EU urged to rectify protectionist practices

Tariff decision on Chinese electric cars could bring retaliatory steps, experts say

China, in response to the European Union's decision to impose additional tariffs on Chinese-made battery electric vehicles, will take all necessary actions to safeguard the legitimate rights of Chinese companies, the Ministry of Commerce said on Thursday, which has led analysts to say retaliatory measures are possible.

Beijing may choose to impose retaliatory duties targeting EU-produced large-engine vehicles, brandy and dairy products, they said. Additionally, there is a possibility of further tariff increases on EVs imported by China from the EU, they said, adding that any countermeasures would aim to send a clear message and urge the EU to reconsider its decision regarding Chinese EVs.

Less than a month after Washington announced plans to quadruple the duties for Chinese EVs to 100 percent, Brussels said it would also impose additional tariffs on such products, ranging from 17.4 percent for BYD to 38.1 percent for SAIC, on top of the standard 10 percent car duty.

That takes the highest overall rate to nearly 50 percent. The ruling will take effect on July 4, unless Beijing agrees to "an effective solution" to so-called subsidies that the EU claims are distorting its markets.

He Yadong, a spokesman for the Commerce Ministry, said on Thursday at a news conference that the EU's recent actions are a breach of World Trade Organization rules and blatant examples of trade protectionism, and China will reserve the right to seek recourse through the WTO.

Meanwhile, China has urged the EU to promptly rectify its erroneous practices, the spokesman said, emphasizing the importance of dialogue and negotiations to effectively address trade disputes, expand cooperation and achieve mutually beneficial outcomes.

According to the German think tank Kiel Institute, while the decrease in imports could be partially mitigated by increased production within the EU, it would likely result in higher prices for consumers. This is because production within the EU is significantly more expensive than in China due to higher energy and material prices, and labor costs are much higher.

In addition, of all the electric cars built in China and sold across the EU last year, half came from Western carmakers. The United States EV maker Tesla accounted for 28 percent of all Chinese-made EVs imported by Europe, while French carmaker Renault's Dacia Spring added an additional 20 percent, according to a study in late March by European think tank Transport and Environment.

All other companies producing in China that had cooperated with the commission's probe but were not sampled, including Renault, would face an average duty of 21 percent, while Tesla could face an individually calculated duty rate.

Oliver Zipse, CEO of BMW, which established a production base in Northeast China's Liaoning province, said in a statement on Wednesday that the additional tariffs imposed by the EU could hinder the development of European automotive companies and ultimately harm Europe's own interests.

The adoption of protectionist measures, such as tariffs, could trigger a cycle of retaliation, leading to a breakdown of cooperative trade relations, he added.

Liu Chunsheng, an associate professor at Central University of Finance and Economics, said that the increased tariffs on Chinese-produced EVs entering the EU are expected to translate into higher production costs and affect their pricing, ultimately pointing to reduced competitiveness and market share.

However, Europe's plan to phase out Chinese EVs might not be an easy feat. BYD, for instance, has ample space to adjust pricing due to its relatively high EU premium, according to a report by New York-based Rhodium Group.

Nonetheless, the economic losses faced by Chinese enterprises without justifiable cause mean that China will by no means make concessions that could compromise the interests of its companies, Liu added.

Relevant authorities, in accordance with WTO rules and Chinese regulations, will initiate investigations to address concerns of Chinese industries related to subsidies or dumping practices of EU dairy products and pork to safeguard fair market competition and protect the Chinese industries' legitimate rights, said Ministry of Commerce spokesman He.

Meanwhile, the products targeted for possible retaliatory tariffs, such as EU-produced large-engine vehicles and brandy, might be chosen to exert pressure on sectors that could significantly affect the EU's economy, said Xu Hongcai, deputy director of the China Association of Policy Science's Economic Policy Committee.

Moreover, China now imposes a 15 percent tariff on EVs imported from the EU and has not ruled out the possibility of further increasing the tariffs, should the situation escalate, Xu said, adding that China leans more toward dialogue and negotiations with the EU to prevent a scenario in which both parties suffer adverse consequences.