Chinese car tariffs, questions and answers
On 4 July, provisional duties on electric vehicles produced in China come into force. Here is what they are and what might happen
On Thursday, 4 July, provisional duties on electric vehicles produced in China will come into force. We are talking about customs duties of between 17.4 per cent and 38.1 per cent, on top of the standard 10 per cent tariff for car imports. This was decided by the European Commission, which is already planning to finalise the duties on 2 November; it is just waiting for the European investigation into possible subsidies that the Chinese government has allegedly granted to domestic manufacturers to sell cars at very low prices to end.
China has asked Europe to reconsider and the dialogue between the parties has just resumed, not without tension. Beijing is ready to take countermeasures that would not be good for the international market and the issue is holding the automotive sector in suspense. To shed some light on the issue, Reuters has compiled a series of questions and answers.
What are provisional duties?
If the Commission deems it necessary, provisional duties can be imposed within nine months of the start of an EU anti-subsidy investigation, for a maximum of four months, after which the Commission will decide whether to apply final duties, known as definitive duties (in the case of electric vehicles, the deadline is 3 November).
Provisional duties are only levied if definitive duties are imposed at the end of the investigation. If the definitive duties are lower or not applied, the provisional duties are adjusted accordingly. Until then, customs authorities normally only require a bank guarantee from importers.
Duties can also be applied retroactively for up to 90 days, i.e. in the case of electric vehicles from the beginning of April, with a decision on the matter taken at the end of the investigation.
When do the definitive duties enter into force?
By 4 July, the Commission will publish the results of the ongoing investigation in the Official Journal of the EU (the Commission has already visited more than 100 sites of car manufacturers in China and Europe). The provisional duties will enter into force the following day and interested parties (China and the electric vehicle manufacturers) will be able to comment on the findings and request a hearing until 18 July.
The final report, Reuters explains, is generally interpreted as a confirmation of the provisional results, with possible adjustments following comments received. The final duties are often slightly lower than the provisional rates, reflecting the acceptance of some of these arguments.
Who decides the duties?
At the provisional stage, the European Commission has full power to impose duties, although it consults EU members and should take their positions into account (to be submitted by 15 July). At the end of the investigation, the Commission can propose definitive duties, normally applicable for five years.
It can be blocked if a qualified majority of the 27 EU members opposes the measures. A qualified majority means 15 EU members representing 65% of the population, but in most cases there is no blocking majority.
How does the duty review work?
Immediately after the imposition of the definitive measures, any company not included in the sample group (BYD, Geely and SAIC) that wishes to have its own individual duty can request an 'accelerated review', which should take a maximum of nine months.
The Commission can also conduct an 'interim review' after one year has passed if measures are no longer necessary or if they are not sufficient to counteract subsidisation.
The Commission itself often checks whether producers are evading duties by exporting parts to be assembled elsewhere. For the EU, such circumvention exists if 60% or more of the value of the parts is imported from the country subject to duties and if the value added as a whole does not exceed 25%.
Then there are other legal routes, which can take more than a year:
- companies can challenge the measures in the European Court of Justice;
- China can take the EU to the World Trade Organisation.
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