The European Union has issued guidelines to replace tariffs with price floors on Chinese imports of Electric Vehicles. In 2024, the EU imposed tariffs ranging from 7-35% on Chinese EVs to countervail the effect of subsidies received by carmakers in China. To this, China has been retaliating by imposing duties on luxury cars and agricultural products from the EU. However, the tariffs imposed by the EU have proven to be counterproductive. With little impact on Chinese EVs being sold in the European market, the tariffs also ended up hurting European carmakers that manufacture their EVs in China. These companies therefore, alongside the Chinese government have been pushing to replace the tariffs with minimum import prices.
The guidelines issued by the EU mention that individual companies or a group of companies can propose price undertaking offers, subject to EU approval. Several companies, including Volkswagen, have proposed their under takings to the commission, allowing them to retain the extra revenue which would have been paid as tariffs otherwise. The document adds that the undertaking offers must be adequate to offset the harmful effects of subsidies as well as mitigate the risks of cross compensation. Specific minimum import prices are required for each model and configuration sold by the company to limit risks of cross compensation. However, monitoring and enforcing this measure is easier said than done.
The EU is taking up this administratively complex route to secure its own interests and avoid worsening the rift with China. As the proposals are screened and approved individually, the commission might favour European companies that manufacture in China and promise greater investments within the EU going ahead. On the other hand, tariffs are an inadequate measure to deal with a country like China that is deeply interwoven into the European supply chain. Tariffs eventually raise costs for the European industry, disturb supply chains and increase the risk of retaliation. The guidelines for MIPs on EV imports from China were issued soon after China announced duties of up to 42% on dairy products imported from the EU. For the Chinese EV manufacturers, this might provide some relief amidst thinning profits due to overcapacity, and gradual removal of subsidies. Therefore, the EU is now trying to renegotiate its economic interdependence with China, appearing to extend an olive branch.