Negotiations between Brussels and Beijing on the dispute around electric vehicles have entered the final stretch ahead of a make-or-break vote.
ADVERTISEMENTThe European Commission has formally rejected an offer submitted by Chinese manufacturers of electric vehicles (EVs) to close the price gap between them and EU competitors, a wide gap that Brussels argues is the direct result of vast subsidies pumped by Beijing into the lucrative sector.
Price undertakings are a trade tool that companies can use to increase the price and control the volumes of their exports to avoid anti-subsidy tariffs. These are precisely the kinds of duties that China-made EVs might soon face when entering the bloc.
"I can confirm that the Commission has thoroughly reviewed these offers based on World Trade Organization and EU anti-subsidy rules," a Commission spokesperson said on Thursday.
"Our review focussed on whether these offers would eliminate the injurious effects of the subsidies identified in our investigations and whether these price undertakings could be effectively monitored and enforced. The Commission has concluded that none of the offers met these requirements."
At the end of a months-long investigation, the Commission found public money spread across the entire supply chain of the Chinese EV sector, putting European firms at risk of suffering unsustainable economic losses.
The executive consequently proposed additional duties, ranging from 7.8% to 35.3%, according to the brand and their level of cooperation with the investigation, that will come on top of the existing 10% rate. The top-up is supposed to ensure fairer competition and close the price gap between EU and Chinese manufacturers.
BYD, Geely and SAIC are among those facing steeper tariffs. The price undertakings they submitted were meant to placate the Commission's concerns and prevent the measures. The rejection of the offer indicates how entrenched and extensive the subsidisation is inside China and suggests the solution, if any, will be found at the political level.
Negotiations between the two sides have entered the final stretch ahead of a make-or-break vote by member states to make the tariffs permanent for five years. The date for the vote has not been announced yet but it could happen as early as this month.
Valdis Dombrovskis, the Commission's executive vice president in charge of trade relations, is scheduled to meet his counterpart, Wang Wentao, China's minister of commerce, on 19 September in Brussels, a sign of intensifying talks.
Divide-and-conquer fears
The executive's behind-the-scenes efforts suffered a blow this week after Spanish Prime Minister Pedro Sánchez publically called on the Commission and member states to "reconsider" the proposed tariffs on China-made EVs.
The remarks caught Brussels by complete surprise: until then, Spain was considered supportive of the anti-subsidy measures, having voted in favour during a non-binding consultation in July.
"We need to reconsider all of us, not only the member states but also the Commission, our position towards this movement," Sánchez said in Shanghai, the last stop of his official four-day visit to China.
"As I said before, we don't need another war, in this case, a trade war. We need to build bridges between the European Union and China," he went on.
"And from Spain, what we will do is to be constructive and to try to find a solution, a compromise, between China and the European Commission. If you ask me, I will answer that we're reconsidering our position."
Hours later, a spokesperson of the German government welcomed Sánchez's U-turn, saying that "the direction of travel is one that we share." Germany, a world-leading automaker, is under pressure from domestic industry to derail the additional tariffs.
ADVERTISEMENTSánchez's explicit reservations, voiced in Shanghai after having sealed a €1-billion deal with a Chinese company to build an electrolyser plant in Spain, immediately made headlines and raised fears of Beijing stepping up its political meddling.
Last year, European Commission President Ursula von der Leyen issued a stark warning about China's "divide-and-conquer tactics" and urged member states to close ranks, maintain unity and face together the multiple challenges posed by the Communist Party.
Asked if Sánchez's about-face represented the result of these "divide-and-conquer" tactics, the Commission refused to comment and said talks were the priority.
"The European Commission's focus, at the present time, is fulfilling the next procedural steps in our investigation (and) remaining open to finding a negotiated solution with the Chinese authorities," the spokesperson said.
ADVERTISEMENT"Any such solution must adequately address the injurious effects of the illegal subsidies we identified in our anti-subsidy investigation."
Stopping the tariffs from becoming permanent will require a qualified majority against the proposal, that is 15 countries representing at least 65% of the bloc's population. Given Spain's weight, Sánchez's change of mind could re-balance the equation.