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CWA # 1458, 17 August 2024
NIAS Europe Studies
EU-China clash over EV tariffs: China’s emergence and EU’s protectionism

  Samruddhi Pathak


On 09 August, China made an appeal in the WTO against the EV tariffs imposed by the EU. The spokesperson of China’s Commerce Ministry said that it goes against Chinese efforts “to preserve global green transformation.” It resorted to WTO’s dispute settlement mechanism. China spokesperson stated that the tariffs lack any legal or factual base. China said that the imposed duties lack legal or factual basis. China has argued in the WTO that under Article 30 of the Agreement on Subsidies and Countervailing Measures (SCM), the procedural measures of the EU investigation are inconsistent. According to the appeal, the investigation “failed to demonstrate the financial institutions that provided preferential funding” and “calculate the alleged benefit.” Thus, there is no causal relationship and no exact amount has been established. 

Europe’s response
On 03 July, the European Commission published a regulatory document that imposed new duties on battery electric vehicles (EVs) imported from China. The regulation imposed duty on Chinese EV making companies, BYD (17.4 per cent), Geely (20 per cent) and SAIC (38.1 per cent). These are provisional countervailing duties which will be imposed, initially for five years. These duties were imposed after some samples of the EVs were tested. The EU stated that it “relied on a variety of Chinese EV models available in the market” and it “considered the selection of above three mentioned companies as the most representative volume.” The methodology used was based on questionnaires with employees and visits by auditors to assess the selling price of EVs and approximate subsidies received by the company. For companies whose samples were not tested will be subject to average duty of 20 per cent and the companies that did not cooperate in the entire process have been subjected to duty of 38.1 per cent. The justification provided by the Commission is that the EV value chain in China benefits unfairly from subsidies provided by the PRC Government. The conclusion was drawn based on the questionnaires, estimated cost of production, estimated subsidies received and selling price of the EV. Ultimately, the dispute is about Chinese EV makers having an unfair advantage over European EV makers due to government subsidies, which China denies. Although the regulation was released on 03 July, it states that the duties apply to all Chinese-made EVs registered after 07 March implying that EV makers will have to pay duties on backdated imports as well. 

China’s emergence in the EV market
China’s enormous contribution has been developing since 2021. China accounted for 60 per cent of global sales of EVs in 2023, an increase of four per cent from 2022. The sales in the EU, China accounted for 21.7 per cent of all EV sales in 2023, including Tesla and other EU brands of EVs that are manufactured in China. The increase is drastic compared to three per cent in 2020. 

In China, almost 60 per cent of EVs are expected to be cheaper than their combustion engine equivalent while in the US and EU, combustion engine cars remain a cheaper option for customers. The PRC government introduced a ‘dual-credit system’ for EV makers in 2018, tax rebates for EV buyers, elimination of 10 per cent sales tax, direct funding for constructing charging poles and promotion of Research & Development in green technology. Above all, the government is the biggest buyer of domestic EVs which ensures manufacturers a fixed sale of their product. In 2022, the EV sector received loans at two per cent interest. There are a total of 200 EV manufacturing companies in China and their production capacity is much bigger than the size of their domestic market.

EU’s protectionism 
On 08 May, Ursula von der Leyen, the President of the EU, stated that China is ‘flooding’ their market with cheap EVs. The EU had initiated an anti-subsidy investigation against Chinese made EVs in 2023. On 08 June 2016, the European Parliament passed a regulation that would provide their domestic industry protection against subsidised goods imported from non-EU countries. The notice published on 03 July stated that the Chinese EV industry is causing “injury to the Union EV industry.” 

A deep public-private coherence is depicted through the notice. The EU provided full immunity to European manufacturers and suppliers involved in the complaint. The statement said that “anonymity was extended to all Union producers.” However, similar anonymity was not given to Chinese companies. Moreover, the EU is also providing leeway to Tesla and Volkswagen from the duties when both companies manufacture their cars in China. The EU considers China’s industrial overcapacity as a key concern for EU-China trade. Meanwhile, China has accused the EU of “foul play” and contested its tariffs at the WTO. 

The EU is an important market for EV makers as its size is expected to reach USD 145 billion in 2024 and is expected to increase by 12.5 per cent by 2028. Since 2022, the EV market has been inflating. The first quarter of 2024 saw an increase of 25 per cent in EV sales compared to the first quarter of 2023. Similarly, in 2022 the sales were higher by 25 per cent. EVs are projected to have a 20 per cent share in total sales of vehicles globally. China is expected to have a market share of 45 per cent in EV global sales, Europe with 25 per cent and the US with 11 per cent.

Chinese manufacturers have said that they will continue to trade with the EU. BYD, China’s top-selling EV maker, has also started building a plant in Hungary. Chinese EV companies are also partnering with EU EV companies to lower the costs. Chinese EV companies are also planning to assemble EVs in Europe. These partnerships might lead to the lowering of tariffs. Although the exports will fall, even in July Chinese EV exports to the EU fell by 45 per cent compared to June. 

References
“China appeals to WTO over European tariffs on electric cars,” Deutsche Welle, 09 August 2024
“China initiates WTO dispute complaint regarding EU subsidy duties on electric vehicles,” World Trade Organisation, 14 August 2024
“Commission Implementing Regulation (EU) 2024/1866,” European Union Law, 03 July 2024
“Global EV Outlook 2024,” International Energy Agency, April 2024 
“China has an electric vehicle advantage but can it maintain its edge?,” World Economic Forum, 17 June 2024
Frederik Kelter, “For China’s booming EV industry, US and EU markets a tough nut to crack,” Al Jazeera, 14 June 2024
Scott Kennedy, “The Chinese EV Dilemma: Subsidized Yet Striking,” Centre for Strategic & International Studies, 20 June 2024

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