Does Brussels plan to charge Chinese batteries?

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Sam Lowe is a partner at Flint Global, where he advises clients on UK and EU trade policy. He is also a senior visiting fellow at King’s College London and runs Most Favoured Nation, a newsletter about trade.

As trailed in my last piece for Alphaville, Louis promised, subject to bribes, that I could return to the subject of EU tariffs on Chinese electric vehicles once the EU had published some more details. 

And now that he’s zooming around St Paul’s in a brand new, surprisingly affordable, electric whip, here I go.

You might have been distracted by bigger events last week, but the Commission published its implementing legislation on July 4, bringing into law the provision of tariffs on China-origin EVs (reminder, the member states still need to vote on whether to make the tariffs permanent later this year).

One difference from the June announcement is that the tariff levels have changed ever so slightly, following feedback from some of the companies [i.e. they spotted some mistakes]. 

The additional duties being applied are as follows:

• BYD: 17.4% (previously 17.4%)

• Geely: 19.9% (previously 20.0%)

• SAIC: 37.6%. (previously 38.1%)

• Other BEV producers in China which cooperated with the investigation but were not sampled: 20.8% weighted average duty (previously 21.0%)

• All other companies: 37.6% (previously 38.1%)

Anyhow, some observations on the implementing legislation:

First up, Beijing things: the Chinese government thinks the investigation is a load of baloney and relayed this opinion to the Commission lots of times. The Commission disagrees.

For example, China thinks it’s unreasonable that the press was being told things that China was not. To which the Commission “cannot comment”:

China also thinks the EU is being hypocritical and that tariffs will harm joint efforts to combat climate change. The Commission disagrees:

China also said that the fact the investigation was not triggered by an industry complaint, but rather by the Commission itself, demonstrates there ain’t no issue and the EU just needs to chill. The Commission “does not comment on press reports”:

Anyhow, this goes on for pages and pages, and it’s worth reading if you find this sort of thing amusing. If not, well, don’t.

More substantively, the Commission categorises the various types of distortive subsidies it claims are being granted to the Chinese firms sampled, and converts these into the tariffs listed above.

The subsidy categories include preferential financing in the form of loans and other types of credit arrangements; grants and direct subsidies; government provision of batteries and lithium; and other tax benefits such as a battery consumption tax exemption:

Of these categories, the ones that stand out, in my opinion, are the ‘Government provision of batteries for less than adequate remuneration’ (light pale green) and LFP, the provision of below-cost lithium (uh, coral?). (Note: due to BYD being vertically integrated, the Commission looked at lithium provision as a proxy for batteries.)

It’s these subsidy categories that are used to justify a significant chunk of the final tariff and the argumentation is… kinda interesting.

To justify the claim that the batteries and lithium is being provided below cost, the Commission argues — at great length — that battery suppliers such as CATL function, in practice, as a public body managed and controlled by the Chinese state:

Or at the very least are private companies being directed by the state:

A similar argument is made for companies providing lithium.

 This stuff goes on for pages and pages, to the extent that one might start to wonder whether the EU was really investigating EVs at all.

Or to put in another way, to twist the words immortalised in song by the, ahem, Manic Street Preachers [Ed: please excuse him, he’s Welsh]: “If you tolerate this, then your batteries (and lithium) will be [tariffed] next”. Maybe.