What Is Going to Happen Next in the ES’s Probe Into Chinese EVs?

EU regulators have announced that they will apply temporary duties on electric vehicles (EVs) manufactured in China and imported into the European Union starting from Friday. These duties will not be applied retroactively, which may potentially lead to a response from Beijing.

The European Commission, responsible for EU trade policy, has announced duties ranging from 17.4% to 37.6%, which are nearly identical to the ones revealed in June. The executive made revisions after companies pointed out slight calculation mistakes in the initial disclosure.

In addition to the EU’s standard 10% tariff for car imports, these additional charges apply.

What Do Provisional Measures Entail?

Temporary obligations may be enforced for up to nine months following the initiation of an EU anti-subsidy inquiry if the Commission determines it is necessary to safeguard the interests of EU businesses.

They can be utilized for a maximum of four months, at which time the Commission will determine whether to impose permanent duties, referred to as definitive duties. The deadline for this in the EV case is November 2.

Temporary duties are only levied if permanent duties are imposed at the conclusion of the investigation. If the final responsibilities are reduced or not imposed, then the temporary duties are adjusted accordingly. Until then, customs authorities typically only request a bank guarantee from importers.

What Comes Next?

The European Commission recently engaged in productive discussions with Chinese officials, emphasizing the importance of reaching a mutually beneficial agreement that effectively tackles the issue of harmful subsidies.

Concerned parties, such as China and electric vehicle manufacturers, have until July 18 to offer their feedback in response to the publication of provisional tariffs in the official journal of the European Union (EU). The journal provides detailed information about the ongoing inquiry and its results. In addition, they can ask for a hearing.

The Commission has made significant headway in the inquiry, having already carried out thorough visits to more than one hundred locations of automobile manufacturers in China and Europe.

The final report validates the provisional findings and may be subject to minor revisions based on feedback received.

Final responsibilities are frequently slightly lower than the temporary rates, indicating an acknowledgment of some of these points.

Tesla (NASDAQ:TSLA) has requested that the Commission calculate a distinct duty rate for its new element.

The leading electric vehicle (EV) exporter from China to Europe aims to secure a more favorable rate compared to the 20.8% imposed on companies that have been involved in the investigation, a category it falls under.

Instead of imposing duties, exporters have the option to agree to sell their products at or above a specified minimum price. A decade ago, Chinese exporters committed to this agreement regarding solar panels. Nevertheless, automobiles are not ordinary goods, making it challenging to envision the implementation of a minimum price.

Who Makes the Decision?

During the initial phase, the Commission possesses complete authority to levy duties while also seeking input from EU members and considering their positions. The deadline for submitting their positions is July 15.

Some EU members are currently undecided about supporting additional tariffs on electric vehicles manufactured in China. This situation underscores the difficulty Brussels is facing in garnering support for its biggest trade case to date, especially as Beijing warns of potential extensive retaliation.

Upon the conclusion of the investigation, the Commission has the authority to suggest permanent tariffs, typically enforced for five years.

If a majority of the European Union’s 27 members oppose the proposal, it may face opposition and potential blockage. A qualified majority refers to a situation where 15 members of the EU, representing 65% of the EU population, agree. Typically, a majority is not able to prevent progress.

What Occurs Following the Investigation?

If a company that is not part of the sample group of BYD (SZ:002594), Geely, and SAIC wants to have its own separate duty, it can request an “accelerated review” immediately after the imposition of definitive measures. This type of evaluation should not exceed nine months in duration.

The Commission also has the option to conduct an “interim review” if, after a year, the measures are deemed unnecessary or insufficient to address subsidies.

The Commission frequently investigates whether manufacturers are avoiding tariffs by exporting components for assembly in other locations. In the EU, there is a way to bypass this requirement if the majority of the parts, accounting for at least 60% of the value, are imported from the country that is subject to duties. Additionally, the value added during the assembly process must be at most 25%.

Companies can contest the measures at the European Court of Justice, and China can bring the European Union before the World Trade Organization. Both legal routes can often exceed a year in duration.

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