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Freshfields Risk & Compliance

| 6 minutes read

EU to impose special tariffs on Chinese electric vehicles

In a press release of 12 June 2024, the European Commission (‘Commission’) announced its provisional conclusion that the battery electric vehicle (‘BEV’) value chain in the People’s Republic of China benefits from unfair subsidisation which is causing a threat of economic injury to European BEV producers. The Commission’s “pre-disclosure” follows the Biden administration’s recent announcement to quadruple the tariff on Chinese BEVs to more than 100% this year (plus exclusion from IRA subsidies).

The Commission has reached out to Chinese authorities to discuss its findings and explore possible ways to resolve the issue in a WTO-compatible manner. If no “effective solution” is found, the Commission intends to impose provisional countervailing duties (i.e., duties to offset the subsidies) on BEV imports from China, commencing on 4 July 2024. These additional duties would come on top of the EU’s standard 10% tariff on imported cars, and in principle apply also to Western car manufacturers located in China that export BEVs to the EU, like Tesla, BMW, Volvo and Renault’s Dacia.

Three manufacturers were sampled and will potentially be subject to individual additional duties based on the amount of subsidisation they received. These are BYD (17.4%), Geely (20%) and SAIC (38.1%). Other manufacturers that cooperated with the investigation, but which were not sampled, will potentially be subject to a weighted average additional duty of 21%. However, it is possible for manufacturers that were not sampled to apply for an individually calculated duty rate at the definitive stage of the procedure. It is for example expected that this procedure will apply to Tesla. Non-cooperative manufacturers will potentially be subject to an additional duty of 38.1%.

In this blog, we give an overview on (i) the legal framework in which the Commission is pursuing the matter, (ii) the ongoing investigation on which basis the Commission has reached its provisional conclusions, and (iii) potential (counter-) measures to be taken by the various state- and non-state actors involved.

The Legal Framework

Countervailing duties are regulated by WTO law. Article 10 of the Agreement on Subsidies and Countervailing Measures (‘Subsidies Agreement’) provides that countervailing duties may only be imposed pursuant to investigations initiated and conducted in accordance with the provisions of the Subsidies Agreement. In the EU, such investigations are governed by Regulation (EU) 2016/1037 (‘Basic Regulation’) which stipulates the requirements for initiating proceedings, prescribes how investigations shall be conducted and sets forth the conditions under which provisional measures and definitive duties may be imposed.

Generally, and in line with the Subsidies Agreement, the Basic Regulation provides that investigations to determine the existence, degree and effect of any alleged subsidy shall be initiated upon a written complaint by or on behalf of the relevant Union industry, i.e., the manufacturers of “like products”. Only in special circumstances may the Commission decide to initiate an investigation on its own initiative (ex officio).

The purpose of the investigation is to establish whether a “countervailable subsidy” has been granted that is causing (or threatening to cause) “material injury” to a Union industry. In essence, subsidies are countervailable if they are “specific”, which means that they are limited to certain enterprises, sectors, products and/or regions, or they are prohibited “export subsidies” or conditioned on the use of domestic goods. 

In the case of a threat of material injury, a determination must be based on positive evidence and must involve an objective examination of whether there has been a significant increase in subsidised imports and/or significant price undercutting as compared to like products. When examining the impact of the subsidised imports on a Union industry, the Commission must evaluate all factors having a bearing on the state of the industry, including any actual and potential decline in sales or market share.

The investigation must be concluded within 13 months, with provisional duties being established no later than nine months from the initiation of proceedings. Where the facts as finally established show the existence of countervailable subsidies resulting in “injury”, and provided that the Union interest calls for intervention, a definitive countervailing duty will be imposed if approved by EU Member States acting by qualified majority in the examination procedure pursuant to Art. 16(4) of the Treaty on European Union (at least 55% of the members of the Council, comprising at least fifteen of them and representing Member States comprising at least 65% of the population of the Union). If no qualified majority is reached, the duties can still be imposed if they are not rejected by simple majority.

The Investigation

The Commission’s ongoing anti-subsidy proceedings concerning imports of BEV originating in China were initiated ex officio on 4 October 2023. Pursuant to the Commission’s official notice, the instigation of proceedings is based on an in-depth analysis of recent market developments and considering the sensitivity of the BEV sector and its strategic importance to the EU economy in terms of innovation, value added and employment. 

According to the Commission, there is sufficient evidence that Chinese BEV producers have benefited from several government subsidies, including direct transfer of funds, government revenue foregone or not collected, and government provisions of goods or services for less than adequate remuneration. This includes loans by State-owned banks, income tax reductions and exemptions as well as the provision of raw materials and components.

Moreover, the Commission claims to have at its disposal sufficient evidence showing that the output of Chinese BEV has increased significantly in the investigation period in both absolute and market share terms and that the capacity increase does not appear to be absorbable by other markets, indicating the likelihood of substantially increased subsidised imports that would cause injury. According to the Commission, the evidence also shows that the prices of subsidised imports are significantly (approximately 20%) lower compared to the prices of the Union industry, thereby placing significant pressure on Union sales, market shares and profit margins. The Commission concludes that the “surge of low-priced imports of BEVs” originating from China gaining significant market shares in a growing market would lead the Union industry “to incur heavy losses which could prove rapidly unsustainable”.

After the Commission’s pre-disclosure, the affected BEV producers have three working days to comment on the accuracy of the Commission’s duty rate calculations (which must correspond to the levels of subsidisation found in each case). Any provisional countervailing duties imposed by the Commission must be published in the Official Journal by 4 July 2024, and definitive measures are to be imposed by 2 November 2024. From the day following the publication, provisional duties are to be secured by a guarantee (in a form to be decided by customs in each Member State). They will only be collected if definitive duties are imposed. Those will usually be in force for five years.

Potential Reactions

The Commission’s pre-disclosure has stirred strong reactions. China officials have dismissed the investigation as a “typical example of protectionism” that would violate WTO rules. The China Chamber of Commerce for Machinery and Electrical Industry also believes that the EU “has ignored the WTO and EU countervailing rules”. 

As mentioned, in its pre-disclosure, the Commission states that it has reached out to Chinese authorities to “explore possible ways to resolve the issues identified in a WTO-compatible manner”. In accordance with the Subsidies Agreement and the Basic Regulation, this could entail accepting voluntary undertakings (cf. Art. 13 of the Basic Regulation) under which either (a) China would have to agree to eliminate or limit the asserted subsidies or take other measures concerning its effects or (b) any exporter would have to undertake to revise its prices or to cease exports into the Union as long as such exports benefit from countervailable subsidies, provided that this eliminates the injurious effect. In such case, and as long as such undertakings are in force, countervailing duties imposed by the Commission would not apply to the relevant imports. 

It is unlikely that China will be willing to accept such undertakings. China has stated that it “reserves the right” to file a dispute at the WTO. Both China and the EU are party to the “MPIA”, an appellate mechanism that stands in for the WTO’s Appellate Body, which is currently non-functional, so this is a realistic option for China. But it is also possible that China retaliates outside the bounds of WTO law. Recent examples of such conduct include China’s January probe into imports of French brandy, its May anti-dumping probe into chemical imports from the EU, the US, Japan, and Taiwan, and its threatened tariff hikes on certain luxury cars.

Another attack on the proposed duties might come from within the EU. In theory, it is possible to seek judicial review of any definitive countervailing duties under European law, by seeking an annulment pursuant to Article 263 of the Treaty on the Functioning of the European Union. But, based on the information available to date and given the limited number of precedents, the prospects of success are difficult to assess. 

Perhaps more importantly, not all EU Member States support these additional tariffs. EU Members States like Germany, Sweden or Hungary, whose local automakers or other related industry players are significantly engaged in or connected to the Chinese market are said to oppose the additional tariffs. They could try to form a coalition (of at least 14 Member States) in the Council to block or at least mitigate the imposition of definitive countervailing duties in the examination procedure. Other Member States like France or Italy, whose car manufacturers largely rely on the European market, are likely to support the Commission. The so-called advisory procedure, which must be conducted prior to the adoption of provisional measures, i.e., a non-binding vote by the EU Members States under comitology rules, will soon give an indication of where the Member States stand.

The Commission’s announcement is primarily a declaration of intent. The implications for individual cooperating exporters, such as Tesla, are yet to be determined. Moreover, the reactions of EU Member States and, crucially, China itself, may well affect the final result.


antitrust and competition, automotive, trade