POLITICO — 2023-09-14
News from Brussels
European Commission President Ursula von der Leyen's announcement of an anti-subsidy investigation into Chinese electric vehicles risks sparking a trade war with Beijing.
Here is what you need to know about the probe — and what happens next:
How does it work?
The EU will trigger an investigation into imports of new battery-powered passenger electric vehicles made in China, regardless of whether they are Chinese or European brands. Such investigations happen when a foreign country is suspected of subsidizing products in a way that harms European industry — as the EU executive believes to be the case.
The e-car investigation has not yet been launched officially. Once that happens, the Commission will seek reactions from the Chinese government and the companies concerned. It’s then up to the Commission to prove whether car exporters received subsidies from the Chinese government during a specific time period and whether these subsidies are harmful to European industry. If that’s the case, the European Commission can impose import tariffs, known as countervailing duties in the EU trade jargon.
How did we get here?
The EU has acted in response to a steep increase in imports of Chinese e-cars. According to a European Commission spokesperson, Chinese brands have already built a market share of 8% — and that could double within a couple of years.
This rapid rise led the European Commission to start its own investigation after gathering what it sees as sufficient evidence of potential subsidies into e-cars. Such an "ex-officio" investigation is unusual; anti-subsidy investigations of this kind typically result from an industry complaint.
There's politics at play too: The French government, which advocates an interventionist industrial policy, had been pushing the Commission to start an investigation, as POLITICO reported in June. And von der Leyen, who set out her stall to lead a "geopolitical" Commission, is keen to support European industry's green transition at a time when the U.S. is ramping up subsidies under its Inflation Reduction Act.
How long could it take?
Once the investigation is launched, the clock begins to tick. Any provisional tariffs would have to be imposed within nine months. Any definitive tariffs should be set within 13 months of the start of the investigation.
That means the ball will likely land in the court of the next Commission, which will be appointed after the election to the European Parliament next June. This matters, as anti-subsidy investigations, especially this one, are seen as more political than anti-dumping investigations.
“This is not a usual anti-subsidy case,” said one trade lawyer, granted anonymity to speak freely on the case. “It will be a very, very political case."
What happens if China is found to be in violation?
After the investigation, the Commission can impose tariffs on Chinese e-car imports to limit the damage done to European industry. How high those tariffs would be depends on the outcome of the investigation into the scale of the Chinese subsidies. Previous subsidy investigations have often led to the imposition of extra duties ranging from 10 to 20%.
Existing European import duties on e-cars are 10%, lower than most other big markets. U.S. duties on Chinese e-car imports amount, for example, to about 27.5%.
What could China do?
Legally, Brussels doesn’t see its move as provocative toward China. Launching an anti-subsidy investigation for trade defense purposes is in line with global trade rules. So, even if China challenges any future tariffs via the World Trade Organization, the EU is convinced it can legally stand its ground.
But that depends on whether Beijing will “keep an appearance of WTO consistency,” said Philippe De Baere, managing partner at law firm Van Bael & Bellis. “Ultimately, they could basically limit further investments by European producers in China, or make it much more difficult to sell on the Chinese market.”
In a political dispute with EU member Lithuania, China showed it was prepared to take unusual retaliatory steps. Beijing imposed an unofficial economic blockade on Lithuania in December 2021, after Vilnius deepened ties with Taiwan, which Beijing views as a renegade province.
Are EU countries on board?
The European Commission is in charge of the investigation itself. If the Commission wants to impose any tariffs, EU countries can in theory push back against that decision.
But to block such a step, opponents would need a so-called qualified majority representing 55% of EU member countries and 65% of the bloc's population.
In other words, blocking won’t be easy. With France backing the proposal, it would be nigh on impossible.
For now, the German government's position is unclear. Economy Minister Robert Habeck welcomed the decision on Wednesday, but in the fractured German coalition, it’s still unclear if his enthusiasm is shared across the three-party, center-left government in Berlin.
Other capitals already have meanwhile expressed doubts over whether the investigation will prove conclusive. One EU diplomat, granted anonymity because they were not authorized to speak on the record, said the Commission’s probe carried the message that “we’re on the ball, but it may be buried somewhere within the Commission — and we won’t see the end result for a long time.”
Wait, didn’t the EU try and fail to do this before?
This isn't the first time that Brussels has tried to prevent China from undercutting the European market. Around a decade ago, Brussels took anti-dumping and anti-subsidy measures against the import of Chinese solar panels and telecommunications equipment.
China proved to be adept at playing EU countries against each other, and forced Brussels to drop its offensive against Beijing in 2013.
But there are differences between the cases, said De Baere. “The discussion [on solar panels] was mainly between users and European producers. The current case on electric vehicles will be more a case between governments.”