Assesing the Impact of Chinese Electric Vehicle Subsidues on the European Market a Legal and Economic Analysis

Abstract

The provisional countervailing duties implemented by the European Commission the 4th of July 2024, was a defensive response of the subsidized Chinese battery electric vehicles (BEVs), that entered Europe with subsidized low-priced imports that would pose an imminent threat of injury to an already vulnerable Union industry (Regulation (EU) 2024/1866). The purpose of this paper was to establish comprehensive impacts of the Chinese electric vehicle subsidies on the European Union, using legal and economic aspects to provide strategies that the EU Commission can adapt to mitigate adverse effects, while promoting a competitive EU BEV industry. The EU Commission’s use of provisional countervailing duties to protect its domestic BEV industry from unfair competition was justified under WTO-law stated in Chapter 2. Chapter 3 provided insights on how the countervailing duties would affect the EU BEV industry and stated that the protective measures would level the playing field between the Chinese and EU BEV producers, but at the cost of the welfare due to increase in price. The Chinese BEV producers were however found to still benefit from the first-mover advantage, why the EU Commission needed to go beyond neutralizing the subsidies to eliminate it completely, which was not legally justified under WTO-law as provided in Chapter 2. Finally, Chapter 4 provided insights of the Chinese government’s likely retaliation of the implementation of Regulation 2024/1866, which represented the decision of “hard approach”. The “hard approach” was found to provide the EU Commission with the best solution, since they for this reason would keep the highest market share in the EU. However, there was a need to provide deeper insights into the likely consequences of making this decision on other industries in the EU, as well as a detailed look into the BEV market to analyzed how different parts of the market was affected by the options laid out in this paper. The retaliation was found to have a significant impact on the agriculture industry in the EU as well as the luxury EU BEV segment, and little impact of the mass EU BEV segment. For this reason, it was recommended that if the EU Commission seeks to use a hard approach to counter the subsidies provided by China, they should target the key elements in BEV manufacturing, such as batteries, originating outside the EU. This would also include changing the Rule of Origin and thereby increase the criteria for which a vehicle can be characterized as being produced in the EU. By implementing these recommendations, the future of the EU BEV industry would rely more heavily on components originating from the EU, and thus strengthen the domestic industry inside the Union.