BREAKINGVIEWS-China-EU trade Plan B looks too fiddly

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

By Katrina Hamlin

HONG KONG, Nov 6 (Reuters Breakingviews) - Beijing and Brussels are once again debating duties on imported Chinese electric cars. The People’s Republic is pushing for alternatives to tariffs, which were finalised by the European Commission just last week. But their potential Plan B looks unwieldy, and could undermine local manufacturing.

The European Union is ready to negotiate. If talks progress, made-in-China EVs, or a portion of those exports, could be subject to minimum prices rather than levies. This could be preferable for BYD , Geely and peers. While the new tariffs ranging from 7.8% for Tesla

to 35% for SAIC put a chunky dent in carmakers’ margins, a minimum selling price might do less damage if it effectively allowed Chinese vehicles to be sold at similar levels to locally made marques.

From the EU’s point of view, this could help legacy European brands compete, and shows a willingness to work with an increasingly important trade partner. A cordial relationship with China would make it easier for the two sides to protect access to a key market and would be especially valuable to Beijing if Sino-American relations continue to deteriorate under the next U.S. president.

But deciding where to set the floor price is difficult. Using this mechanism to standardise rates for a measure of raspberries or paperclips is easy enough, less so for highly engineered machines with varying specifications.

Even if watchdogs do manage to design a system all parties agree on, enforcement would be challenging. It’s not just checking dealerships across 27 countries. In China, carmakers embroiled in competitive discounting often throw in extras – freebies like software subscriptions and accessories alter the value proposition. Another downside for Brussels is that carmakers may delay or decline to build European production lines, since those investments make more sense in a scenario where they otherwise face hefty levies.

For now, drawn-out deliberations complicate these companies’ future in Europe. China asked carmakers to halt investments in EU member states supporting tariffs, Reuters reported last week, citing sources. Even before that, some had pressed pause: $28 billion Great Wall Motor said in May it would close its European headquarters in Germany, citing “numerous uncertainties”. Battery affiliate SVOLT is shuttering operations there too, the Nikkei reports, citing a source. The sooner Brussels and Beijing agree on the road ahead, the better.

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CONTEXT NEWS

China's commerce ministry on Nov. 1 confirmed that the European Union will send representatives to the country for negotiations regarding price commitments in the electric-vehicle tariff dispute.

On Oct. 29, the European Commission concluded its anti-subsidy investigation into Chinese electric car imports and imposed additional duties of up to 35.3%.

In a statement, the Commission noted that the EU and China would continue to seek alternative approaches to address the bloc’s concerns, and that it remained open to negotiating “price undertakings” with individual exporters.

(Editing by Una Galani and Ujjaini Dutta)

((For previous columns by the author, Reuters customers can click on katrina.hamlin@thomsonreuters.com; Reuters Messaging: katrina.hamlin.thomsonreuters.com@reuters.net))