October 4 is a date that cannot come soon enough for European Union bureaucrats, but one the Chinese government desperately wants to avert.
This coming Friday, the EU’s 27 member states are slated to hold a crucial vote on whether to sign punitive tariffs of up to 35.3 per cent on Chinese-made electric vehicles into law for five years.
As Beijing looks to strike a deal that would nix the duties, talks with the European Commission will continue right up to the last minute.
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Martin Lukas, the commission’s director of trade defence, broke away from “almost daily” technical negotiations to brief European Parliament lawmakers during a hearing on Monday.
Chinese companies have made multiple offers to set minimum prices for EV imports, Lukas explained.
Nevertheless, “significant shortcomings” remain, even if “certain progress” had been made in the 10 days since Chinese Commerce Minister Wang Wentao sat down with EU trade chief Valdis Dombrovskis in Brussels.
These official channels have been one of multiple Chinese state efforts to stop the EU from carrying through with its tariff threat.
For months, Beijing has deployed a mix of carrots and sticks to convince the bloc’s members to vote against the duties, which the commission has said are necessary to mitigate the fallout from exported, subsidised Chinese overcapacity.
“In China, we see a spare capacity of 3 million BEVs per year which cannot be absorbed by the Chinese domestic market. Therefore, China needs to export it,” Lukas said, noting the volume was almost “twice the size” of the EU’s entire annual consumption of 1.6 battery-electric vehicles.
Retaliatory investigations into unfair trading practices within EU brandy, dairy and pork imports have been calibrated to cause maximum blowback against Brussels. Europe’s agricultural lobby is among the continent’s most powerful.
And few things scare EU politicians more than mobilised farmers. Earlier this month, an estimated 800 protesters took to tractors and blocked roads in the town of Cognac in southwestern France to demand a delay in the tariffs’ imposition, fearful that deferred Chinese duties on French brandy would follow those on EVs.
In Spain, the government backtracked on its support for EV tariffs after being promised billions of euros in investment in hi-tech sectors including hydrogen power generation. Spain is also the biggest exporter of targeted pork products to China.
However, Beijing’s efforts are not expected to succeed. A blocking majority of 15 member states constituting 65 per cent of the EU’s population is ultimately required to vote against the duties to stop their passage.
An EU trade measure has never been overturned in this way.
The commission believes it has enough support to implement the tariffs and would have held the vote sooner if it could have.
While big members such as Germany and Spain have publicly wavered, others such as France, Italy, the Netherlands and Poland have stood firm.
“It’s time to show that we will not give in to blackmail,” said Raphael Glucksmann, a socialist lawmaker, in the parliament’s debate on Monday.
“Before us we have a moment of truth,” the French lawmaker said. “The commission must stand strong and the member states must not give in to the Chinese blackmail.”
Talks to resolve the dispute will continue even beyond the vote, but the duties would allow the bloc’s secretariat to negotiate from a position of leverage, insiders believe.
“The conclusion of the investigation is not necessarily the end of consultations on finding a solution,” Lukas said, pointing to an October 31 deadline for imposing the tariffs. “Price undertakings or any other solutions can still be accepted after that date.”
Under any deal, the commission would hope to retain a snapback clause, sources said, whereby the EV tariffs would be quickly reinstated should Chinese car companies not hold up their end of the bargain.
Resolving the spat would require China to propose a solution that mirrors the impact of the countervailing duties: in other words, Beijing would have to eradicate the injurious effect of state subsidies.
“These duties are meant only to reestablish the level playing field,” said Lukas. “Duties at the proposed rates will not block imports. Trade will continue to flow.”
Failing to deliver tariffs, meanwhile, would damage the EU’s credibility to take any meaningful action against China in the future, senior commission sources believe.
The EV dispute has been blockbuster news in Europe, with copious ink spilled on the merits of taking on the world’s most powerful manufacturing economy on a product that is key to the bloc’s green transition.
Events over the past week have indicated it may be just the tip of the iceberg, and the blitzkrieg of activity suggests the rising hostility in bilateral ties is baked in for the foreseeable future.
The commission tweaked rules ahead of a tender for providing hydrogen electrolyser stacks in December such that only 25 per cent of the capacity could come from China.
“We do face a China problem,” said the bloc’s climate chief, Wopke Hoekstra. “It can’t be that our companies go bust because [the] marketplace is flooded with state-subsidised products. That in the end will kill EU industry and we won’t allow it.”
The EU’s competition chief, Margrethe Vestager, confirmed it was considering outlawing Chinese hardware and software in connected vehicles, mirroring a recent move from Washington doing the same.
“It’s legitimate to look into whether or not that kind of technology can be misused when it comes to security issues,” Vestager said last week.
Further action still is being considered against Chinese online marketplaces including Shein, Temu and AliExpress for allegedly selling cheap goods in huge volumes that do not meet EU standards on safety and quality.
Underpinning all this anxiety is China’s close ties with Russia, which have emboldened the commission to take a more forthright approach to Beijing on matters of trade and competition.
A bombshell Reuters report last week, citing European intelligence sources, said Moscow established a weapons programme in China to develop and produce long-range attack drones for use in the Kremlin’s war against Ukraine.
“We cannot continue a situation where China helps Russia in a war ... in Europe, without consequences,” Danish Prime Minister Mette Frederiksen told Politico. “They have to be held responsible for their activities.”
More from South China Morning Post:
- EU seeks to put brakes on China’s fast fashion online retailers Shein, Temu
- Amid China-EU tensions, former Finnish prime minister warns of societal harm from tariffs
- Von der Leyen strengthens EU grip, but hawkish China agenda to be tested by EV tariffs row
- EU and China trade negotiators fail to strike deal on electric vehicle imports
- China won’t budge as it resists EV tariffs from EU, state broadcaster says
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