By Philip Blenkinsop and Nick Carey
BRUSSELS/LONDON (Reuters) – European Union countries are dithering over whether to back additional tariffs on Chinese-made electric cars, highlighting the challenge Brussels faces in rallying support for its biggest trade case yet as Beijing threatens broad retaliation.
Germany, whose automakers made a third of their sales last year in China, wants the tariffs to be halted, according to a government source, while France has been among the most consistent supporters.
But a majority of countries are still weighing the pros and cons of escalating the trade dispute, according to an informal Reuters poll of EU governments.
The case will go to members in a consultative vote in the coming weeks, the first formal test of the backstop in a landmark case for the Commission. The EU launched the investigation without a complaint from industry, the first such trade case.
The European Union is set to confirm provisional tariffs of up to 37.6% on Thursday on Chinese brands such as BYD (SZ:), Geely and SAIC, as well as on China-made models from Tesla (NASDAQ:), BMW (ETR:) and other Western automakers.
Automakers are bracing for billions of dollars in new costs as a result, which analysts say could slow their expansion in Europe.
EU members will also vote in October on the Commission’s proposal to impose multi-year tariffs at the end of its investigations. These tariffs will be blocked if a “qualified majority” of at least 15 countries representing 65% of the EU population votes against them.
France, Italy and Spain, home to 40% of the EU’s population, have indicated they would support tariffs.
“Europe must defend itself if our companies are harmed and cannot compete on an equal footing,” the Spanish Economy Ministry said.
But official and government sources said the Czech Republic, Greece, Ireland and Poland were still discussing the issue, while Belgium has a caretaker government and the Netherlands only got a government this week.
Negative effects
Germany has stressed the need for a negotiated solution with Beijing. German carmakers have said tariffs are the wrong approach, with the negative effects outweighing any benefits.
In a last-ditch effort to influence the negotiations, the European Automobile Association on Wednesday urged Brussels to drop the tariffs.
Opponents say increasing the cost of electric cars for consumers undermines the EU’s goal of being carbon-neutral by 2050. Tesla has said it will raise prices.
Beijing’s response could see additional tariffs imposed on EU exports of cognac, pork or luxury cars.
The commission says the tariffs are necessary to counter cheap loans, land, raw materials and other subsidies, and the goal is to level the playing field, not to exclude Chinese automakers, as the planned 100% tariffs by the United States are likely to do.
Tariffs could also give the EU leverage in negotiations with Beijing and push manufacturers to build cars in the EU.
A clear majority in both directions could embolden those who oppose or support tariffs, said Hosuk Lee-Makiyama, director of the European Centre for International Political Economy think tank. He added that final positions at the end of the investigation will depend on what Beijing offers in negotiations.
“If we go to vote, it means the negotiations have failed,” he said.
The electric vehicle investigation may be just the beginning for the EU as it toughens its stance toward Beijing, where its green and tech companies lag behind global rivals, interviews with half a dozen trade experts show.
They point to a 712-page updated report on Chinese state interference and financial support released in April as the strongest signal yet that Brussels means business.
This is the most comprehensive document the Commission has ever produced, showing that it has learned a lesson from its investigation into Chinese solar panels a decade ago, when no tariffs were imposed and the EU industry itself collapsed.
Evidence to support its assertions that China is not playing by the same rules includes research in a broader range of industries, beyond traditional ones like steel, including semiconductors, telecom equipment and renewable energy.
This leaves the door open for future issues.
“This report aims to set the scene and show how and why Europe is changing its policies,” said Alicia Garcia-Herrero, a senior fellow at the Brussels-based economic think tank Bruegel. “Frankly, it is also a special message to the German chancellor.”
