Mikołaj Woźniak, Konrad Falkowski
China reports the EU to the WTO
The People’s Republic of China, under the influence of the European Union’s countervailing duties on electric vehicles of Chinese origin, decided to appeal to the World Trade Organization (WTO), filing a complaint against the EU in this matter. The Chinese Ministry of Commerce announced on August 9 that the EU investigation and its results are groundless and violate WTO rules. Therefore, a new case was opened in the organization regarding the temporary countervailing duties undertaken by the EU. The Ministry stated that such steps have a specific goal, which is to “safeguard the development rights and interests of the electric vehicle industry and cooperation in the global green transformation”. As if that were not enough, the Chinese officially – and not for the first time – called on the European Union to “immediately correct erroneous practices and jointly maintain the stability of economic and trade cooperation between China and the EU, as well as the industrial chain and supply of electric vehicles”.
Nevertheless, the European Union seems unconcerned about China’s actions within the WTO, expressing its confidence about the justification and reasonableness of the tariffs imposed on Chinese electric vehicles. What’s more, according to Reuters, the European Commission, the EU executive, intends to continue its ongoing investigation. According to a European Commission spokesman: “This request for WTO consultations does not affect the timeline of the anti-subsidy investigation, which in the meantime continues.” So it is clear that the Commission is very confident in its arguments and its position should not be softened anytime soon.
China on the “incident” with Fino-Estonian gas pipeline
In January of this year, talks were held between the leaders of Finland and the People’s Republic of China in connection with the damage to the Balticconnector gas pipeline connecting Finland and Estonia by the container ship NewNew Polar Bear, sailing under the flag of Hong Kong. The Chinese ship was named the main suspect for causing the damage at that time. The incident is said to have occurred in October last year – on October 8, 2023, companies operating the transmission of gas from these countries reported a drop in pressure in the gas pipeline. On August 12 of this year, the South China Morning Post reported that after 10 months the Chinese government notified the affected parties that “the cause was a ship registered in Hong Kong called NewNew Polar Bear”, but at the same time blaming the “accident” on a storm.
This explanation did not prove very convincing to the Estonian authorities, or more precisely to Estonian Defense Minister Hanno Pevkur, who expressed his skepticism in an interview with public radio ERR. ” Personally, I find it very difficult to understand how a ship’s captain could fail to notice for such a long time that its anchor had been dragging along the seabed, but it is up to the Prosecutor’s Office to complete the investigation” – he said, adding that Estonia will seek compensation from China for the damage caused.
Such words did not go unnoticed by Beijing, which called on Europeans to “focus on the results of the investigation” into the pipeline damage. The Chinese Ministry of Foreign Affairs, concerned about the Estonian minister’s words, decided to reassure the public through spokesman Lin Jian that China maintains “close communication” with its Estonian counterparts, conducting an assessment of the entire incident. Lin expressed his, and above all the People’s Republic of China’s, opinion that all interested parties “will continue to carry out the investigation in a professional, objective and cooperative way, and work together to ensure proper handling of the incident.”
At the moment it is not easy to say what really happened – that is the job of the prosecutor’s office. The question is whether the Chinese would have had a purpose in actually destroying the pipeline connecting Finland and Estonia, or maybe it was just a coincidence. It is certain that the Baltic states are aware of the need to increase the protection of pipeline infrastructure against similar events, especially intentional ones, which could certainly be initiated by the Russian Federation.
The final value of the duties on Chinese electric cars
For the third time in the last three months, the topic of the amount of the EU’s provisional countervailing duties on Chinese electric cars has been raised. This time – as the Commission assures – a final value has been set. Amendments have been applied again, when it comes to the percentage of these duties. This means that they have once again been minimally reduced compared to the proposals from June and July. The European Commission’s press release of August 20 argues for this in the following words: “This draft decision reflects the comments received from interested parties on the provisional countervailing duties published on 4 July 2024, as well as the conclusion of a number of investigative steps that had not been finalised at provisional stage.” Additionally, it can be read that “disclosure of the draft definitive findings is an intermediate procedural step in a trade defence investigation.” Thanks to this, “interested parties” can submit their comments and concerns. Here, too, a caveat was added that although these are draft “final arrangements”, there is still an opportunity to make changes to them “based on substantiated comments by interested parties”.
In any case, the European Commission has once again announced new tariffs on Chinese electric cars. Three companies have been singled out as being subject to individual tariffs. These are: BYD – 17% (a 0.4% drop compared to July rates), Geely – 19.3% (a 0.6% drop) and SAIC – 36.3% (a 1.3% drop). There are also two categories: the first, i.e. other cooperating companies – here the tariffs amount to 21.3% (an increase of 0.5%); and the second, i.e. all other non-cooperating companies – in their case the tariffs are identical to those for SAIC, i.e. 36.3% (also a 1.3% drop). The next three points, in which the European Commission singled out the granting of an individual tariff rate for the American Tesla as an exporter from China – 9%, can be considered novelties. Further there was “the possibility for several Chinese exporters and certain joint ventures with EU producers – which did not yet export at the time of the investigation period – to benefit from the lower duty rate foreseen for their related cooperating companies.” The third novelty is the decision to prohibit the retroactive levying of countervailing duties.
After considering the comments from those interested in this procedure, the European Commission is to present the final arrangements to the EU Member States, who will be tasked with voting for or against, and the vote itself will have binding force. As can be read further from the communication, definitive duties will have to be imposed no later than four months after the entry into force of provisional duties, and also “any possible measures will be in force for 5 years”. It should be added here that it is possible to extend the tariffs on the basis of a reasoned request.
On the same day, China’s response to the whole incident could be heard. When asked about the situation, the spokesman for the PRC Ministry of Commerce repeated the slogans that have been repeatedly thrown about the EU violating WTO rules and betraying its own values of economic freedom, justice and transparency. He stated metaphorically that this is “in fact ‘unfair competition’ in the name of ‘fair competition’”. He further defended China by saying that it had successively provided all the necessary documentation to the European Commission. Moreover, according to the Chinese side, the EU “did not fully take into account” the Chinese opinion in its decision on the final tariffs. Beijing accused the EU of continuing its erroneous approach, while the facts used in the investigation were supposed to be “unilateral facts” and not “jointly recognized by both sides”. At the end of his response, the spokesman said that both his country “firmly” opposes this and that he is “deeply concerned” about it, and China hopes that “the EU will indeed meet China halfway, adopt a rational and pragmatic attitude, “will speed up discussions on appropriate solutions and take practical steps to avoid trade frictions.” There was also a standard “soft threat”, i.e. words saying that the PRC would take “all necessary measures” to protect the “legitimate rights and interests of Chinese enterprises”. Observing the current determination of the EU executive, it can be expected that the tough course will be maintained, and Chinese hopes and threats will come to nothing.
China starts the investigation against European dairy products
China’s retaliation, or “soft threat,” didn’t take long to arrive. On August 21, the day after the EU announced new tariffs on Chinese electric cars, Beijing also announced it was opening an anti-subsidy investigation into countervailing measures on dairy imports from European Union countries. The investigation, led by the PRC Ministry of Commerce, was initiated at the request of two Chinese entities: the China Dairy Association and the China Dairy Industry Association.
As stated in the official statement: “The application indicates that the products under investigation have received subsidies from the governments of the EU and its Member States and that there are a total of 20 subsidy projects that could benefit the EU-related dairy industry (companies).” It then provides two subject categories for the investigation: first, subsidy projects under the EU’s Common Agricultural Policy, and second, it names several European countries that China accuses of subsidizing the dairy industry. These are: Ireland, Austria (mentioned twice), Belgium, Italy and Croatia (also twice), Finland (mentioned three times), Romania and the Czech Republic.
What exactly is the investigation about? The ministry’s announcement states that the products covered by the investigation are to be “imported related dairy products originating from the EU”. To be more precise, we are talking about products such as fresh cheese and cottage cheese, processed cheese, blue cheese, unconcentrated and unsweetened milk, and cream. As for the duration, according to the announcement, the investigation is to be completed within a year, but there is also a possibility of extending this period by another six months.
European Commission spokesman Olof Gill responded to the Chinese countervailing duties by saying: “The Commission will now analyze the application and will follow the proceeding very closely, in coordination with EU industry and member states.” He added that the EU executive “will firmly defend the interests of the EU dairy industry and the Common Agricultural Policy and intervene as appropriate to ensure that the investigation fully complies with relevant WTO rules.” The European Dairy Association echoed this, saying that EU farm subsidies are within the framework of World Trade Organization rules. Belgian dairy group Eucolait went further, condemning the Chinese investigation, saying that “in an era where food security is an ever-pressing priority, it is manifestly unfair that food be sacrificed in an industrial dispute concerning electric vehicles.” He therefore called on the European Commission to urgently regulate the issue and “work at the highest level.” But will such action be taken? This is to be expected, but it is more doubtful that they will produce any actual positive effects.
Chinese wink at European Union?
At the end of August, Beijing announced that it does not intend to impose temporary tariffs on European-origin brandy at this time. This is to be a kind of “gateway” for talks in the tense atmosphere between the EU and the People’s Republic of China. The Chinese anti-dumping investigation was already mentioned in January of this year. In the initial announcement, the investigation was to last until January 5, 2025, i.e. a whole year, although “under special conditions” this period could be extended.
In a statement issued by the Chinese Ministry of Commerce, it can be read that it was discovered that European distributors of brandy in the Chinese market were distributing their products below market prices. The preliminary results of the investigation agency’s investigation show that due to such a dumping situation, “the domestic brandy industry was at risk of significant damage.” Moreover, it was found that “there was a causal link between dumping and the threat of causing significant injury.” The dumping margin was estimated at 30.6% to 39%.
This situation is unusual, considering the fact that at the moment there is a growing trade conflict between Brussels and Beijing. Reuters quotes a Barclays analyst who believes that this is a “negotiation tactic from China”. And indeed, this seems to be the most logical explanation. The Chinese are trying to prepare the right ground for negotiations on EU tariffs on Chinese electric vehicles, thinking that some concessions on their part will trigger a similar effect on the part of the European Union. This makes even more sense when you consider that Beijing’s sanctions on brandy would mainly affect France. During Xi Jinping’s visit to Paris in May, French President Emmanuel Macron thanked Xi for “his open approach” to the issue of tariffs on French alcohol (we wrote about this in the May edition of Review). It can be concluded from this that the Chinese are now counting on the French to take appropriate steps, who, with their – it cannot be denied – enormous influence on the EU, will somewhat blunt the sharp course of Ursula von der Leyen and her Commission. However, the words of the European Commission spokesman do not indicate that something like this could happen. Asked about the connection between these two investigations and the possibility of easing the imposed measures, he replied that the development of the situation will not affect the final decision on the temporary countervailing duties on Chinese electric cars, and he described both investigations as two “separate tracks”.
Netherlands to curb semiconductor technology export to China
On August 29, Bloomberg published an article that the Netherlands is seeking to restrict the ability of “ASML Holding NV’s ability to repair and maintain its semiconductor equipment in China.” The move would be a major blow to the People’s Republic of China, which aims to become a leader in the chip industry. According to Bloomberg, it is highly unlikely that Prime Minister Dick Schoof’s government, who has led the Dutch government since July 2 this year, will renew some of ASML’s licenses to service and supply spare parts in China. They are set to expire at the end of 2024. According to anonymous industry sources, the restriction is expected to apply to the Dutch tech giant’s cutting-edge deep ultraviolet (DUV) lithography machines.
The following day, on August 30, Dutch Prime Minister Schoof delivered his speech, announcing on ASML and semiconductors that his government would take ASML’s economic interests into account when deciding whether to continue tightening regulations on the company’s technology exports to China: “We are in talks, good talks and we are also watching out very specifically for the economic interests of ASML, those need to be weighed against other risks and the economic interests are extremely important.” He added later that “ASML is for the Netherlands an extremely important, innovative industry that should not suffer under any circumstances.” In his opinion, total disregard for the company’s interests “would damage ASML’s global position.” It is also worth noting here that, in reference to Bloomberg’s reports from the previous day, Schoof decided not to speak out or comment on this in any way.
The Dutch government and the ASML management must find a way to reach an agreement that is durable enough to satisfy both the state and the company. China is ASML’s third largest market, so the profits from such a market are huge for the company. The possibility of losing it is also associated with huge losses in the company’s profits. Therefore, the Dutch government must conduct the talks that Schoof mentioned properly, so that the conflict of interests in this case does not lead to unwanted consequences for anyone.
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