EU sanctions on Chinese Battery Electric Vehicles

Background

In September 2023, the European Commission announced the investigation into new battery electric vehicles (BEVs) manufactured inthe People’s Republic of China and imported into the European Union. This was based on the suspicion that the manufacture and export were unfairly subsidized by the Chinese government, potentially harming competing manufacturers in the EU. In October 2023, a formal investigation was initiated to determine if any granted subsidies are countervailable.

After the investigation, the European Commission announced in June 2024 that they have proof of unfair subsidies and intend to impose respective countervailing duties (also called anti-subsidy duties). The commission disclosed in detail, which specific subsidies granted in China they considered as beeing unfair.

As such subsidies allow the manufacturing of BEVs at more favorable costs, the EU Commission stated that this undue competitive advantage would damage the EU economy. The now implemented countervailing duties aim to offset the subsidies to create a level playing field for EU and Chinese manufacturers.

Intensive negotiations between the EU Commission and the Chinese government to find a solution to avoid countervailing duties failed.

In the corresponding vote on the introduction of countervailing duties, Germany was defeated, voting against the introduction alongside individual other member states.

Implications

With the Implementing Regulation (EU) 2024/2754, the EU Commission introduced countervailing duties of up to 35.3% on BEVs (EU TARIC code 8703 80 10 10) from manufacturers and exporters that have not cooperated during the investigation, in addition to the MFN duty rate of 10%. Some BEV manufacturers, such as BYD, Geely, and Tesla, have cooperated and will be granted individual duty rates. Other companies that have cooperated will benefit from a 20,7% duty rate.

However, the countervailing duties will not be applied retroactively. The provisional countervailing duties imposed in the meantime will not be collected; the corresponding securities that importers had to provide for the provisional duties will be released by the customs authorities.

The definitive countervailing duties entered into force with effect from 30 October 2024.

Options for manufacturers, ex and importers of BEVs from China into the EU

1.  Origin: Countervailing duties apply to BEVs with a non-preferential origin in China. A BEV is considered to originate where it underwent its last substantial, economically-justified processing, resulting in a new product or a significant stage of manufacture. If a BEV doesn't originate from China, countervailing duties are not imposed. Should you already think about restructuring your business or have economic reasons to do so, it would be worth deep-diving into this.
2. Cooperation: EU anti-subsidy law requires companies to cooperate with the EU Commission by disclosing price and cost calculations to secure a lower subsidy margin and a reduced countervailing duty rate. This option is still possible to a limited extent, namely if a company was not individually investigated in the original investigation for reasons other than a refusal to cooperate with the Commission.
3. Undertaking: Alternatively, companies can agree to a minimum import price for BEVsthat eliminates the subsidy advantage and prevents damage to the EU economy. In return, no countervailing duty is levied.
4. Customs valuation: If a declaration of commitment is not possible, companies should examine if the BEV’s customs value was correctly determined. If the customs value was erroneously too high, unnecessary countervailing duty amounts could be avoided.
5. Legal proceedings: Companies can challenge the above-mentioned Implementing Regulation on countervailing duties in the European Court or national courts on the grounds of errors.

How can Deloitte Legal assist you?

We are happy to guide you through the coming time:

• Deloitte Legal offers to examine and evaluate the BEV’s non-preferential origin and potential supply chain alternatives from an EU perspective.
• The same applies to a review of your customs valuation 
• Further, we assist during the process of cooperation and/or undertakings with the EU Commission.
• Finally, we can represent companies in legal proceedings against the national customs authorities and the EU Commission.

                                         Published: November 2024