Most Favoured Nation: Car Tariffs
EU tariffs on Chinese EVs, Green tech and CBAM
Welcome to the 97th edition of Most Favoured Nation. This week’s edition is free for all to read. If you enjoy reading Most Favoured Nation, please consider becoming a paid subscriber.
Last week, Politico reported that chief EU trade enforcer, Denis Redonnet, is considering launching an investigation into imported Chinese electric vehicles. If proof of dumping or subsidy violations are discovered, this could lead to the EU imposing tariffs.
Thierry Breton, the French EU Commissioner with responsibility for the Internal market, loves the idea, unsuprisingly:
Problem for industry: Asked about the investigation, a third senior official, Internal Market Commissioner Thierry Breton, told Playbook in an interview: “I am very much in favor of opening a dumping investigation into electric cars as soon as possible,” adding that “the rapid increase in imports has become a problem for EU industry.”
The US is also apparently sympathetic [also via Politico]. When asked about the possible EU investigation, USTR Katherine Tai said:
The fact pattern that you've described in terms of a strategic, super-relevant industry growing out of China, creating concerns around whether or not the production and the trade is and will happen on a market-based basis, is something that we have been living with now for a couple of decades.
Of all the predicatable things in the world, that the EU would eventually turn its attention to imported electric vehicles was among the most predictable. The EU — as evidenced by the current EV rules of origin debacle with the UK, which MFN has covered at length – is keen to onshore as much of the EV supply chain as possible. And if cheap alternatives from China or elsewhere prevent it from doing so, then it will be sad.
Anyhow, I decided to look into whether there is much in the way of precedent re: anti-dumping duties on automotives. [Note: trade lawyer readers, please add examples in the comments below!]
Here’s a couple of examples:
In 2011, China imposed duties on American-made cars and SUVs, claiming it was a legitimate response to American dumping and subsidies [Note: sounds familiar!]. The anti-dumping duties ranged from 2 – 21.5 per cent; the counterveiling (anti-subsidy) dutues from 6.2 – 12.9 per cent. These duties were challenged by the US at the WTO in 2012, and in 2014 a dispute settlement panel sided with the US.
In 2013, Russia slapped anti-dumping duties on vans imported from Italy and Germany, ranging from 23 to nearly 30 per cent. The EU challenged these duties on procedural grounds [subtext: lots of the Russia evidence was pretty iffy] and the Apelette Body eventually sided with the EU.
There’s then a load of cases on auto parts, mainly tires.
I’ve probably missed some others (again, trade lawyers, please comment below), but at a superficial level the limited number of cases tells me trade defence measures on autos are pretty difficult to justify, and the fact both of the above failed the WTO test, suceptible to legal challenge.
Which makes me wonder whether the EU is serious about doing this. On the one hand just threatning it might be enough. But on the other, the EU does feel that history demonstrates it moved too slowly in the past (on solar panels) and, y’know, perhaps having a legally water tight justification isn’t quite as important as it used to be [cf. the world].
I guess we’ll find out one way or the other soon enough.
Nothing to worry about?
But does the EU even have anything to worry about? Is it really at risk of falling behind China, the US and the rest of the world when it comes to caputiring the industrial upside of the green revolution?
John Springford and Sander Tordoir of the Centre for European Reform (my former employer) have released a new paper arguing that the answer is generally “no”. Despite claims from non-trade folk that the gravity model of trade is dead, it turns out that distance is rearing its head once again when it comes to trade in green goods, and distance is starting to have a bigger impact on trade than it did even five years ago.
HOWEVER, there are some caveats to this analysis. Relevant to the discussion above, on EVs there is a seperate China specific story:
CBAM
As you should all know, the transitional phase of the EU CBAM enters into force at the beginning of October. Importers of CBAM goods will need to report on the emissions embedded in their imports subject to the mechanism but will not be required to pay any financial adjustment.
According to the guidance:
During the first year of implementation, companies will have the choice of reporting in three ways: (a) full reporting according to the new methodology (EU method); (b) reporting based on equivalent third country national systems; and (c) reporting based on reference values. As of 1 January 2025, only the EU method will be accepted.
Do you have views on this? If so, you have until July 11 to provide feedback on the implementing legislation. More details here.
That’s it for this week. I am about to go on holiday for 10 days, so the timing of the newsletters might be a bit random over the next couple of weeks, but will settle back into the regular Friday morning slot once I get back.
Best wishes,
San
The UK, and no doubt other EU countries, were pretty keen to restrict imports of Japanese cars back in the day. In the event, the Japanese agreed to 'voluntary restraint agreements' and began to manufacture here rather than face higher tariffs.