The European Union will move forward with imposing substantial tariffs on electric vehicles manufactured in China, the EU executive announced on Friday, even though Germany rejected them.
The opposition from the bloc's largest economy exposes a division over the EU's most significant trade dispute with Beijing in a decade.
The proposed duties on Chinese-built EVs of up to 45% would cost carmakers billions of extra dollars to bring cars into the bloc and are set to be imposed from next month for five years.
The European Commission, which oversees the bloc's trade policy, has said they would counter what it sees as unfair Chinese subsidies after a yearlong anti-subsidy investigation, but it also said on Friday it would continue talks with Beijing.
A possible compromise could be to set minimum sales prices.
In a pivotal vote on Friday, 10 EU members backed tariffs and five voted against, with 12 abstentions, EU sources said.
It would have taken opposition from a qualified majority of 15 EU members, representing 65% of the EU population, to block the proposal. Reuters reported on Wednesday that the measure was likely to pass, with France, Italy and Poland in favor.
The region's biggest economy and major car producer, Germany, voted against the proposal, sources said on Friday.
The EU executive said it had obtained "the necessary support" to adopt the tariffs, although it would continue talks with Beijing to find an alternative solution.
Noah Barkin, senior adviser at Rhodium Group, said it was a big victory for the commission after acute pressure from Germany and China to kill the duties and cut a deal.
He said it strengthened Brussels' hand in negotiations, but felt the chances of a deal were slim given the high bar the commission had set for an agreement.
"The risk is that Beijing feels a need to respond to the duties with retaliatory measures of its own, which torpedo the chances of a negotiated solution," he said.
Friday's vote reflected divisions on EU commercial relations with China. Some nations want a firm line against what they see as excessive state subsidies and are mindful of the EU's failure to impose tariffs on Chinese solar panels a decade ago. China now has a share of over 90% of the EU photovoltaic market.
Other countries want to encourage Chinese investment or fear a tit-for-tat trade war.
In what was already seen as a retaliation, Beijing this year launched its own probes into imports of EU brandy, dairy and pork products.
China's Commerce Ministry expressed strong opposition to planned EU tariffs, calling them "unfair, non-compliant and unreasonable," violating World Trade Organization (WTO) rules. It has already launched a WTO challenge.
BMW chief executive Oliver Zipse described the vote as "a fatal signal for the European automotive industry" and said a quick settlement was needed to prevent a trade conflict.
Geely Holding expressed "deep disappointment" in the commission's decision, saying it could hinder EU-China economic relations and harm European companies and consumers.
Hungarian Prime Minister Viktor Orban said the EU was headed for an "economic cold war" with China.
However, France's PFA car association said it was good EU members had backed duties, adding it was in favor of free trade as long as it was fair.
Stellantis said it supported free and fair competition and that the sector was under pressure from carbon reduction plans and "the Chinese global commercial offensive."
The EU's stance toward Beijing has hardened in the last five years. It views China as a potential partner in some issues, but also as a competitor and a systemic rival.
The commission says China's spare production capacity of 3 million EVs per year, which needed to be exported, is twice the size of the EU market. Given 100% tariffs in the United States and Canada, the most obvious outlet for those EVs is Europe.
As part of continued negotiations with China, the commission could re-examine a price undertaking – involving a minimum import price and typically a volume cap.
A case in point is Volvo Cars, which is majority-owned by Geely. The company hopes to avoid hefty tariffs when importing its China-made EVs by reaching an agreement on pricing.
The EU tariffs range from 7.8% for Tesla to 35.3% for SAIC and other companies deemed not to have cooperated with the EU investigation. These tariffs are on top of the EU's standard 10% import duty for cars.
Laurent Ruessmann, partner at RB Legal, who defended EU industry in the solar panel case a decade ago, was skeptical about the effectiveness of the measures.
"It was so difficult even to get these measures," he said. "It's better than solar panels, but is it enough to save an industry? I would be surprised."
