Exclusive: Details show EU’s deliberate attempt to start bruising trade row with China, even as China shows utmost sincerity
Published: Jun 21, 2024 09:39 PM
EV Photo:VCG

EV Photo:VCG

The European Commission (EC)’s announcement that it would impose additional tariffs on Chinese electric vehicles (EVs) is just one example in the EU’s attempts to pick up a brutal trade row with China, even as the Chinese side showed utmost sincerity in trying to address trade disputes through talks, information obtained by the Global Times showed.

The information also offered a detailed account of how the EU carried out the so-called anti-subsidy investigation against Chinese EVs in an extraordinarily unfair and opaque manner, completely disregarded the Chinese side’s efforts to engage in friendly consultations, and excessively imposed restrictions in trade and investment targeting China. Ultimately, the information revealed that the EC is to blame for provoking a bruising trade row with China.

I.China’s restraint, sincerity in resolving disputes
Since September 13, 2023, when Ursula von der Leyen, president of the EC, the executive body of the EU, announced the so-called anti-subsidy investigation into Chinese EVs, Chinese officials have proactively sought to engage with the EU side on various occasions. So far, the Chinese side has communicated with EU institutions and 16 EU member states, including Germany and France, more than 80 times, fully reflecting China’s sincerity to resolve differences through dialogue and consultation.

Specifically, there were nine rounds of high-level talks with the EU, in which Chinese leaders repeatedly stressed the need for China and the EU to properly address economic and trade frictions through dialogue and consultation, and accommodate each other's legitimate concerns. Chinese leaders held 17 rounds of talks with leaders and business communities from Germany, France, Belgium, Ireland, the Netherlands and Hungary.

In December 2023, Chinese President Xi Jinping met with President of the European Council Charles Michel and President of the European Commission Ursula von der Leyen in Beijing. During the meeting, Xi said that the two sides need to strengthen strategic communication, and increase understanding and properly handle differences through constructive dialogue. In May 2024, during a trilateral meeting in Paris with French President Emmanuel Macron and von der Leyen, Xi said that it is "necessary" for them to properly address economic and trade frictions through dialogue and consultation, and accommodate each other's legitimate concerns.

In January 2024, during a meeting with von der Leyen on the sidelines of the World Economic Forum Annual Meeting in Switzerland, Chinese Premier Li Qiang said it is hoped that the EU will uphold justice, compliance and transparency in economic and trade matters, treat Chinese enterprises fairly, and prudently introduce restrictive economic and trade policies and deploy trade remedies.

The Ministry of Commerce (MOFCOM) has also proactively sought to engage with the EU side, as it tries to strengthen communication with EU institutions and clarify its stance. At the senior level, there were more than 10 rounds of communication with the EU side, while communication was also held through China’s mission to the EU. The MOFCOM also sought to communicate with the governments of EU members and key businesses on various occasions including receiving visiting delegations and holding bilateral economic and trade joint (mixed) committee meetings, with more than 50 such communications at the senior level.

Earlier this month, Chinese Commerce Minister Wang Wentao, while visiting Europe, said that protectionist measures are not viable solutions but a "dangerous dead-end," and China is willing to engage in discussions with the EU on economic and trade concerns on an equal footing and participate in fair competition on the basis of expanded cooperation.

However, despite China’s efforts to resolve trade disputes through consultation, the EU side demonstrated stubbornness in its so-called anti-subsidy investigation against Chinese EVs, which is full of holes throughout the entire process.

II.EC’s politically-driven, unfair, opaque investigation
No advanced notice as required by WTO rules.
Without notifying China in advance according to WTO rules, European Commission President Ursula von der Leyen announced the investigation during her annual State of the European Union address in September 2023, launching a “surprise attack” against Chinese industries.

The EC carried out pre-filing consultations as mere formality. It showed no sincerity or seriousness in talks with China, as it had attempted to rush the first round of pre-filing consultations, initially giving the Chinese side just one working day for preparations. After repeated efforts by the Chinese side, the first round of consultations was held on October 2, during the National Day holidays in China. Clearly, the EU side was simply trying to follow procedures under WTO rules without any shred of sincerity in trying to resolve the dispute through serious talks with the Chinese side.

The EC’s move to initiate the investigation also lacks any legal basis. The EC launched the probe on its own initiative under the presumption that the Chinese EVs have caused damages and threats to EU industries. This is quite rare in the EU and world’s history of trade remedy investigations. For self-initiated investigations in which the initiator assumes the dual role of both the “plaintiff” and the “judge”, the WTO has a rather stringent requirement governing the gathering of evidence to file a case. However, the EC’s evidence is obviously not compelling here.

Instead of making precise allegations on the existence, exclusivity and benefits to enterprises of the specific alleged subsided projects as required by WTO rules, the filing document makes a general allegation that the Chinese side has provided large amounts of subsidies on the basis of some cobbled-together and fragmented information. The allegation of “injury and threat” is based on partial data to analyze the overall situation of the industry and to make speculation on possibilities, which is biased and lacks an objective factual basis.

The investigation process was also filled with unfair and opaque practices. The EC deliberately excluded the EU’s biggest EV exporter, Tesla, in sampling without providing any reasonable explanation, but instead focused on Chinese firms, namely SAIC Motor, Geely and BYD. The European side insisted that its practice was reasonable, and did not respond substantively to China’s representations.

While collecting samples from the EU, the EC concealed the basic information about EU manufacturers. This has resulted in the inability of stakeholders to conduct objective analysis and make effective comments, seriously undermining Chinese stakeholders’ right to know and right to defend themselves, and violating WTO rules. According to the Chinese industry, recently the EC also intended to conduct on-site verification of Tesla, which was not sampled, and study the implementation of a separate tariff rate for the company, a typical target-oriented and differentiated approach that has made Chinese enterprises feel extremely shocked and disappointed.

The Chinese industry believes that the European side’s sampling violates the related rules, is manifestly unfair, and is operated behind closed doors. In the case of insufficient evidence, the EC is aimed at “customizing” the so-called evidence of the existence of a large number of subsidies on the Chinese side and the “damages and threats” to the European industry by means of artificial manipulation.

III.EC’s unreasonable demand for sensitive information
Chinese enterprises said that in order to work out the high tariff rates, the EC has put forward unreasonable demands that have nothing to do with the case and have greatly aggravated the burden on Chinese enterprises, while groundlessly accusing Chinese firms of failing to cooperate sufficiently.

The EC collected a large amount of information and materials beyond the alleged subsidized projects. Firstly, it collected core technical secrets such as battery formulations and production costs. The target of the countervailing investigation by the EC is electric vehicles, but it required Chinese enterprises to provide detailed information on the composition of raw materials for batteries including chemical composition and formula; the number of key raw materials used such as lithium ferrous phosphate, graphite, copper, aluminum, and their proportion to the cost of the battery; the suppliers and procurement information for each raw material; and the pricing method of the battery materials.

Second, it collected core commercial secrets such as production capacity, production costs and sales channels of enterprises. Chinese firms were asked to provide a list of production capacity, output and fixed assets, and their future plans to add new production capacity in China, the EU or a third country. The commission also asked the companies to provide detailed production costs for electric vehicles, including information on components and raw material inputs, energy and electricity, labor costs, and equipment depreciation.

Companies were also required to provide information on sales models, terms of sales, pricing strategies and price lists, as well as the names and contact details of all their EU customers.

Third, it collected core operational secrets such as corporate financing and supply chain layout. Enterprises were required to provide minutes of shareholders’ meetings, boards of directors and supervisory boards meetings, as well as joint venture agreements.

The EC asked the firms to provide the names and contact details of all suppliers of parts and components and raw materials such as steel and aluminum; information on transactions of all parts and components and raw materials purchased during the probe period, including purchase prices and quantities. The list of information required by the EC could go on and on.

IV.Unreasonable ruling
Despite Chinese firms’ efforts to cooperate with the investigation, the EC had decided to impose heavy provisional tariffs of between 17.4 percent and 38.1 percent on Chinese EV companies based on the so-called available facts and without providing a reasonable basis for the determination of the tariff rate or the justification for the differentiated treatment toward the Chinese companies.

On the item of providing batteries at a price lower than the reasonable level, the EC disregarded the fact that SAIC provided battery procurement data in an aggregated form, and directly decided that SAIC “did not cooperate with the investigation.” 

In calculating the subsidy margin, the EC intentionally applied the wrong basis of apportionment, and apportioned the subsidy amount that should have been apportioned to the Group’s all revenues to only the revenues of the EV business section of the products involved in the case. The commission also adopted the unreasonable practice of “keeping the numerator unchanged and narrowing the denominator” to falsely increase the subsidy margin of SAIC by 12.8 percent.

In the determination of associated enterprises, the EC determined that SAIC has seven associated enterprises who refused to respond to the questionnaire. In fact, three of them are wholly owned by Volkswagen in China, and SAIC does not have any capital links with them. The relevant German enterprises did not respond to the EC questionnaire investigation, resulting in the EC once again applying the “available facts” investigation on SAIC, and the Chinese enterprises cannot do anything about it.

Chinese companies feel that the European side ignores the WTO rules, disregards the facts, abuses its discretionary power and arbitrarily raises the magnitude of subsidies, which is a serious abuse of trade remedy measures.

It’s also significant that the EC’s investigation lacks support from EU carmakers. On the contrary, BMW, Mercedes-Benz, Volkswagen, Strandis and a number of other well-known European automobile manufacturers are clearly opposed to the EC’s act of wielding the “protectionist” stick against China, calling for the avoidance of any form of economic and trade friction.

Oliver Zipse, chairman of BMW’s board of management, said the move could upend the bloc’s Green Deal plan and harm German automakers, which “could very quickly shoot itself in the foot.” Mercedes-Benz CEO Ola Kaellenius made it clear that Chinese companies looking to export to Europe was a natural progression of competition, saying “That is the market economy. Let competition play out.” He noted protectionism is the wrong way. There is a clear lack of industry support for the EC to launch the investigation, and it is not in the public interest of the EU.

V.China’s full cooperation, prudence in trade probes
Despite the tremendous faults of the EC’s investigation, the Chinese side fully cooperated. More than 200 affiliates of SAIC, Geely and BYD participated in the EC's questionnaire survey and responded to more than 10 rounds and 100 supplementary questionnaires. From January to March, the three sampled enterprises cooperated with the 14 verification teams sent by the EC to carry out on-site verifications in China for several months. In order to cooperate to the best of their ability, the enterprises invested thousands of people to participate in the investigation, involving all affiliated companies and functional departments, causing a significant burden on the normal operation of the companies.

Still, the EC’s move against Chinese EVs is just one example of intensifying trade protectionism targeting China. Since October 2023, the EU has issued 41 restrictions on trade and investment against China. Among them, the EU launched 35 trade remedy investigations into Chinese products worth $28.4 billion. Underscoring the EU’s rising protectionism, within nine days between May 16 and 24, the EU launched five investigations against Chinese products worth $1.71 billion.

In stark contrast, China has always remained prudent in using trade restriction measures. During the same period, China has launched only four trade remedy investigations into EU products and issued a ruling on one case.

While details of the information are new, the Chinese side has repeatedly stated its stance on the EC’s investigation and its decision to slap additional tariffs on Chinese EVs, and vowed to take all necessary measures to defend the legitimate rights and interests of Chinese firms.