EU and China fail to deliver breakthrough on electric cars dispute, but talks will intensify

A high-profile attempt between the European Commission and the Chinese government to solve the ongoing dispute around battery electric vehicles (BEVs) failed to deliver a breakthrough, as differences remain entrenched.

Hope, however, is not yet lost as both parties vowed to intensify negotiations. Brussels will offer Chinese carmakers a new chance to set minimum prices for their products.

"Both sides agreed to intensify efforts to find an effective, enforceable and WTO-compatible solution to the BEV case (...) without prejudice to the EU investigation and its deadlines," Valdis Dombrovskis, the Commission's executive vice president in charge of trade, said after a "constructive" meeting with Wang Wentao, China's minister of commerce, on Thursday.

Brussels has accused Beijing of lavishing its BEVs with subsidies to artificially lower their retail price and push European competitors out of the lucrative market. Following a months-long investigation, the Commission found public money spread across the entire supply chain, creating a risk of unsustainable economic losses for the EU industry.

The executive then proposed a raft of additional import tariffs that will apply to BEVs made in China, including those assembled by Western firms in the country. The proposed duties, ranging from 7.8% to 35.3%, according to the brand and their level of cooperation with the investigation, will come on top of the existing 10% rate.

The top-up is supposed to ensure fairer competition and close the price gap between EU and Chinese manufacturers.

Member states need to ratify the tariffs in a vote that should happen sometime before November. If they do so, the rates will become permanent for five years.

From the onset, Beijing has adopted an antagonising position in public, calling the Commission's inquiry a "naked protectionist act" that "constructed and exaggerated the so-called subsidies." In a tit-for-tat, it launched several probes against sensitive European exports, such as pork, brandy and dairy.

Behind the scenes, however, Chinese officials have sought to achieve a negotiated solution to the dispute and shield domestic companies from the steep tariffs.

This effort reached a peak on Thursday when Minister Wang met Vice-President Dombrovkis in Brussels.

During the encounter, Dombrovkis defended the Commission's proposal as being "based strictly on facts and evidence" and solely intended to "compensate" for state subsidies, according to a spokesperson. Dombrovkis censured Beijing's retaliatory probes into pork, brandy and dairy as "unwarranted" and called for them to be "terminated."

In a readout, the Chinese Ministry of Commerce reaffirmed its willingness to achieve a solution through "friendly dialogue and consultation" but warned of reprisals to protect domestic companies "if the EU insists on implementing unreasonable tax measures."

The day before, Wang spoke at a roundtable of BEV producers in Brussels and said negotiations should continue "until the final moment," that is the vote by member states. "If the consultations fail, the responsibility does not lie with the Chinese side," he said.

The most notable development of Thursday's meeting is a mutual commitment to re-evaluating the option of price undertakings, a trade tool that companies can use to increase the price and control the volumes of their exports to avoid anti-subsidy tariffs.

Last week, Brussels rejected the price undertaking offered by Chinese firms subject to the hiked duties, like BYD, Geely and SAIC.

Intense lobbying

In parallel to the negotiations, Beijing is stepping up its lobbying efforts to convince certain member states to vote against the tariffs and derail the Commission's plan.

A qualified majority of 15 countries representing at least 65% of the bloc's population needs to oppose the duties to prevent them from coming into force. The Commission has never been defeated on tariffs.

Hungary, which plans to attract Chinese investment, is firmly against the measures. Germany, under pressure from its all-important automotive industry, is leaning heavily towards voting them down and is reportedly working the phones to make that happen.

The Chinese lobbying scored a big win last week when Spain's Prime Minister Pedro Sánchez publicly called on the Commission to "reconsider" the proposal.

"We need to reconsider all of us, not only the member states but also the Commission, our position towards this movement," the Spanish prime minister said in Shanghai, the last stop of his official four-day visit to China.

"As I said before, we don't need another war, in this case, a trade war. We need to build bridges between the European Union and China."

The remarks caught Brussels by surprise: until then, Spain was considered supportive of the extra tariffs, having voted in favour during a non-binding consultation in July.

The apparent U-turn was seen as a direct consequence of what Ursula von der Leyen once described as China's "divide-and-conquer tactics," given that Sánchez had just sealed a €1-billion deal with a Chinese company to build an electrolyser plant in Spain

A spokesperson of the German government welcomed Sánchez's position, saying that "the direction of travel is one that we share."

This piece has been updated with more reactions.