China EV tariff vote leaves EU relieved yet wary over Beijing's likely retaliation

A near-audible sigh of relief emanated from European Commission headquarters on Friday as it gained enough backing from the EU's 27 members to slap tariffs on Chinese-made electric vehicles.

In the end, the result was not even close: just five of the 15 capitals required to block the duties of up to 35.3 per cent on the imports cast a vote against, despite frantic lobbying from Beijing and Berlin to oppose them.

A dozen abstentions might not look like glowing support on paper, but in Brussels they were seen as efforts to offer simultaneous, if lukewarm, support for the commission's findings, while staying out of Beijing's retaliatory firing line.

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A defeat would have left commission chief Ursula von der Leyen's hawkish China agenda dead in the water before her second team of commissioners is put in place.

It would also have damaged the bloc's credibility ahead of a potential return to the White House by Donald Trump after the US presidential election in November.

The EU's decision to keep countervailing duties on EVs was significant because "it strengthens the new commission and it gives the right signal as to where the EU is in its relations with China - also towards the US prior to its presidential election", according to Alicia Garcia-Herrero of French investment bank Natixis.

Even as it passed, the vote laid bare the divisions at the very top of Europe's food chain. France voted for the tariffs and Germany against.

In the run-up, German Chancellor Olaf Scholz spent weeks phoning other European leaders to try to convince them to take his side, while he overruled his dissenting coalition partners to force a nein vote from Berlin.

These efforts reaped almost no dividend; in an indicative vote on the same issue in July, there were only four backers. Friday's vote saw one more country added to that list: Germany.

"The stakes are hard to overstate. If Scholz had succeeded in overturning the tariffs at the eleventh hour, it would have vindicated China's efforts to lean on individual member states and been the final nail in the coffin of EU efforts to have a foreign economic policy," said Sander Tordoir of the Centre for European Reform.

"That the EV tariffs will still pass is because other countries, including traditional Berlin ally the Netherlands, are holding the line."

Nor did Beijing's combination of carrots and sticks yield much.

German Chancellor Olaf Scholz for weeks lobbied EU members to vote against the tariffs on Chinese EVs. Photo: dpa alt=German Chancellor Olaf Scholz for weeks lobbied EU members to vote against the tariffs on Chinese EVs. Photo: dpa>

While Spanish Prime Minister Pedro Sanchez spoke out against the tariffs during a trip to Beijing, his government eventually abstained.

Cyprus, a traditional ally of Beijing, flipped from a "no" in July to an abstention. Ireland, despite having its dairy sector investigated by China's commerce ministry, went from an abstention to a vote in favour.

Yet amid their relief, Brussels officials are now steeling for a longer-term war.

EU sources expect China's retaliation to come in earnest at the start of November, when the EV tariffs are likely to have been signed into law and taken effect.

This will probably include anti-dumping duties on French cognac at the very least. And officials are eyeing potential restrictions on the supply of some critical minerals.

Until then, and foreseeably afterwards too, Beijing will continue to push for ways to end or reduce the tariffs for its companies.

Technical talks are slated to continue on Monday, the Chinese commerce ministry said in a statement, a development that will please the governments and companies that have called for a negotiated settlement.

Chinese Commerce Minister Wang Wentao (right) attends a meeting with German Economy Minister Robert Habeck in Berlin in September. Technical talks between the two sides are expected to continue. Photo: Reuters alt=Chinese Commerce Minister Wang Wentao (right) attends a meeting with German Economy Minister Robert Habeck in Berlin in September. Technical talks between the two sides are expected to continue. Photo: Reuters>

In Brussels, however, expectations are measured as to what can actually be achieved.

Talks have so far focused on setting minimum prices for EV imports, but these are complex undertakings that must meet World Trade Organization rules.

Rather than a blanket deal, negotiators would have to piece together a complex latticework of side deals with each car company affected by the tariffs.

Sweden's trade minister, Benjamin Dousa, hinted that one such agreement could be in the works for carmaker Volvo, owned by China's Geely, which is in line to pay duties of 18.8 per cent on top of the standard 10 per cent import tariff for EVs.

"We have had very positive signals just recently from the Commission that they hopefully could go ahead with individual solutions for the auto industry and for Volvo cars specifically," Dousa said on Friday.

Officials hope the punitive duties will help create a level playing field for its own producers.

Meanwhile, national governments, including in France and Spain, hope they will lay the groundwork for more Chinese companies to set up factories and bring jobs to European soil.

But both these roads are strewn with potholes.

Europe's auto industry is mired in a crisis of falling sales and strong Chinese competition that tariffs alone will not fix.

In a letter to the commission this month, the European Automobile Manufacturers' Association asked for an extension to the phase-out of combustion engines, pointing to the lack of infrastructure needed to support EV growth.

"We are missing crucial conditions to reach the necessary boost in production and adoption of zero-emission vehicles: charging and hydrogen-refilling infrastructure, as well as a competitive manufacturing environment, affordable green energy, purchase and tax incentives and a secure supply of raw materials, hydrogen and batteries," the letter read.

On the other hand, some EU officials are reluctant to embrace widespread Chinese investment in the sector owing to a combination of security concerns and the fact that it would not promote Europe's own industry.

"The localisation of Chinese EV production cannot fully assuage concerns about Europe's overreliance on Chinese companies for a critical green technology good, at a time when policymakers are focused on cybersecurity and data security risks tied to connected vehicles," stated a report from research house Rhodium Group this week.

"A permissive policy towards Chinese technology in the car sector could not only leave Europe vulnerable to such risks, but also put it at odds with G7 allies, notably the United States, which is taking a restrictive approach."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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