EU eyes December trade measures after China hybrid deal

China has agreed to cap hybrid car shipments to the European Union at 350,000 vehicles a year. The deal pauses a trade fight that was heating up, but European officials say it leaves the bloc's main grievances unresolved. Talks in Beijing ended Friday, Oct. 9, with a 16-point consensus covering trade and investment, export controls and intellectual property. On Monday, Reuters reported that the European Commission is set to lay out further trade defence measures in December.reuters+1

The cap rises 6% a year and will last four years. It is likely to take effect in early December and will also apply to other EU trading partners. Chinese hybrid exports to the EU are on track to reach 800,000 this year. Under the cap, the share of Chinese-built vehicles in the EU market would fall to about 6% from 12%, according to Reuters. Beijing agreed not to retaliate. According to the Associated Press, the quota covers plug-in hybrids but not cars that Chinese companies build in Europe.scmp+2

Tariff relief and rare earths

China agreed to cut its tariffs on some EU goods, including car parts, olive oil and footwear, to the most-favoured-nation rates set under World Trade Organization rules. Those products account for nearly \$4.7 billion in exports, and the change would save European exporters at least \$260 million in duties. Beijing also agreed to set up a "green channel" to speed up export licences for rare earths for European companies. However, China still controls those licences.thediplomat

Renault chief executive Francois Provost called the deal a "major milestone" and warned that without it, "we would be looking at a trade war with China". Joe Peissel of Trivium China said "Beijing has played a blinder." He argued that China "has conceded little on the structural drivers of the EU's massive trade deficit". Peissel also said the agreement buys time, with more talks planned for January and March. The EU's trade deficit with China now runs above 1 billion euros a day.businesstimes

Next steps in Brussels

EU leaders will make China the first item at their summit starting Thursday, Oct. 15. "Dialogue alone looks unlikely to deal with this structural problem of unsustainable imbalances that we have with China," a senior Commission official said Monday. In December, the Commission plans to propose a tool to limit companies' reliance on a single source for critical supplies, and another to support EU industries or regions hit by trade measures from outside the bloc. Leaders are set to discuss these at their December 17-18 summit.reuters

Germany and France have pushed for stronger tools, including one that could cut China off from the single market. Christopher Beddor of Gavekal Dragonomics said it was "not clear that the approach could be easily copy-pasted to other industries".businesstimes