European Commission Report on Tariffs for Chinese Car Manufacturers
The European Commission has released the full report based on which provisional customs duties were imposed on car manufacturers from China for vehicles imported into the European Union. Data analyzed by Profit.ro reveals that Commission members have addressed all accusations and challenges filed by some manufacturers, and have published all the ways in which they believe Chinese companies have been favored.
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The Commission’s investigation into China’s automotive industry subsidy programs has been completed, allowing for the application of customs duties, initially on a provisional basis and later on a definitive basis.
The EC team conducting the investigation first refers to all official Chinese documents, including the Constitution of China, the Socialist Market Economy Doctrine, and the “leading role of the Chinese Communist Party.” According to the EC Report, “The Socialist Market Economy Doctrine, incorporated into the Chinese Constitution, provides the state with inherent and comprehensive control over the economy, surpassing traditional standards of establishing a regulatory framework where market actors are free to conduct their activities freely. In particular, according to Article 6 of the Constitution:
“The foundation of the socialist economic system of the People’s Republic of China is the socialist public ownership of the means of production […]. In the primary stage of socialism, the state supports the economic system.”
Chinese Economy and Government Intervention
In China, the economic system is characterized by a mix of public ownership dominance and the development of various forms of property. The distribution system is based on labor, with various distribution methods coexisting. According to Article 15 of the Constitution, the state practices a socialist market economy. The government strengthens economic legislation, improves macro-regulation, and control, and prohibits any organization or individual from disrupting the socio-economic order.
Additionally, Article 11 of the Constitution assigns an interventionist role to the state beyond protecting the rights and interests of non-public sectors. The state encourages, supports, and guides the development of non-public economic sectors while overseeing and controlling them according to the law. The government of China also exercises control over the banking system.
The government’s subsidy of the auto industry, particularly in the development of New Energy Vehicles, is outlined in plans starting from the 2011-2015 five-year plan. The European Commission has raised concerns about China’s lack of transparency in providing essential information regarding the preparation, monitoring, and implementation of various subsidy schemes. While China has responded to some requests for information, there have been significant cases of limited cooperation.
Conclusion
China’s economic model combines elements of public ownership with the development of private sectors, under the guidance and control of the government. The state plays an active role in regulating and supporting economic activities, including subsidies for key industries like the automotive sector. However, concerns have been raised about the lack of transparency and cooperation in sharing essential information related to subsidy schemes, highlighting potential challenges in China’s economic governance.
The Methods of Subsidizing Car Manufacturers in Europe
The report highlights various ways in which companies producing cars sold in Europe have been subsidized:
1. Preferential Financing and Directed Credits: State policy-supporting banks and state-owned commercial banks provide preferential financing and directed credits (e.g., policy loans, lines of credit, banker’s acceptances, export financing).
2. Grant Programs: Direct cash grants for BEV producers and related support programs in the form of credit measures in favor of BEV producers.
3. Grants for Technology, Innovation, Research, and Development: Government funding for technology, innovation, research, and development.
4. State-funded or otherwise incentivized capital investments: Government provides capital investments for manufacturers.
5. Provision of Goods and Services by the Government at a Lower Cost: Government provides goods and services at a lower cost than appropriate.
6. Government Land Rights: Government grants land use rights at a lower cost than appropriate.
7. Provision of Batteries and Raw Materials: Government provides batteries and raw materials (such as lithium iron phosphate) at a lower cost than appropriate.
8. Tax Exemptions and Reduction Programs: Programs offering tax exemptions and reductions for companies using new technologies.
9. Preferential Deduction of Research and Development Expenses: Preferential pre-tax deduction of research and development expenses.
10. VAT Exemptions and Import Tax Reductions: VAT exemptions and import tax reductions for imported equipment and technology, as well as VAT reductions for domestically produced equipment.
11. Property Tax Exemptions and Land Use Fees Waivers: Exemptions from property taxes and land use fees.
12. Consumption Tax Exemptions: Exemptions from consumption tax, registration plate tax, and other cash subsidies for BEV producers.
13. Accelerated Depreciation of Tools and Equipment: Accelerated depreciation of tools and equipment used by high-tech enterprises for development.
High-Tech Industry Incentives and Tariffs in the EU
One of the key strategies in promoting high-tech industries within the European Union involves tax exemptions for dividends distributed among qualified resident enterprises. This measure aims to stimulate investment and innovation within the sector, boosting economic growth and competitiveness.
Another significant policy is the reduction of withholding tax on dividends from Chinese enterprises with foreign capital to non-Chinese parent companies. By easing tax burdens on cross-border transactions, the EU seeks to encourage collaboration and partnerships in the global market.
In addition to tax incentives, the EU has implemented export tax reductions to support local industries in reaching international markets. These measures are designed to enhance the competitiveness of European products and services, fostering trade relationships with partners around the world.
Recently, the EU Commission set special customs duties for three cooperating companies: BYD at 17.4%, Geely at 19.9%, and SAIC at 37.6%. Other cooperating companies, including Dongfeng, the manufacturer of the Dacia Spring model, will face a tariff of 20.8%. Non-cooperating builders will be subject to a 37.6% duty.
Tesla has requested and will undergo an individual assessment of its subsidy situation in China, signaling a proactive approach to trade regulations. Over the next four months, EU member states are expected to make a final decision on these customs duties, with provisional application starting on July 5th.
