On 4 October 2023, the European Commission initiated an anti-subsidy investigation that could lead to increased tariffs on imports of Chinese electric vehicles to the European Union and has broader implications for the global electric vehicles market.
On 13 September 2023, European Commission ("Commission") President Ursula von der Leyen used her State of the Union Address1 to announce that the Commission would be launching an ex officio anti-subsidy investigation on imports of electric vehicles ("EVs") originating in China. Von der Leyen alleged Chinese EVs are flooding global markets and their price "is kept artificially low by huge state subsidies", distorting the European Union ("EU") market. Following the announcement, which came after months of speculation and pressure from some EU Member States and EU industry about the EU position in light of growing concerns about imports of Chinese EVs, the investigation was formally initiated on 4 October 2023.2
If the Commission determines that Chinese subsidies affecting EV imports are countervailable and have caused material injury to EU industry, it may impose countervailing duties (i.e., import tariffs) on imports of Chinese EVs for five years (which can be extended for successive five-year periods following an expiry review). The aim of the countervailing duties would be to offset the advantage conferred by any subsidies on imports of Chinese EVs to the EU. Automotive manufacturers, electric battery producers, and others in the EV supply chain will need to monitor developments closely and consider participating in the investigation as an interested party.
What will the investigation involve?
In accordance with Regulation (EU) 2016/1037, the EU's Basic Anti-Subsidy Regulation, the investigation was commenced when the Notice of Initiation was published in the EU's Official Journal. The investigation must conclude within 13 months of initiation.
Substantively, the investigation will focus on four questions, namely whether: (i) EV imports from China are being subsidised by the Chinese government (including indirectly), (ii) there is injury to the EU EV industry, (iii) such injury is caused by these subsidised imports, and (iv) imposing countervailing measures would be in the EU's interests.
The Notice of Initiation outlines the investigation's timelines and invites all interested parties to submit their written views and supporting evidence. At the same time, the Commission will send questionnaires to key stakeholders, including the Chinese government and Chinese exporters, EU producers and importers, and users.3 Those who do not receive a questionnaire directly may still seek to provide evidence as interested parties so that their views are taken into account during the investigation. The deadlines to provide information are quite short, so speed is important.
The questionnaires aim to gather concrete evidence about the market situation in both China and the EU as well as insights from relevant stakeholders. The information requested is extensive, covering macro and microeconomic aspects. For instance, the EU producer questionnaire for the investigation requests data on production, sales, costs, profitability, and employment. If any interested party refuses to cooperate and fails to provide the necessary information (e.g., by not responding satisfactorily to the Commission's questionnaire), the investigation's findings may be made on the basis of the facts available. Crucially, non-cooperation can also result in a less favourable outcome for the non-cooperating party – they may even be subject to higher countervailing duties than co-operating parties.
Unusually, the investigation has been launched ex officio, in the absence of a formal industry complaint. As this involves a product not previously subject to trade defence measures, there is no prior evidence from past investigations on which the Commission can rely.
Where could this lead?
Countervailing duties and undertakings
If the Commission makes a provisional finding that countervailable Chinese subsidies relating to EVs have harmed EU industry no later than nine months after initiating the investigation, the Commission may impose provisional countervailing duties on Chinese EVs for up to four months. Such provisional duties generally correspond to the amount of the countervailable subsidies as provisionally established, but can be lower if imposing the full amount is not considered to be in the EU's interests.
If this finding is confirmed in the Commission's definitive assessment, then the Commission may impose definitive countervailing duties on Chinese EV imports for five years (which can later be extended in five-year increments following an expiry review). Although the amount of the final duties depends on the outcome of the investigation, the press has reported that the Commission estimates suggest that Chinese EVs are priced at about 20% less than EU-made EVs4 and the EU may seek to attribute this difference to subsidisation. Countervailing duties at such a level could have significant implications for the rapidly growing electric vehicles market.
It is also open for the Commission to accept voluntary undertakings from China to eliminate or otherwise mitigate the effect of any countervailable subsidies, and from exporters who commit to respect minimum prices. Countervailing duties may be removed for imports that satisfy the conditions of such an undertaking.
Broader international implications
Although it is still early days, the imposition of countervailing duties against Chinese EVs could result in responsive action (including their own trade remedy investigations) from China. Such a response could potentially target other sectors. China could also seek to challenge the imposition and amount of any EU countervailing duties at the multilateral level via the WTO dispute settlement mechanism.
It is possible that other countries might be tempted to follow the EU's lead. But thus far it is only the EU that has announced a case. The UK is already facing a challenging outlook for production of EVs and batteries, with tariff exemptions on EVs and batteries moving between the UK and the EU (as agreed in the UK–EU Trade and Cooperation Agreement) set to expire on 1 January 2024, unless an agreement is reached before then. For the US, there may be less need for countervailing duties given US tariffs on electric car imports from China currently amount to about 27.5%, which is much higher than the EU's current tariffs on electric car imports at 10%.
Ruth Benbow (White & Case, Knowledge Manager, London) contributed to the development of this publication.
1 European Commission, 2023 State of the Union Address by President von der Leyen, 13 September 2023, available here.
2 Notice of initiation of an anti-subsidy proceeding concerning imports of new battery electric vehicles designed for the transport of persons originating in the People's Republic of China, 4 October 2023, available here.
3 The questionnaires for the investigation may be found here.
4 Philip Blenkinsop, 'EU to investigate "flood" of Chinese electric cars, weigh tariffs' (13 September 2023) Reuters, available here.
