The EU’s Electric Vehicle Probe Unleashes a Series of Actions and What is to Follow

    The European Commission has launched an investigation into imports of passenger battery electric vehicles (BEVs) from China, citing concerns about Chinese state support, the increase in cheap exports, and overcapacity in China that could threaten Europe’s fledgling industry. The Commission aims to protect and bolster the competitiveness of European industry, following the pattern set by previous cases against China, such as the solar photovoltaic sector. The investigation will focus on subsidies received by exporters of China-made BEVs and the potential harm to Europe’s auto industry.

    The Commission has chosen to launch an anti-subsidy investigation rather than an anti-dumping investigation, as BEVs are complex products that may not fit the traditional anti-dumping case. The Commission will need to prove that exporters received countervailable subsidies, that Europe’s industry is under threat of imminent injury, and that there is a causal link between the two. While the existence of state subsidization is clear, measuring the full extent of China’s support and its potential harm to Europe may be more challenging.

    If successful, the Commission’s case could lead to the imposition of countervailing duties on China-made BEVs. However, the decision may face challenges in European national courts, as both Chinese and European automakers may launch cases against the Commission. The outcome of these legal battles will determine the future use of trade defense measures against China’s subsidized industries.

    The investigation into BEVs is just the beginning, as the Commission is expected to turn its attention to other green tech industries supported by China. Wind turbines and heat pumps are potential targets, given China’s extensive support for these sectors and their impact on global markets. The Commission may also consider investigating China’s support for its domestic lithium-ion battery industry, but such a move could have short-term inflationary effects on downstream European industries.

    The Commission’s investigation has created divisions within the European Union, with Germany expressing concerns about potential retaliation from China, while France is supportive of the probe. Other member states may align themselves with Germany or France, based on their economic interests. The Commission may face significant resistance in its decision-making process and legal battles.

    China has expressed its opposition to the investigation, accusing the Commission of protectionism. While China may resort to closed-door threats or informal measures, it is unlikely to announce formal countermeasures during the investigation. Retaliatory actions by China could target a range of industries or specific companies, including German carmakers that are heavily dependent on the Chinese market. However, China will be cautious about escalating the trade conflict, as it could lead to closer ties between Europe and the United States.

    Overall, the investigation into China-made BEVs is viewed as a significant development in Europe’s approach to China’s state support for its industries. The outcome of the case will have implications for future trade defense measures and the wider economic relationship between Europe and China.

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