Chinese-made electric vehicles to be slapped with additional EU import tariffs up to 38%

The European Union will impose an additional tariff of 21 per cent on imports of most electric vehicles made in China.

Exporters were informed on Wednesday of the tariff hike, the result of a seven-month probe into subsidies in China's EV sector, the European Commission said in a statement.

Some Chinese companies will face even higher duties. Cars from SAIC will face a 38.1 per cent duty after the commission said it did not participate in the investigation. For BYD, the duty is 17.4 per cent and for Geely it is 20 per cent. Both firms were seen to be more compliant with the EU probe.

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The notice marks the end of the first phase of a closely followed investigation that has raised the prospect of an EU-China trade war. The countervailing duty was around the level expected and higher than the average EU duty of this kind at 19 per cent.

The rate will be added to the existing 10 per cent import tariff on the vehicles, bringing the total level to 31 per cent from July 4 for vehicles that were not among those sampled in the probe, after which the European Commission will have four months to affix permanent duties.

The result is that Chinese-made EVs will be more expensive to buy in Europe across the board. Given the lower than average rate afforded to BYD and Geely, European brands who manufacture in China face an unusual situation in which those Chinese models will be even more price competitive than before.

Imports from Volkswagen's joint venture with SAIC, for instance, will face a 48.1 per cent duty when the new rate is added to the existing rate. While that venture does not currently export much to Europe, the massive import tariff means that it probably never will.

"We will now engage with Chinese authorities and all parties with a view to finalising this investigation," said Valdis Dombrovskis, the EU's trade chief.

EU sources did not rule out a negotiated agreement with Beijing before the duties could become permanent in November, but have thus far found the Chinese side unwilling to engage on the substance of the Europeans' complaints.

A four-month debate kicks off on Thursday, when member states will meet the commission at their trade defence committee.

Some capitals have already expressed unease at putting tariffs on the imports, but face an uphill challenge in overturning them, since a majority of EU members in population terms must oppose their permanent imposition in November.

China has vowed to respond, and all eyes are now on where and how Beijing will retaliate.

Through various media and business channels, China has floated the prospect of a 25 per cent tariff on certain imports of large cars, which would mostly impact Germany and Slovakia, as well as investigations into EU pork and dairy imports.

"The European Commission is holding high the banner of green development in one hand and wielding the stick of 'protectionism' in the other, politicising and weaponising economic and trade issues," read a blistering statement from the Chinese ministry of commerce after the duties were announced.

"China will closely follow the EU's subsequent progress and will resolutely take all necessary measures to firmly defend the legitimate rights and interests of Chinese companies," it added.

A probe into subsidies in the bloc's brandy sector, which would disproportionately affect French cognac, is ongoing. France has been the commission's chief supporter in the probe, and is believed to see the duties as a way of encouraging Chinese firms to build EV factories in Europe.

The EU's duty is a calculated average based on the subsidies uncovered across three Chinese carmakers: BYD, SAIC and Geely.

The duty will be applied to both Chinese brands and Western brands made in China, although US company Tesla has already applied for a lower duty, claiming it has received less in subsidies than the firms probed. That will be the subject of a new inquiry by the commission, with Tesla on the hook for the full duty in the interim. If its application is successful, the company could be rebated the difference.

Brussels' duty level is on average lower than those faced by Chinese autos in some other markets. Last week, Turkey slapped a 40 per cent import tariff on all Chinese cars. Last month the United States announced a 100 per cent import duty on Chinese-made EVs.

It is believed that EU member states with large automotive sectors are ready to fight the commission over the imposition of permanent duties in November.

Germany - home to Volkswagen, BMW, Mercedes-Benz and other blue-chip brands, many of which have gone public with their opposition - is expected to lead the backlash, and has already lobbied intensely against the duties. Sweden, home to the now Geely-owned Volvo and Polestar, is another opponent.

"Isolation and illegal customs barriers - that ultimately just makes everything more expensive, and everyone poorer," German Chancellor Olaf Scholz said last weekend. "We do not close our markets to foreign companies, because we do not want that for our companies either."

Business groups were also reacting quickly to the results of a probe that has made headline news in Europe and in China.

The China Chamber of Commerce to the EU, a lobby group that counts multiple Chinese EV makers in its membership, described it as a "witch hunt" and expressed "shock, grave disappointment and deep dissatisfaction with this protectionist trade measure".

The Federation of German Industries (BDI) threw its support behind the probe, even as German car companies vocally complained about it.

"There has been a consensus in German industry that China's state-controlled hybrid economic system functions according to different criteria. It is logical that the EU also uses its defensive instruments consistently," said Wolfgang Niedermark, member of the BDI executive board.

"The focus now must be on keeping negative effects on international supply chains and European companies as low as possible. European companies have no interest in a trade conflict with China escalating."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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