EU's investigation into Chinese EV imports endangers global supply chain stability

Chinese electric vehicle maker BYD showcased its vehicles at the International Motor Show IAA MOBILITY in Munich on September 4, 2023. The European Commission President Ursula von der Leyen's announcement on September 13 to launch an anti-subsidy investigation on imports of Chinese electric vehicles (EVs) prompted the EU to officially begin its investigation into the imports of new battery electric vehicles (BEVs) from China on October 4.

This investigation is not the first time the EU has looked into imports from China. Since 2008, the Commission has initiated 431 anti-subsidy investigations against imports from all third countries, with 342 of them targeting imports from China. However, this new investigation into BEV imports from China appears to be more politically motivated rather than economically driven, setting it apart from previous investigations.

Typically, the European Commission starts an anti-subsidy investigation based on a written complaint from an EU industry, providing enough evidence to warrant such a probe. However, the current BEV investigation was launched by the Commission itself, according to Article 10(8) of Regulation (EU) 2016/1037 of the European Parliament and of the Council of June 8, 2016, without any industry complaints. This is known as an "ex-officio" investigation.

Ex-officio investigations are usually reserved for situations where the suppliers of the products under investigation might circumvent existing penalties. One common instance is when the Commission becomes aware of practices that bypass current anti-dumping measures through its monitoring. In such cases, the Commission may initiate an ex-officio anti-circumvention investigation without waiting for a formal request from EU producers. However, ex-officio investigations regarding subsidies and dumping are rare, as the Commission is not typically responsible for monitoring industry development.

The investigation was initiated due to pressure from the French government, which has been pushing to strengthen Europe's industrial defenses against the rapidly expanding Chinese electric vehicle industry. As per EU and WTO rules, pre-initiation consultations with the Chinese government should precede the publication of the Notice of Initiation. However, the EU allocated notably brief time for these consultations and did not provide comprehensive consultation materials.

Ironically, while lobbying for an anti-subsidy investigation into Chinese electric vehicles, France announced that consumer bonuses for EV purchases will be redirected towards European-made vehicles from next year.

The product under investigation is the new battery electric vehicle (BEV), primarily designed to transport nine or fewer people, including the driver, powered exclusively by one or more electric motors. The Commission claims that these cars are flooding the EU markets at low prices. However, these competitively priced EVs from China are not a result of subsidies but rather technological innovation, economies of scale, and the comparative advantages built up in the Chinese market.

It is worth noting that American and European car manufacturers and Chinese carmakers focus differently on the EV markets. The latter has built its competitiveness by focusing on developing smaller and more affordable models ahead of their international counterparts. American and European car manufacturers have mostly focused on larger or more luxurious models to date, offering few options affordable for mass-market consumers, who are more likely served by EVs from China. In addition to cutting costs following years of tough domestic competition, Chinese carmakers' success in developing small and inexpensive EVs has been attributed to the vertical integration of battery and EV supply chains, from mineral processing to battery and EV manufacturing, as well as cheaper labor.

From an economic perspective, the EV supply chain is globally connected, and the EV markets are globally integrated. Therefore, the investigation will hurt not only Chinese brands but also American and European brands. With huge demand in its domestic market, China's EV companies are rapidly emerging as global competitors, thanks to both long-standing innovative engineering and the effects of economies of scale. At the same time, European and American carmakers are increasingly using China as an EV manufacturing platform due to its massive manufacturing capacity, favorable policies, and cost-effective production capabilities. American and European car manufacturers have large production plants in China, and a significant share of the electric cars exported from China bear American and European brand names.

BYD, one of the top BEV producers from China, manufactures its EVs in China, with 99% being sold domestically. On the other hand, Tesla, the leading BEV giant, exports 12% of the EVs assembled in the United States and 36% of EVs assembled in China. Data from ev-volumes.com shows that during the first half of 2023, only 11% of China's EV production was exported, with two-thirds of the exported BEVs being non-Chinese brands such as Tesla, Volvo-Polestar, and Renault.

The EU recognizes the potential of the EV market, as highlighted by Ursula von der Leyen in her speech, where she stated, "The electric vehicle sector holds huge potential for Europe's future competitiveness and green industrial leadership." However, EU domestic carmakers are not leading the way. To support its BEV producers, the Commission seeks less competition from outside the EU, regardless of the benefits of imported BEVs to consumers. Therefore, the investigation aims to protect its own industry under the guise of "fair competition," and it is driven more by political than economic considerations.

He Shuquan is a professor at the School of Economics, Shanghai University.

Opinion articles reflect the views of their authors, not necessarily those of China.org.cn.