China Sues EU Over EV Tariffs But Trade War Unlikely

Beijing filed a lawsuit with the World Trade Organisation (WTO) on Monday against the European Union’s decision to impose duties as high as 45.3% on electric vehicle imports from China.

China’s commerce ministry said the suit, filed under the WTO’s dispute settlement mechanism, aimed to “safeguard the interests of the development of the EV industry and the global cooperation on green transformation.”

“The EU’s final ruling lacks a factual and legal basis, which violates WTO rules, and is an abuse of trade remedy measures. This is trade protectionism in the name of imposing countervailing duties,” a spokesperson for China’s Ministry of Commerce (MOFCOM) was quoted as saying by state media.

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China’s suit comes even as it continues efforts to keep up dialogue with European negotiators and find an alternative to the tariffs.

Negotiators from both China and the EU have begun fresh consultations on the tariffs at the start of the month, after the new duties officially took effect on October 30.

In recent months, Beijing has also hosted a procession of official visits from the EU and its member states.

A French junior trade minister is visiting Shanghai this week, with Paris keen to continue developing commercial ties in China’s financial capital.

France is also a “Country of Honour” at China’s annual flagship import expo, despite Beijing having placed retaliatory import tariffs on its brandy.

While little progress has been made in even approaching a resolution, engagement remains a priority, analysts say.

“I am not terribly optimistic that the Chinese side will put anything on the table that the EU will accept, but I probably should also be curbing my pessimism a bit, and would not discount a solution,” Max Zenglein, chief economist at Merics, a Berlin-based China studies institute, said.

“I am sure certain member states will be pushing for this to demonstrate their willingness or ability to work out a deal.”

One of the primary methods being seen to undo the tariffs are minimum selling price commitments from Chinese producers.

But the European commissioner designate for trade, Maros Sefcovic, said on Monday that any agreement on minimum prices would need to be as effective and enforceable as the new tariffs.

Trade war unlikely

Despite stalled talks between both the sides, Beijing has incentives to contain the dispute with the EU. Bilateral trade ties between the two were worth $783 billion last year.

The US election on Tuesday is almost certain to result in more American curbs on Chinese goods. Furthermore, the Chinese economy is slowing and it needs to find buyers for its EVs to ward off deflationary pressures.

“I don’t think China wants this thing to significantly torpedo the EU-China relationship, especially given the fact we will probably be seeing a very different world (after the US election),” said Bo Zhengyuan, a Shanghai-based partner at Plenum, a consultancy.

European diplomats, veterans in complex multilateral negotiations that can take years to iron out, said it was clear Beijing wanted to avoid a trade war.

‘Hashing it out’

While both China and the EU have launched challenges against each other at the World Trade Organization, that arbitration could take years.

“Chinese action on brandy, pork and dairy imports from the EU is probably baked in at this point,” said Noah Barkin, senior advisor at Rhodium Group, referring to Beijing’s retaliatory probes on imported EU products.

“A win for the EU would be Beijing limiting its response to brandy, pork and dairy, and then both sides hashing it out at the WTO,” he added.

Barkin warned a less contained response could see China curb EU access to the critical raw materials it needs for a green energy transition.

During his visit to China in September, Spanish Prime Minister Pedro Sanchez said Spain would seek to resolve the EV dispute within the WTO.

While that would signal a failure of bilateral talks, it would head off a worsening in relations.

“I think there is a chance they will come to some agreement, regarding the minimum prices, but this will not lead to the removal of the tariffs, just a readjustment of the rates,” said Plenum’s Bo on EU talks.

“That is probably the best outcome.”

Vishakha Saxena, with Reuters

Vishakha Saxena

Vishakha Saxena is the Multimedia and Social Media Editor at Asia Financial. She has worked as a digital journalist since 2013, and is an experienced writer and multimedia producer. As a trader and investor, she is keenly interested in new economy, emerging markets and the intersections of finance and society. You can write to her at [email protected]