Recently, the European Commission announced plans to impose additional provisional tariffs ranging from 17.4% to 38.1% on Chinese-made electric vehicles, on top of the existing 10% tariff. These tariffs will be officially imposed as guarantees starting July 4th (the exact form will be decided by the customs authorities of each member state).
China has repeatedly called for the EU to cancel the tariffs and expressed a willingness to resolve differences through negotiation and consultation. Currently, China and the European Commission have agreed to initiate talks on the tariff issue, opening the door to easing tensions and seeking a mutually acceptable solution.
What Are Provisional Tariff Measures?
If the EU's anti-subsidy investigation into Chinese electric vehicles concludes that measures are needed to protect the EU automotive industry from unfair practices, provisional tariffs can be imposed within nine months of the start of the investigation. Meanwhile, the EU's anti-subsidy investigation into Chinese electric vehicles will continue until November 2nd, at which point final tariffs, typically lasting five years, may be imposed.
Provisional tariffs are only officially levied on car manufacturers if a final tariff decision is made at the end of the investigation. If the investigation concludes with a decision to impose lower final tariffs or no tariffs at all, provisional tariffs will be adjusted accordingly or canceled. During this period, customs authorities typically require importers to provide bank guarantees to ensure they have sufficient funds to pay additional tariffs if necessary.
The retroactive application period for provisional tariffs is up to 90 days, meaning that Chinese-made electric vehicles imported into the EU from early April may be subject to additional tariffs until the investigation is concluded and a final decision is made.
What Will Happen Next in the EU Investigation of Chinese Electric Vehicles?
On June 22, German Minister of Economy Robert Habeck stated during his visit to China that the door to negotiations is "open." Subsequently, EU Commissioner Valdis Dombrovskis and Chinese Minister of Commerce Wang Wentao held a phone call in which both parties agreed to resume tariff negotiations. According to the Global Times, the best outcome of the negotiations would be for the EU to cancel its tariff decision before July 4th. The paper also reported that the EU's increasingly protectionist measures would provoke Chinese countermeasures, and escalating trade friction would result in a "lose-lose" situation for both sides.
On July 4th, the European Commission will publish a detailed report in the EU Official Journal on the ongoing investigation and its findings, with provisional tariffs taking effect the next day. China and relevant parties, such as electric vehicle manufacturers, must comment on the investigation findings by July 18th and can request hearings.
Before making a provisional decision, the European Commission conducted extensive investigations, visiting over 100 car manufacturers in China and Europe. Typically, final investigations confirm the provisional findings, but adjustments can be made based on received opinions. Final tariffs are usually slightly lower than provisional rates, reflecting the Commission's consideration of various arguments and adjustments to tariff levels.
Tesla, which manufactures electric vehicles in China, has requested that the EU calculate its tariff rate separately, hoping for a rate lower than the 21% tariff imposed on Chinese electric vehicle manufacturers cooperating with the investigation.
As an alternative to tariffs, exporters can commit to selling their products at or above a minimum price. A decade ago, Chinese exporters made such a commitment for solar panels. However, applying the minimum price concept to complex products like cars is more challenging and requires further discussion and negotiation.
Who Decides Whether to Impose Final Tariffs?
While the European Commission has the authority to decide on provisional tariffs based on the investigation findings and necessity, it must fully communicate and consult with its member states, collecting and considering their opinions and feedback by July 15th.
After the investigation concludes, the European Commission can propose final tariffs, typically lasting five years. If a qualified majority of the 27 EU member states (at least 15 member states representing at least 65% of the EU population) opposes these measures, the plan may be blocked. However, due to the diverse and complex interests among EU member states, forming a qualified majority to oppose the Commission's measures is difficult. Consequently, the measures proposed by the Commission are often passed and implemented.
Companies like BYD, Geely, and SAIC Group can apply for an expedited review for individually calculated tariff rates immediately after specific measures are implemented, with the review process not exceeding nine months. When existing measures are no longer effective or insufficient to offset subsidies, the Commission can conduct a "mid-term review" after one year.
The European Commission also frequently investigates whether manufacturers are circumventing tariffs by exporting components for assembly elsewhere. For the EU, tariff evasion occurs if 60% or more of the components are imported from tariff-liable countries and the added value of assembly does not exceed 25%.
Companies can challenge these measures in the European Court of Justice, and China can lodge objections with the World Trade Organization. However, both legal avenues may take more than a year.
Will This Lead to a Trade War?
In the current situation, EU trade policy is becoming increasingly protective, while China aims to boost exports amid weak domestic demand. China denies accusations of unfair subsidies or overcapacity, claiming that the development of its electric vehicle industry results from technology, market, and supply chain optimization.
China calls for resolving these issues through negotiations to maintain mutual interests and stable China-EU economic and trade relations. If negotiations fail or the other party does not adopt a concessionary attitude, China may take countermeasures to protect its interests and industrial security.
Under this backdrop, trade relations between the two parties may become strained, potentially leading to a trade war. However, it is essential to note that a trade war is not the best solution, and trade disputes should be resolved through dialogue and consultation to promote global economic prosperity and development.
