The EU’s Countervailing Duties on Electric Cars: Entering a new era of trade relations with China?

On Tuesday, 29 October 2024, the EU Commission concluded its anti-subsidy investigation into imports of battery electric vehicles (“electric cars”) from China and introduced definitive countervailing duties for a period of five years through Implementing Regulation 2024/2754. From their entry into force on 31 October 2024, Chinese exporting producers of electric vehicles will be subject to countervailing duties of up to 35.3%.

The introduction of the countervailing duties, which Valdis Dombrovskis, Executive Vice-President and Commissioner for Trade, interprets as an EU act of “standing up for fair market practices and for the European industrial base.”, is highly controversial and may mark a new era in the EU’s trade relations with China. The following article explains (A.) and contextualizes (B.) the EU’s countervailing duties on electric cars from China, reflects on their broader impact on the future of EU-China trade relations (C.) and provides an outlook (D.).

A. Countervailing duties on Chinese electric cars explained

The introduction of countervailing duties on electric cars did not come as a surprise since China started to increasingly export low-price electric cars to the EU market. In October 2023, the EU Commission formally launched its anti-subsidy investigation ex officio, meaning on its own initiative. Generally, the purpose of such investigation is to determine whether an alleged market-distorting practice actually exists. During its investigation, the EU Commission assessed whether electric cars from China received and profited from illegal subsidies and if these actions resulted in economic injury for EU producers of electric cars. Nine months into its investigation, the EU Commission believed it had gathered sufficient evidence to support its allegation against China and announced provisional countervailing duties on electric cars from China. The provisional duties applied as of 5 July 2024 but required a final decision on definitive countervailing duties within four months by EU Member States.

B. (Political) context of the countervailing duties on Chinese electric cars

The vote on countervailing duties in early October 2024 turned out to be highly controversial. While the EU Commission ultimately garnered sufficient support among Member States, 10 out of 27 EU Member States voted against the countervailing duties and 12 of them abstained. Germany, for instance, which previously was expected to abstain, changed its position and voted against the countervailing duties on Chinese electric cars. The high number of opposing votes and abstentions is hardly surprising taking into consideration the diverse interests of European OEMs which sometimes are importers of cars, sometimes EU producers and sometimes both.

Prior to the vote, China had even tried to influence economically powerful EU Member States to oppose the definitive introduction of countervailing duties by exercising economic coercion. First, it imposed an (temporary) anti-dumping duty on brandy imports from the EU. This measure specifically targeted France, which practically is the sole importer of Cognac (a specific type of brandy) into China as it accounts for 99% of brandy imports. Second, China started anti-dumping investigations against EU pork imports in July 2024 which implicitly targets Denmark, the Netherlands and Spain, which at the time all were expected to vote in favour of the countervailing duties on Chinese electric cars. While Denmark and the Netherlands still voted in favour of the countervailing duties in the end, Spain decided to abstain. Either way, China is an important market for the EU’s pork industry not only because the volume of pork consumption, but also because EU exporters can supply China with pigmeat products that are hardly consumed on the EU market. Third, China also started an anti-subsidy investigation into dairy products including milk, cheese and cream in late August 2024 and announced to use samples of EU companies from France, the Netherlands, Belgium and Italy. In this way, China likewise signalled its dissatisfaction with France, the Netherlands, Belgium and Italy which – except for Belgium’s abstention – all had voted in favour of the EU’s countervailing duties on electric cars.

C. Future of EU-China trade-relations

Following these developments, concerns regarding the start of a trade war between the EU and China are growing. Many still vividly remember a similar dynamic between the US and China after former US President Trump announced additional tariffs on steel and aluminium in 2018 which included many of the US’ trading partners but were aimed at Chinese overproduction of steel and aluminium. At the current stage, the EU and China are still engaging in high-level talks to seemingly prevent further escalation of the situation – and for good reason: clearly, the EU continues to be highly dependent on China as its most important supplier of goods whereas the EU is a relevant export market for China. Therefore, both economies are much more intertwined than many would like.

Besides the diplomatic level, the EU has already requested consultations with China regarding the anti-dumping investigation into EU dairy products before the WTO. Such request regularly marks the start of a dispute settlement procedure under the WTO’s Dispute Settlement Understanding (“DSU”). However, it is usually only kicked off after investigations have resulted in the adoption of anti-dumping duties and not during investigations. In addition, the EU has also announced to challenge China’s imposition of provision anti-dumping duties on brandy under the DSU. So far, there is no formal request for consultation on the WTO’s website. China, in turn, already requested consultations within the WTO dispute settlement procedure regarding the EU’s countervailing duties on electric cars. Whether these (potential) disputes will actually reach the panel stage and result in a binding panel report remains to be seen. Even if they did, either party still could appeal a panel report “into the void” as the WTO currently lacks its appeal stage following the impasse of the WTO Appellate Body.

Overall, the EU’s adoption of definitive countervailing duties on electric cars marks a pivotal shift in the EU’s trade relations with China. The EU appears to have stopped acquiescing in the practices of China’s state-led economy particularly in economic sectors which it considers relevant for EU economic security - including the electric car industry. Apart from the geopolitical implications, importers and buyers of Chinese electric cars are advised to act prudently as the amounts of the countervailing duty are high (e.g. 17% for BYD, 18.8% for Geely or 7.8 % for Tesla). Therefore, the countervailing duties put much pressure on correct customs declarations and, in particular, the accurate determination of the customs value.

D. Outlook

Putting the political implications aside: As the legal requirements to impose such countervailing duties are quite high, it should come as no surprise if the legality of these measures were to be questioned. Union law provides for legal protection against the Regulation containing the countervailing duties via an action for annulment pursuant to Art. 263(4) TFEU. The action must be brought within two months and ten days after publication of the measures in the Official Journal of the European Union, Art. 263(6) TFEU. The action must be brought before the General Court of the EU; a decision of the General Court may be subject to review (appeal) by the Court of Justice. SAIC Motor, a Chinese car producer has already announced its intention to challenge the EU’s countervailing duties. Against this background, it is likely that the countervailing duties will remain a viral topic within the EU.