Economic Watch: Flaws and fallout of EU tariff plan

The probe of the European Commission (EC) into Chinese electric vehicles (EVs) has exposed multiple loopholes in rules, business organizations and experts said, while warning that the proposed duty hikes could be self-defeating as they would spell unwanted consequences.

The commission on Wednesday unveiled a plan to levy provisional additional tariffs of up to 38.1 percent on China-made EVs, following the anti-subsidy probe launched last year.

Speaking at a press conference Thursday, He Yadong, a spokesperson with the Ministry of Commerce, said that China reserves the right to file lawsuits with the World Trade Organization concerning the EU plan.

‘SERIOUS FLAWS’

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"There were serious flaws in the investigation process," said the China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME), an industry group representing over 10,000 member enterprises in China.

"The probe was not initiated by EU's industries. Instead, it was an ex-officio anti-subsidy investigation initiated by the commission grounded on the threat of damage. This is very rare in EU's trade remedies," the CCCME said.

The CCCME criticized the extensive and stringent information requested by the commission, saying that it was unprecedented and indicative of the EU's inclination to reach a predetermined conclusion.

The China Chamber of Commerce to the EU (CCCEU) also expressed deep concern over what it perceived as political manipulation and unilateral protectionism in the investigation.

The commission has gone beyond the scope of its countervailing duty investigation, made unreasonable demands for enterprises, and failed to leave sufficient time for enterprises and stakeholders to respond and provide evidence, the CCCEU said.

During hearings held in Brussels, Chinese companies and other relevant parties raised their questions regarding problems arising from the investigation, but the commission did not make any response and correct its wrongdoing, according to the CCCEU.

Meanwhile, the China Council for the Promotion of International Trade (CCPIT) decried the EU move as "typical double standards," saying the EU itself has provided substantial subsidies for its own EV and battery industries.

AVOIDABLE CONSEQUENCES

Experts have cautioned that additional tariffs could spark unwanted consequences, diminishing the profitability of corporations and thereby affecting EU's economic growth.

Zheng Chunrong, director of the German Studies Center of Tongji University, underscored that German companies will undoubtedly bear the brunt of trade conflicts, as China still accounts for the largest share of the global market for German carmakers.

About 50 percent of EU's EV imports from China come from Western brands that produce vehicles in China, according to people familiar with the matter.

"Should the EU implement tariffs, it would inflict considerable harm on Europe itself," Zheng noted.

According to a simulation study conducted by the Kiel Institute for the World Economy (IfW Kiel), imposing a 20 percent tariff would result in a 25 percent decline in EV imports from China, impacting Western automakers with operations in China.

In the wake of the EC's announcement, prominent European carmakers such as Volkswagen, Mercedes-Benz and BMW expressed strong objections, as such protectionist measures may force them to lose part of the Chinese market, one of their key profit centers.

In Europe, the looming additional tariffs are set to ignite soaring prices for EVs -- an impediment in the EU's drive to fulfill the ambitious European Green Deal.

The initiative, launched in 2019 and slated to phase out cars and vans with internal combustion engines except e-fuel ones from registering by 2035, now faces a potential stumbling block.

"There is no way that any part of the world can go green, fast and dedicated without China, because then the cost will be much, much higher," said Erik Solheim, co-chair of the Europe-Asia Center and former under-secretary-general of the United Nations.