The EU's definitive countervailing duties on electric vehicles from China

The Union has taken its largest trade-defence decision in a decade. On 29 October 2024 the Commission adopted Implementing Regulation (EU) 2024/2754, which imposes a definitive countervailing duty on new battery electric vehicles originating in the People's Republic of China. The Regulation was published in the Official Journal the same day[1]. The duties apply to BYD at 17.0%, to Geely at 18.8% and to SAIC at 35.3%. Other cooperating companies pay 20.7%, Tesla pays 7.8% after an individual examination and every non-cooperating exporter pays 35.3%. The measures last five years unless an expiry review is opened first, and the provisional duties imposed on 4 July 2024 will not be collected[2]. The new duties come on top of the ordinary 10% import duty on cars[3]. We take the decision seriously because it concerns the one product that our generation will have no choice but to buy.

What the Commission has decided and who voted for it

The procedure began on 13 September 2023, when Ursula von der Leyen announced the anti-subsidy investigation in her State of the Union address[2]. The legal basis is Regulation (EU) 2016/1037, the basic anti-subsidy Regulation, which allows duties that offset subsidies causing injury to Union industry[3]. The Commission found that Chinese imports held a 25.0% market share of the Union battery electric vehicle market during the investigation period, and that Chinese brands alone reached 14.1% in the second quarter of 2024[4]. In 2020 Chinese-built electric cars held 3.9% of the market[5].

Member States voted on 4 October 2024. Ten voted in favour, five voted against and twelve abstained[6]. France, Italy, the Netherlands and Poland supported the duties. Germany, Hungary, Slovakia, Slovenia and Malta opposed them[6]. Under the comitology rules a qualified majority against the proposal was needed to block it, and that majority did not exist[3]. The arithmetic matters. The largest car-producing Member State voted no, and twelve governments declined to take a position. The decision is legally sound and politically thin.

The Commission says it remains open to price undertakings with individual exporters, and Valdis Dombrovskis, the Executive Vice-President for trade, said that competition "must be underpinned by fairness"[2]. Price undertakings with Chinese producers have been discussed for months without result. A minimum-price offer was rejected before talks, and any alternative must be compatible with World Trade Organization rules, effective, monitorable and enforceable[3].

Who pays and who answers

Beijing has already answered. On 9 August 2024 China requested consultations at the World Trade Organization against the provisional duties. Its Ministry of Commerce said the preliminary ruling had no factual or legal grounding and weakened joint action against climate change[7]. After the vote of 4 October the Ministry said it firmly opposed the duties[5]. On 8 October it ordered importers of Union brandy to post security deposits of between 30.6% and 39.0% of import value from 11 October. French brandy accounts for 99% of China's brandy imports. The Ministry also said it was considering higher tariffs on large-engine vehicles and that an investigation into Union pork products continues[8]. The pattern is clear. France voted for the duties on cars and now pays through cognac. Germany voted against and is still threatened through its large saloons.

The industry is divided. The European Automobile Manufacturers' Association said on 4 October that free and fair trade is only one part of competitiveness and asked for an industrial strategy in the terms of the Draghi report, with access to raw materials, affordable energy and charging infrastructure[9]. The German association VDA called the vote a "further step away from global cooperation"[5].

Then there are the buyers. JATO Dynamics calculated in 2023 that the average retail price of a new electric car was about £27,153 in China and about £58,256 in Europe[10]. Regulation (EU) 2023/851 tightens the CO2 performance standards for new passenger cars, and from 2035 the only new cars sold in the Union will have to be zero-emission[11]. People born after 1992 are now between 25 and 32 years old. Many of them have not yet bought a first car. Most will buy their first new car under the 2035 rule, with electric as the only option. The duty raises the price of the cheapest electric cars available to them by between 7.8% and 35.3%. The Commission is right that subsidised competition injures Union producers. It is also true that the cost of correcting that injury falls on the household that cannot afford a €58,000 car and could have afforded a cheaper one.

We do not dispute the finding of subsidy. The Regulation runs to hundreds of recitals and answers the objections of the Chinese government and the exporters[4]. We dispute the silence about who pays. A countervailing duty is a tax on importers, and importers pass it on. Nothing in the Regulation or the Commission's press release estimates the cost to consumers.

What we recommend

The Commission should publish, within six months, an estimate of the effect of the duties on retail prices of electric cars under €30,000 in the Union and on the pace of electrification among first-time buyers. The Commission and the Chinese authorities should conclude the negotiation on price undertakings, because an undertaking that fixes minimum prices by model segment would protect Union producers in the segments where they compete and leave the entry segment open. Member States that voted for the duties should pair them with purchase support for buyers under 35, financed from the duty revenue, so that trade defence does not become a tax on youth. The Council should ask the Commission to report annually on Chinese retaliation, product by product, so that the next vote on a trade-defence measure is taken with the full bill in view. A trade policy that protects factories is legitimate. A trade policy that forgets the generation which must buy what the factories make is not complete.