Bloomberg reported that negotiations between the European Union and China on a comprehensive agreement to replace tariffs on electric vehicles (EVs) have seen limited progress in recent weeks.
Despite initial optimism after previous talks in Beijing, where slight progress was reported, significant obstacles remain to reaching an implementable framework that satisfies both parties.
Stalemate in technical talks
The European Union and China are negotiating a potential deal that could replace the anti-subsidy tariffs imposed by the European Union last month. These tariffs, amounting to 35% on top of the existing 10% rate, will remain in place for 5 years unless an agreement is reached.
However, informed sources revealed to Bloomberg that China has not yet met the EU’s strict requirements regarding the implementation of the agreement, which aims to ensure compliance with World Trade Organization rules.
The main point of contention – according to Bloomberg – lies in the structure of the agreement. While Beijing prefers a comprehensive agreement led by a Chinese trade body, the European Union proposes a price control mechanism that regulates export prices and quantities.
In addition, the European Union is proposing agreements with individual car companies, including those with joint ventures in China, as a possible compromise, and Beijing rejects this approach.
Tariff escalation
China has signaled the possibility of retaliatory tariffs targeting European dairy, pig and brandy exports if EU tariffs on electric cars continue.
On Monday, the European Union escalated the situation by requesting consultations with the World Trade Organization on Chinese measures related to brandy imports, according to Bloomberg.
As the dispute over tariffs continues, Chinese automakers such as BYD, Geely and SAIC are closely monitoring developments.
Analysts at Morgan Stanley noted that the ongoing negotiations may favor Chinese electric vehicle manufacturers, sending their shares soaring earlier this week.
Wider implications
Bloomberg highlighted that a lack of progress could exacerbate tensions in an already tense trading environment. The EU has adopted a firm stance, stressing that any agreement must not only adhere to WTO rules, but also ensure that mechanisms such as cross-compensation, where price adjustments for electric cars can be offset by sales in other sectors such as hybrid cars or car accessories, are prevented.
Meanwhile, the European Commission has refused to comment on the status of negotiations, and member states have not been informed of any major breakthroughs.
As additional tariffs continue to be imposed, European car companies face increasing challenges. These tariffs threaten to make Chinese electric cars less competitive in the European market, while China is considering countermeasures that could affect European exports.
