(Deutsche Welle Chinese website) After the second regular meeting of the China-EU Trade and Investment Consultation Mechanism (referred to as the Mechanism) was held in Beijing between Chinese Minister of Commerce Wang Wentao and European Commission Trade and Economic Security Commissioner Maros Sefcovic, the two sides issued a list of consensus outcomes of the meeting. Among the concerns are that "the two sides have reached an understanding on hybrid vehicle trade in a manner consistent with WTO rules." In addition, the two parties "will continue the relevant procedures for reviewing corporate price commitments in the electric vehicle countervailing case." In terms of export control, China has used the "green channel mechanism" to continue to facilitate the review and approval of export licenses for rare earths and permanent magnets to Europe. The EU will continue to work with member states to facilitate the resolution of key licensing cases with China in the dual-use field."
The timing of this regular meeting of the China-EU Trade and Investment Mechanism is not accidental. It comes at a time when the EU's anxiety over China's economic security is rising, there are multiple trade frictions between the EU and China, and many EU member states are demanding that the EU adopt tougher attitudes and measures against China.
EU-China trade deficit remains high
The EU's trade deficit with China has been at a high level for a long time, reaching about 360 billion euros last year, equivalent to a trade deficit of nearly 1 billion euros per day. Europe is worried about overcapacity in China's manufacturing industry, the artificial devaluation of the renminbi to create an export advantage, and the impact of low-priced Chinese products on local industries. Cars are the biggest friction point in European trade. In particular, the German automobile industry, which has relied on the Chinese market for huge profits for decades, is feeling the pressure.
In 2024, the EU will impose countervailing duties on Chinese pure electric vehicles, which will be added to the original 10% tariff, with a maximum range of about 35%. Since then, the two sides have been talking about "price commitments" to replace tariffs, which is the "continuation of the relevant procedures for the review of enterprise price commitments in the electric vehicle countervailing case" mentioned in the list of results of this regular meeting. Hybrid vehicles are not within the scope of EU tariff increases. China's exports of hybrid vehicles to Europe have grown in the past two years, which is the background of the "Hybrid Vehicle Trade Understanding" mentioned in the list. As for the export of key raw materials such as rare earths, it is an "old topic" in the trade frictions between Europe and China and the United States and China. Europe accuses China of restricting exports of critical raw materials such as rare earths that European industry urgently needs as a counterweight. The principled agreement reached at this EU-China trade and investment regular meeting on providing mutual review and approval facilities should be considered by the European side as a substantive achievement. However, China has also made commitments in similar negotiations with the United States, but the U.S. Treasury Secretary said in September that China has not released sufficient rare earth exports as promised.
EU’s “toolbox” to counter China trade
The EU's feasible measures to counter its trade disadvantages with China mainly include countervailing taxes, such as the additional tariffs on Chinese electric vehicles that will be implemented in 2024. There is also the International Procurement Instrument (IPI), which will be used in China for the first time in 2025 to restrict Chinese medical device companies from participating in large-scale EU public procurement projects (more than 5 million euros). Canceling the tariff exemption for small packages under 150 euros and strengthening the supervision of Chinese cheap online shopping platforms such as Temu and Shein are also among the EU's countermeasures in regulating market access.
Within the EU, there are differences among member states on how to respond to and counter the trade imbalance with China. Because its pillar industry, the automobile industry, mainly relies on profits from the Chinese market, Germany has always advocated a "moderate attitude" towards China. Compared with Germany, France has a tougher stance on countering China and de-risking. On Wednesday (October 7), the European Parliament passed a resolution with a tough stance on China by a vote of 454 to 86. The core demand of the resolution is "economic reciprocity" and emphasizes that "if China does not open its market, the EU will take corresponding countermeasures."
