After several delays caused by ongoing discussions and negotiations with the Chinese side, the EU parliament this week voted to approve increased import duties on Chinese-assembled electric vehicles for a period of five years. The maximum effective duty rate is set at 45%, while importers of cars from other regions must pay only 10%. Ten EU countries voted in favor, five against, and twelve abstained.
Image source: BYD
The vote follows an EU investigation last year that ended in the spring and led the commission to conclude that many Chinese manufacturers benefit from heavy subsidies that give them an unfair advantage over European automakers. Lawmakers proposed a tariff schedule that would impose different tariff rates on Chinese companies depending on a manufacturer’s willingness to cooperate with investigations. The Chinese company SAIC found itself in the least favorable position, whose products will be taxed at a maximum rate of 45%. Because of this, electric cars of the MG subsidiary brand in Europe have already begun to sell much worse, which allowed BYD to become the largest supplier of Chinese electric vehicles in the EU after the introduction of increased duties on a temporary basis in early July.
The duties on the import of Chinese electric vehicles approved by the EU will come into force in early November; for many brands they were a couple of percentage points lower than those proposed in July, but will not provide significant relief. The tariffs will remain in effect for five years, but this does not negate the possibility of China and the EU agreeing on other methods of regulating the market. If the United States and Canada fenced themselves off from Chinese electric vehicles with 100 percent tariffs, then Europe remains an important market for Chinese suppliers. Some Chinese companies have already begun to evaluate the possibilities of localizing the assembly of electric vehicles in the EU to reduce the impact of customs duties.
The introduction of increased duties in their current form was supported by Bulgaria, Denmark, Estonia, France, Ireland, Italy, Latvia, Lithuania, the Netherlands and Poland. Germany, Hungary, Malta, Slovakia and Slovenia voted against. German manufacturers justified their protest with fears of retaliatory measures from China, because the Chinese automobile market is the largest in the world, and German companies are interested in selling their products there. All other EU countries that took part in the vote abstained from expressing their opinions in support or against this bill. China and the European Union will try in the future to find market regulation mechanisms that would set prices and export volumes of Chinese electric vehicles without the influence of customs duties. China insists that alternative regulatory measures must comply with WTO rules, which the European side’s current actions violate. One of China’s largest automakers, Geely, has already condemned the European Union’s decision to approve increased duties.
Over the previous three years, the share of electric vehicles assembled in China sold in the European Union increased from 3% to more than 20%, with Chinese electric vehicles themselves, in terms of brand ownership, being no more than 8% among them. The bulk of supplies were made up of electric cars from Tesla and other Western brands assembled in China. They will still be subject to increased duties, but at more lenient rates than “originally Chinese” ones. Manufacturers from China will suffer little from the introduction of duties at this stage, since even in the sales structure of BYD and SAIC, the European region provided no more than 3% of revenue. What’s worse is that, given the oversaturation of China’s domestic market, local companies will not be able to begin full expansion in the European market. The response from the Chinese authorities will hurt the position of German automakers in the Chinese market, since Volkswagen, BMW and Mercedes-Benz last year sold a third of their cars in China. In Hungary there are enterprises for the production of traction batteries owned by Chinese companies. The country is also not interested in worsening relations with China, and therefore voted against increasing duties and even threatened to veto this decision of the European Commission.