China-EU solution to tariff war coming soon

The prospect of nearing an alternative solution by China and the European Union to the bloc's imposition of extra tariffs on Chinese-made battery electric vehicles would provide a much-needed buffer to avoid the escalation of trade tensions between the two economic powerhouses, analysts said.

By finding a middle ground on the thorny auto tariff issue, it would not only benefit the EV industry on both sides, but also contribute to the broader bilateral economic relationship, they added.

Bernd Lange, the chair of the trade committee of the European Parliament, told a German broadcaster N-TV on Friday that Brussels and Beijing are close to reaching the deal that would see China commit to offering EVs in the EU at a minimum price, though he did not provide any further details on the specifics of the arrangement.

Amid simmering tensions over unfound allegations of the so-called unfair subsidies in China's EV industry for months, the EU finalized its probe on Oct 29, placing additional tariffs of up to 35.3 percent on Chinese EV imports for five years, on top of the standard 10 percent import duty.

Despite the tariff execution, Chinese and EU technical teams engaged in five rounds of discussions in Beijing from Nov 2 to 7, as well as video talks in the following week, aiming to reach a potential price undertaking agreement.

Under this arrangement, China would agree to a mutually acceptable export price and volume for its EVs in exchange for the EU removing the tariff hikes.

A source familiar with the matter told China Daily earlier this month that China and the EU reached a technical consensus after the talks, particularly on the framework for the price undertaking agreement and its implementation mechanism.

Building upon the progress, both parties expressed willingness to focus on negotiating issues related to the core interests, and reach a mutually beneficial agreement, the source said.

Neither the European Commission, the bloc's executive arm, nor the Chinese Ministry of Commerce had commented on Lange's remarks as of press time on Monday.

The deal, if finalized, could satisfy the EU's demands for shielding its local automotive industry, while preventing the levying of steep tariffs on Chinese EV imports, said Sang Baichuan, dean of the Institute of International Economy at the University of International Business and Economics.

The price undertakings might provide temporary relief for European carmakers, but Sang noted that building a local value chain that can truly support the sustainable growth of its EV industry is a long-term endeavor.

Simply suppressing supply from China is not the solution. European companies should evaluate their competition and collaboration with Chinese firms in a more calm and rational manner, Sang said.

China, for instance, currently dominates the battery supply chain, as shown by a report by the International Energy Agency in April, with nearly 85 percent of global battery cell production capacity.

"The price undertakings will ultimately revert to market-based pricing in the long run," Sang said. This is expected to prompt Chinese automakers to re-evaluate their product positioning, cost structures, and various aspects of their value chains, Sang added.

The EU official's statement also indicates a push within the bloc for consensus with China at an early date, said Cui Hongjian, director of the Center for the European Union and Regional Development Studies at the Beijing Foreign Studies University.

Given the economic challenges confronting Europe, as well as opposition from multiple member states, it is strategically prudent for the EU to steer clear of exacerbating trade tensions, which could potentially inflict more severe repercussions on its economy, Cui added.

The Chinese government, in line with regulations, is imposing temporary anti-dumping measures on selected EU brandy imports, as announced by the Ministry of Commerce in early October. This action coincides with ongoing investigations into EU imports of pork, pork by-products, and dairy.

Furthermore, Chinese officials are considering heightened tariffs on imported fuel-powered vehicles with large-displacement engines from the EU, according to the ministry.

wangkeju@chinadaily.com.cn