33 ASIAN LEGAL BUSINESS – AUGUST 2024 WWW.LEGALBUSINESSONLINE.COM One of the most widely discussed and seemingly “once-and-for-all” options is to establish manufacturing plants overseas, particularly in Europe. In January, BYD announced plans to build the first passenger EV production base for a Chinese car company in Europe, in Hungary. A few months later, Geely signed a joint venture agreement in Spain to start EV production through direct acquisition of a factory. Additionally, carmakers SAIC MG, Changan Automobile, Great Wall Motor, NIO, and Neta Auto have also announced plans to set up factories in Europe, considering countries including Hungary, Poland, Spain, and Italy. However, a partner from a leading Chinese law firm specialising in overseas investments in new energy cautions that investing in local manufacturing might not be a practical solution for all. “The investment cycle for building a factory is long, requiring substantial fixed asset investments and extended construction periods. Additionally, companies must meet high environmental and other compliance standards, with no immediate returns during the construction phase,” the partner says. Even if succeeding in building factories, Chinese EV makers may still face potential anti-circumvention investigations. “According to EU anti-circumvention regulations, if 60 percent or more of the component value is imported from a country subject to tariffs, and the added value from assembly does not exceed 25 percent, it may be deemed as circumvention. Therefore, if carmakers simply ship parts to Europe for basic assembly with minimal added value, the EU may still consider the vehicles to be of Chinese origin and subject them to countervailing duties,” explains Hang. Even shifting production to other markets such as Southeast Asia and Latin America might not be sufficient to shield China-made EVs from anticircumvention investigations. “Chinese photovoltaic products faced a similar issue, with the EU and the U.S. launching anti-circumvention investigations against Southeast Asian photovoltaic products. If the added value from processing in third countries is insufficient, they may still be deemed as originating from China,” says Hang. Against this backdrop, assisting Chinese companies in dealing with anticircumvention investigations has arisen as a bright spot for Chinese law firms as the regulatory environment hardened. In a more direct response, Chinese EV makers can opt to raise the prices of their vehicles in a bid to increase the price competitiveness of European cars. According to Reuters, Tesla has already announced price increases, while BYD and SAIC have not yet decided on them. Geely believes that its Spanish factory will mitigate some negative impacts, and Polestar – which it jointly owns with Volvo – is considering lowering supply chain costs to ease the pressure. Hang points out that an alternative avenue could be negotiating a price commitment agreement. “Price commitment means that Chinese car manufacturers commit to selling EVs to the EU at no less than a certain price. If they do not comply, the EU will continue to impose anti-subsidy duties. China and the EU have previously reached such an agreement on photovoltaic products,” he says. A third strategy is to further diversify export markets. Recently, Neta Auto and Xpeng have been strengthening their presence in the African market. At the end of June, Neta opened its first flagship store in Kenya with plans to expand to 20 African countries over the next two years. Xpeng has begun sales in Egypt since mid-June. In the Middle East, 20 Chinese EV brands were on the market in the UAE in 2022. In Latin America, Brazil has become the largest single export destination for Chinese EVs in recent months. NEXT STEPS Negotiations on the definitive tariffs will continue during the window before the final EU ruling in November this year, in hopes of reaching a mutually acceptable solution between the bloc and China, its largest trading partner. At the moment, the divided views within the 27-nation bloc have rendered uncertainty to the final decision. Germany, Hungary, and Slovakia have clearly expressed opposition to slapping extra levies on Chinese EVs, while France is a staunch supporter of the tariffs. An advisory vote by all member states will be held in two weeks, followed by a final vote in October to decide whether to impose tariffs on Chinese EVs for the next five years. The decision will only pass if at least 65 percent of the countries, or 15 countries, vote in favour of imposing tariffs. If the final ruling is implemented, Hang says, the Chinese government could also file a complaint with the WTO’s dispute settlement body. The Chinese Ministry of Commerce has also stated that it reserves the right to file a complaint with the WTO. SANCT IONS “According to EU anti-circumvention regulations, if 60 percent or more of the component value is imported from a country subject to tariffs, and the added value from assembly does not exceed 25 percent, it may be deemed as circumvention. Therefore, if carmakers simply ship parts to Europe for basic assembly with minimal added value, the EU may still consider the vehicles to be of Chinese origin and subject them to countervailing duties.” — Hang Guoliang, Global Law Office
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