EU will hit China with electric vehicle duties, but peace talks to go on

BRUSSELS — Keep your friends close and your enemies closer. 
That’s the European Union’s playbook as it nears the conclusion of a high-profile attempt to counter China’s electric-vehicle subsidies. In order to avert a full-blown trade conflict, the bloc will seek to impose import duties — to save face — while continuing talks with Beijing to reassure the bloc’s more skeptical members. 
Ahead of a closely watched vote scheduled for Friday, the Commission has shared a draft regulation with EU countries on the duties it seeks to impose on cars made by BYD, Geely, SAIC and others that range up to 35 percent. 
According to excerpts of the document seen by POLITICO, Brussels will commit to imposing the duties the day after the law is published. At the same time, it will continue negotiations with Beijing on setting agreed minimum prices to avoid undercutting struggling European manufacturers.
Such duties would normally be imposed for five years, but the Commission has complete autonomy over their duration.
“[Consultations] are ongoing with a view to identifying price undertakings that are effective and enforceable,” the text states, adding that a solution may be found with Beijing “even after the imposition of definitive measures.”
The tactic should ensure that Brussels prevails in the vote by EU capitals — a crucial test of Commission President Ursula von der Leyen’s economic security ambitions — while at the same time preventing Germany from assembling an alliance broad enough to block the measures. 
“For Ursula von der Leyen, these customs duties, whatever we think of them, are the touchstone of any credibility of the European Union in terms of economic security — and more generally, of economic statecraft at the international level,” said François Chimits, a senior economist at Merics, a China-focused think tank.
She “cannot allow a negative vote. Even a tight victory would undermine her highly ambitious agenda to make Europe a leading geo-economic player,” he added. 
If a deal can be struck with Beijing, it would probably consist of several minimum prices on Chinese EVs, as well as quotas. The draft text acknowledges that the first such proposal from China “did not satisfy the necessary requirements.”
Such a “mutually agreed solution,” the draft continues, could involve both a broad agreement with a Chinese umbrella group — known as CCCME — or smaller, separate ones “with individual exporting producers.”
A potential deal would need a complicated structure to accommodate the complexity of electric cars — their various models, and their projected evolution. The Commission also stresses it should be “enforceable,” and not overload the bloc’s customs agencies with verification tasks.
The draft EU regulation, which according to one diplomat runs over 250 pages, is watermarked and closely guarded by national civil servants. The diplomat was granted anonymity to speak freely on sensitive matters.
Keeping the door open to talks with China could also break the ongoing cycle of tit-for-tat retaliation. Beijing is running its own inquests into European brandy, pork, dairy and high-end cars in response to the EV investigation that von der Leyen launched a year ago.
On Friday, 27 national experts are expected to vote on the legal text. If 14 vote against (an unlikely prospect), a second-stage appeal vote will be triggered in which a double supermajority — 15 countries representing 65 percent of the EU population — would be required to overturn the duties.
Germany, its auto industry massively exposed to the Chinese market, has been the strongest opponent of the duties. But its ambassador to Brussels, Michael Clauss, has conceded that Berlin lacks the votes to stop them, saying at POLITICO’s Competitive Europe Week Tuesday that he expected most EU member countries to abstain — thus ensuring they take effect.
In the unlikely event of a “no” in the first vote on Friday, it’s not clear how much time the appeals process would take.
“The date for the Appeal Committee is set in close cooperation with member states,” the Commission’s spokesperson for trade Olof Gill said. 
The EU has only seen two appeal votes in similar trade defense cases. It has never lost. 
Essentially, China is still stuck: It either accepts that its carmakers will face a premium in its most important export market, or acknowledges that it subsidizes its industry by swallowing a negotiated solution. An earlier Chinese proposal for such a deal was panned by the Commission earlier this month, meaning a better offer will be needed to defuse the trade dispute.
This story has been updated.