China has submitted a formal complaint to the World Trade Organization (WTO) against the EU over its recent electric vehicle (EV) tariff hike.
On Friday (9 August), a spokesperson for the WTO confirmed that China had filed the request.
This means the disagreement, which was previously being negotiated via more informal channels, is now set to be reviewed by the WTO’s dispute settlement mechanism, according to Politico.
China’s commerce ministry said that it took action “to safeguard the development rights and interests of the EV industry and cooperation on the global green transformation”.
New measures
The complaint follows the EU’s July tariff hike, which saw the bloc introduce additional measures against Chinese EVs, taking the total potential tariff per unit to up to 38%. Previously, a 10% tariff had been applied.
This followed a subsidy investigation, instigated in late 2023, which found that China subsidises its entire EV production supply chain, from lithium refining to purpose-built shipping solutions. Brussels claims this creates an unfair advantage over EU manufacturers.
A European Commission (EC) representative told Reuters that the bloc believes the subsidy investigation and corresponding tariffs are WTO-compliant.
“The EC is confident of the WTO-compatibility of its investigation and provisional measures.
“This request for WTO consultations does not affect the timeline of the anti-subsidy investigation, which in the meantime continues.”
Are they here to stay?
The EU must vote on whether to commit to the tariffs for five years by 30 October, which marks the 13-month limit by which a subsidy investigation must be concluded.
Germany has been critical of prolonging tariffs, fearing Chinese retaliation which could harm its own automotive sector. Earlier this month BMW’s chief executive said he was already preparing for countermeasures and echoed China’s commerce ministry by warning that Europe’s green transition relies “heavily on raw materials and technology from China”.
Beyond EVs, China is a dominant force in renewable energy manufacturing, leading the world in solar technology production, and it is a key exporter of wind turbine parts – both areas the EU has also opened subsidy investigations.
However, in a June advisory poll on accepting tariffs, Germany chose to abstain from voting, along with nine other EU member states. Four states voted against the tariff, while 11 were in favour.
Upping the export ante
Data released this summer revealed that, in the first quarter of the year, registrations of Chinese EVs increased 23% across the EU.
Matthias Schmidt, founder of Schmidt Automotive Research, told the FT that car manufacturers “keep churning out vehicles from China as it gives the best opportunity to make a profit on an electrical vehicle at the moment”.
This follows the US’ introduction of 100% tariffs on Chinese EVs in May, making it a much less favourable market for Chinese car makers.
Ahead of the new EU tariffs coming into effect on 5 July, Chinese manufacturers upped their European exports drastically throughout June, with 40% more new vehicle registrations recorded compared to April and May’s average.
WTO impasse
The WTO’s ability to effectively act as an effective arbiter of trade disputes has been hindered in recent years, following the US’ refusal to appoint any new judges to its appellate body, which handles challenges to the findings of an initial panel.
This means that whatever the outcome of China’s complaint, the losing party won’t be able to launch a legal appeal.
US refusals to appoint new appellate judges began during Donald Trump’s presidency in 2019 and has continued throughout the current administration, led by Joe Biden.
Free trade threat
Increased US protectionism during Trump’s term also prompted concern about the global system of free and fair trade the WTO upholds, with director general Ngozi Okonjo-Iweala warning last month that increasing trade barriers are “eroding” global trade.
More recently, secretary-general of the International Chamber of Shipping, Guy Platten, voiced fears of what a second Trump presidency would mean for global shipping, were he to be re-elected in Novomber, telling the FT that “trade wars lead to war”.
“The world order has never been under such threat since before the second world war.
“There’s a danger, if that regime comes in again, we’re going to see [protectionism] on steroids.”
Trump has pledged to apply a 10% tariff to all imports, while upping measures on Chinese goods to 60%.
However, commentators have noted that a Democrat win in November would be unlikely to yield a reversal of US protectionism. Although more moderate on trade policy, Biden has retained Trump-era tariffs and many suspect that Democrat nominee and current Vice-President Kamala Harris would be likely to continue the course he has set.