EU resorts to gamesmanship in trade talks with China over EV tariff spat

On June 22, 10 days after the European Commission (EC), the executive branch of the EU, announced provisional duties on Chinese electric vehicles (EVs), Chinese Commerce Minister Wang Wentao held a video call with Valdis Dombrovskis, executive vice president of the EC, during which they agreed to start consultations over the dispute. The very next day, on June 23, China dispatched a working group to Europe for the talks. Since then, multiple rounds of consultations at the technical level have been held via video link.

For those who are concerned about escalating trade tensions between China and the EU, the talks should offer some relief. However, even as expectations are running high for the two sides to focus on the talks to properly resolve the dispute and avert further dangerous escalation, a handful of EU politicians appear to be resorting to gamesmanship, which highlights the EC's lack of sincerity in the talks, undermining the consultation process.

The latest example is, on July 7, EU Ambassador to China Jorge Toledo asserted that the EU had offered to engage in consultations with China "for months," but "it was only nine days ago" that the Chinese side agreed to begin this process. This claim was immediately refuted by the Chinese Ministry of Commerce (MOFCOM), which said the assertion is "seriously inconsistent with the facts." MOFCOM offered a detailed account of China's efforts to seek consultations, including a letter from Wang to Dombrovskis requesting talks, dated as early as October 24, 2023, shortly after the EU formally launched the probe.

Toledo is not alone in the EU's apparent attempt to shift blame after the EC's decision sparked a widespread backlash, including from some leaders of EU member states and EU businesses. On July 4, the EC released a Commission Implementing Regulation for the imposition of the provisional countervailing duties. The document, which is more than 200 pages in length, was clearly aimed at justifying the EU-launched investigation and its subsequent decision, but it failed to conceal the loopholes and flaws in the investigation.

"By making these false allegations, the EU aims to add pressure on China during the consultations to gain more bargaining chips. On the other hand, the EU wants to show a hard-line stance toward China to deflect the bloc's internal conflicts," Jian Junbo, deputy director of the Center for China-Europe Relations at Fudan University's Institute of International Studies, told the Global Times. He noted that faced with strong opposition from within the bloc, the EU wants to shirk its responsibility to China.

Presumption of guilt

Staggeringly, the EC document also largely confirmed a detailed account of the EC's problematic investigation process that the Global Times published on June 21, based on information provided by those with knowledge of events.

For example, the document said that the EC initiated the probe "on its own initiative," claimed that there was "sufficient evidence" from readily available information that Chinese firms benefited from subsidies, and asserted that based on "market information from various independent sources" it determines Chinese EVs "negatively affect" EU industry. Chinese officials and experts have repeatedly said the EC's probe was not launched at the request of EU industry, which is very rare in such probes, and the EC, playing the role of "the judge," already deemed Chinese EV firms "guilty" even before the probe began, meaning the subsequent procedures were only aimed at finding proof to back its presumption of guilt.

This working approach is evident throughout the investigation process, which clearly shows the EC was only interested in piecing together any information that it felt useful to support its predetermined ruling. In responding to criticism about its process, the EC document argued that EC President Ursula von der Leyen's announcement in a speech on September 13, 2023 did not constitute the initiation, and the Chinese side was notified on September 22, 2023. This, too, confirmed the Chinese side's account that the EC's initiation and notification process was extremely problematic, reflecting its lack of sincerity in engaging in pre-initiation consultations.

According to information obtained by the Global Times, the Chinese side was only given one working day to prepare, with the first round of consultations held on October 2, the second day of China's weeklong National Day holidays.

Manufacturing evidence

To back its presumption about Chinese firms benefiting from government subsidies, the EC offered the so-called extensive "evidence" in its 200-page document. However, a closer look at its content reveals how the EC sought to churn out evidence to "support" its decision. The EC essentially cherry-picked publicly available information regarding China's policies, relied on discrimination against China's economic system pertinent to state-owned banks and enterprises, and bullied Chinese firms while also labeling them as "uncooperative."

For example, the EC document included numerous pages about Chinese economic development plans and industrial policies, essentially translating the part it deems to serve its purpose. However, it is far-fetched to use official policy documents as evidence that the Chinese EV industry unfairly benefited from subsidies. China is not the only country or region in the world that has long-term development plans and industrial policies.

Zhou Mi, a senior research fellow at the Chinese Academy of International Trade and Economic Cooperation, said that all countries have various industrial policies, including many in the EU. One could hardly say "that EU and US companies haven't received any subsidies," Zhou told the Global Times.

The EC document appears to acknowledge that the EU also hands out subsidies to companies, but it asserted that "not all subsidies are countervailable under the SCM Agreement," referring to the WTO's Agreement on Subsidies and Countervailing Measures.

The EC's claims showed the discriminatory nature of its crackdown on Chinese EVs.

In the document, the EC also counted China's preferential policies as subsidies for EV companies. However, many countries and regions around the world, including EU members, also offer preferential policies to attract investments. The EC also claimed that China's state-owned financial institutions, and even battery suppliers, were acting as "public bodies." Even private financial institutions, including foreign-owned banks, were accused of being directed to subsidize EV companies.

Chinese experts pointed out the staggering double-standards and discrimination from the EC, in that it conveniently turns internationally standard practice into a unique Chinese matter in order to support its presumption of guilt against Chinese EV firms.

Cui Fan, a professor at the University of International Business and Economics in Beijing, said that the EC counted banks and battery firms as "public bodies," because only public bodies can be sources of subsidies. And the EC lacks any definitive basis in international trade rules to support its position, Cui told the Global Times.

The EU also has its own financial institutions that back its development plans. For example, the European Investment Bank (EIB) said in a document in 2022 that "as the EU climate bank, the EIB remains committed to have at least 50 percent of the Bank's overall financing activity support climate action and environmental sustainability by 2025 in line with the Climate Bank Roadmap." By the EC's logic, should China launch anti-subsidy investigations into all EU industries and companies which received loans from the EIB?

Discrimination, bullying

The EC's July 4 document also confirmed accounts from Chinese officials, experts and businesses that the EC's investigation was discriminatory against Chinese EVs and that it sought to bully Chinese companies into giving up sensitive commercial secrets.

According to the document, the EC investigation sought extensive information, including extensive lists of raw materials, components, and instructions required to manufacture a product. It also sought companies' investment plans, bank authorizations, credit lines, land use rights, and numerous other kinds of information.

An auto industry insider said that it is "absolutely true" that there was a lot of excessive questioning.

"They were looking into things that absolutely didn't matter such as who owned the land where our headquarters is located. They were looking into future product plans, like sensitive business issues that had nothing to do with the facts at hand," the auto industry insider told the Global Times on condition of anonymity, calling the investigation process a "huge mess."

Moreover, the companies weren't given sufficient time to complete the complicated and extensive questionnaire, and if they did not provide certain information, they would face harsh penalties from the EC, businesses and experts said.

Consultations undermined

The EC's latest attempt to shift blame for its ill-advised, badly executed probe is futile, and it only further exposes the serious flaws in its own process. This could undermine the ongoing talks to resolve the dispute, experts said.

Jian also said that the EU's move risks impeding the ongoing consultations. Although the consultations are challenging and highly complex, there is still hope that they could contribute to easing China-EU economic and trade tensions, he said, if the talks are carried out based on the basis of equality.

Crucially, for the talks to proceed smoothly and to achieve a positive outcome, there also needs to be a shift in the EC's attitude, in that it has to show sincerity, Cui Hongjian, a professor with the Academy of Regional and Global Governance with Beijing Foreign Studies University, told the Global Times.

"If the EU does not make adjustments and changes from its current position, the talks will not be able to succeed," Cui Hongjian said.