The European Union (EU) revised the proposed tariff on Chinese-made electric vehicles (EVs) to 36.3%, down from its initial proposal of 38.1% in June.
Many Chinese carmakers have plans to set up manufacturing plants in Europe to save costs and reduce the impact of the additional tariffs.
Dai Menghao, a Beijing and Shanghai-based King & Wood Mallesons partner who specialises in trade compliance, said the trend of producing locally was welcomed by EU member states such as Hungary, Spain and Poland to boost local employment.
He warned that manufacturers should monitor the EU’s rules for local production to avoid being perceived as potentially circumventing anti-subsidy measures.
Arne Constantin-Krawinkel, a Germany-based counsel at Freshfields Bruckhaus Deringer, said Chinese EV carmakers could not avoid the extra tariffs by merely assembling cars in Europe.
“To comply with European rules-of-origin requirements, Chinese carmakers will have to ensure that sufficient transformation and value-added features take place in EU countries. Essentially, this means that the value of the imported materials used in the production must not exceed a certain percentage of the ex-works price of the vehicle,” he said.
Constantin-Krawinkel added the EU indicated that anti-circumvention measures might be imposed against Chinese carmakers that attempted to avoid additional tariffs by outsourcing simple assembling operations to third countries.
In June, the European Commission said the low price of the subsidised China-made EVs had been threatening European carmakers. This led to SAIC and companies that did not co-operate with its inquiry being subjected to the highest tariff rate of 38.1%. But that has been lowered to 36.3% in recent days.
Up till 20 August, companies that co-operated but were not sampled by the commission faced a 21.3% tariff. The duty Geely received dropped from 20% to 19.3%, while the tariff imposed on BYD fell from 17.4% to 17%. The new tariffs are in addition to the existing 10% duty on imported cars.
Beijing has filed a complaint with the World Trade Organisation (WTO) on 9 August against EU’s move to protect member states.
Constantin-Krawinkel said the WTO would not immediately intervene as China and EU must try to settle their dispute through consultation first. If it fails, the WTO will establish a panel of experts to consider the case.
He added, carmakers based outside of China were also bound by the new measure. “The additional tariffs apply to all carmakers that export battery electric vehicles from China into the EU. Thus, not only Chinese original equipment manufacturers are affected, but also certain Western carmakers.”
China exported around 605,000 EVs in the first half of this year, a 13.2% year-on-year increase, the China Association of Automobile Manufacturers said. German carmakers Mercedes-Benz, BMW and Volkswagen, which export vehicles to and from China, have expressed dissatisfaction with the additional tariffs.
“They are concerned about retaliatory measures, like counter-tariffs on internal combustion engine vehicles exported from Europe to China,” Constantin-Krawinkel said. “Some of them also manufacture certain EV models in China for the European market and are therefore directly affected by the additional tariffs.”
EU member states must vote before November to determine whether the additional duties will become permanent. Constantin-Krawinkel said the final rate may change.
He said carmakers that were not sampled during the inquiry could seek lower duty rates or even refunds by applying to the European Commission for a review that takes around nine months to complete. The Commission announced that Tesla was able to obtain a lowered duty rate of 9% after requesting for an individual examination.
Dai said China’s exporters could propose a price undertaking to the EU. Those whose undertakings are accepted can export cars to the EU, in accordance with agreed conditions, without paying countervailing duties.
Chim Lee, a senior analyst for Asia (China) at the Economist Intelligence Unit, said that in recent months, different countries had been learning from each other on how to tighten imports of China’s automobiles, as they are “apparently concerned that goods blocked by one country will be rolled out to a different country”.
Washington has imposed a higher tariff on China-made cars, and Canada is considering similar measures.
Southeast Asian countries, especially Thailand, are instead attracting Chinese carmakers to invest in their local markets. Lee said, “[Thailand] essentially uses Chinese carmakers to galvanise the market because they are very much into Japanese carmakers, [and] the presence of Chinese carmakers is helping the country to move to EVs.”
