calls to be "prescriptive about what that solution looks like." This lack of clarity is hampering progress and reveals a lack of strategy. One EU diplomat told the Financial Times, "There's no joint strategy on China. We're basically just muddling through."

The backdrop to this standoff is the EU's own commitment to ban new combustion engine cars by 2035. While the bloc has a sizeable auto industry, transition at such a pace requires mass adoption, not merely ensuring that the new purchases are EVs, hybrids or hydrogen-powered vehicles but guaranteeing that the infrastructure is in place to support such a powertrain change.

Sadly, all signs indicate that the move away from combustion engines has stalled. Early adopters have bought in but the rest of the population remains wary, fearing tumbling resale values should the errors of the past be repeated. The Volkswagen diesel scandal, where emissions data were manipulated for years to mask the harmful impacts, shined a spotlight on the previously unknown impacts of diesel emissions, and the subsequent coverup sent the resale value of diesel cars through the floor.

With concerns over adoption, leading European manufacturers such as Renault, Porsche and Volvo have all delayed their combustion engine moratoriums. Alongside these supply chain issues, a trade war between the EU and China is highly undesirable.

To foster the conditions for a transition, mass adoption, international commitments to arrest the impact of climate change, as well as predictable and calm market conditions must be maintained. Uncertainty only breeds caution and inertia.

Within the EU itself, manufacturers are calling for regulatory clarity within the industry. Volvo's CEO Jim Rowan led a 50-strong consortium, petitioning the bloc to maintain its 2035 commitment. "Electrification is the single biggest action our industry can take to cut its carbon footprint … The 2035 target is crucial to align all stakeholders on this journey and ensure European competitiveness," he said.

There is little doubt that Friday's vote on punitive tariffs put that journey in severe jeopardy. The imposition of tariffs threatens to close the door on a negotiated settlement and cooperation while opening a new door to a less competitive marketplace where consumers and the environment suffer.

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