China's Electric Vehicle Makers Scramble For EU Tariff Deal, With Price Floor On The Table
China's car industry was scrambling to cut a last-minute deal with the European Commission last week, with representatives offering to set a minimum price on imported electric vehicles (EVs).
Companies would in return be granted some amnesty from hefty import tariffs due to be slapped on Chinese-made EVs by the commission by October. The EU has complained that cheap, exported Chinese vehicles threaten the future of Europe's car industry.
The companies would also be willing to put a limit on the volume of EV exports to the European Union should Brussels cut the punitive tariff, according to people familiar with the meetings. Above that volume, imports would face the duties the commission proposed earlier this month of up to 36.3 per cent.
Online hearings took place on Wednesday, with car companies including BYD, Geely and SAIC, and Friday with the China Chamber of Commerce for Import and Export of Machinery and Electronic Products (CCCME). The details of the proposals were first reported by Politico.
Such a deal would closely mirror one reached 11 years ago during a trade war over cheap Chinese solar panel imports. Under that agreement, Chinese producers agreed to set a minimum price at which their panels would be sold.
Panels sold at a higher rate or above a certain sales volume were subject to punitive import duties designed to bring the products in line with local market rates.
The commission is considering the proposals, but insiders thought it improbable that they would fly at this stage, given the fact that they were pitched as a "gentleman's agreement" that would not be watertight.
Nor does the commission have fond memories of the solar panel resolution, which ultimately fell apart when powerful member states including France and Germany withdrew their support for EU measures.
China had slapped trade tariffs on French wine and threatened the German car industry in response, and a decade later the EU solar industry has been decimated by Chinese competition.
Nonetheless, it has given Brussels pause for thought. Even last week, it was thought that a negotiated settlement would be nigh on impossible to reach, given that car companies and the Chinese government denied that there were any undisclosed subsidies in their supply chains.
Beijing has already lodged a complaint at the World Trade Organization (WTO) and launched retaliatory probes into EU brandy, pork and dairy products.
Last week, China closed its brandy investigation and is expected to impose anti-dumping duties of up to 39 per cent on French cognac brands at a later date, after declining to introduce provisional measures.
"Our sector seems to be a collateral victim of a broader trade conflict, which will limit the access of Chinese consumers to products they greatly value and appreciate, if not resolved as a matter of priority," said Adam Ulrich, director general at Spirits Europe, a lobby group.
Brussels has always been open to making a deal on EVs, but it must have the same equalising effect as the tariffs, which are designed to protect European-based companies from the market-distorting impact of subsidised Chinese competitors.
While an official consultation period expired on Friday, the offer will be analysed this week as officials continue trickling back from their extended summer holidays.
Since the deal would involve pledges from individual car companies rather than the Chinese government, it is unlikely that it would flout WTO rules that outlaw preferential treatment based on corporate nationality.
Chinese companies' willingness to make such an offer comes as its industry faces being blocked out of other major markets. Last week, Canada joined the United States in slapping a 100 per cent import duty on Chinese-made EVs.
The EU tariffs, even after punitive duties are applied, would be comparably low. BYD EVs, for example, would take a total 27 per cent total tariff hit at EU ports, while Geely would face a 31.3 per cent rate.
Even the EU's top rate of 46.3 per cent for companies such as SAIC - including the 10 per cent base rate - is less than half the North American import tax.
The deadline for introducing long-term duties is October 30. In a vote anticipated in the coming weeks, 15 of the 27 EU member states constituting 65 per cent of the bloc's population must vote against the tariffs to stop them from being imposed.
Chinese companies are already planning for life under tariffs. This week, executives from BYD and Xpeng said that they were going to increase their European manufacturing footprints as they look to avoid paying punitive duties.
Xpeng's CEO He Xiaopeng told Bloomberg that the company was scouting Europe for sites for factories and data centres. BYD boss Stella Li told the same publication that the company wanted 50 per cent of its revenues to come from overseas markets, and that it would set up its own data centres in individual European countries to avoid sending data back to China.
The scramble for data centres comes amid mounting security concerns about the levels of data collected by electric and connected vehicles.
Earlier this week, Uber was fined €290 million (US$322 million) by Dutch authorities for transferring European driver data to the US. The ride-sharing app recently partnered with BYD in a deal that will see the Chinese carmaker provide 100,000 EVs for its fleet in Europe and Latin America.
Regardless of whether a tariff amnesty is reached, industry analysts expect Chinese EVs to remain competitive in Europe
"The Europeans are in denial. They don't want to acknowledge that European carmakers have been out-engineered and outclassed," said Tu Le, managing director of Sino Auto Insights, a consulting firm.
He added that EU countries would struggle to hit their zero-emissions goals without Chinese EVs and that governments were facing difficult choices.
"Chinese carmakers are fighting the long game. They see Western governments as changing hands, changing philosophies, changing policies every four to six years, and so these are kind of just the ebbs and flows that they kind of deal with on a regular basis," Tu said.
"There's this tension between, are we going to hit our zero-emissions goals, and if so, how do we do that without Chinese electric vehicles?"
Source: YAHOO!Finance
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