Does the EU have what it takes to fight China on green tech?

The EU is getting increasingly trigger happy as it launches probe after probe into whether China is unfairly supporting its exporters and, in so doing, potentially killing off competitors based in the bloc’s single market — in sectors ranging from electric vehicles to wind turbines.

The investigations into suspected subsidies and dumping may sound similar. But they differ in important respects — and understanding how they work is key to figuring out whether they will hit the mark.

Although the EU doesn’t explicitly target any country in developing these trade weapons, in practice they often aim at Beijing. Overcapacity is the buzzword, with weak domestic demand meaning China exports a huge volume of solar panels, metals and — critically — EVs.

The EU is making increasing use of its newest competition bazooka, the Foreign Subsidies Regulation (FSR). It also has anti-subsidy and anti-dumping weapons in its trade armory. If you’re wondering how they work, and how they differ, we’ve got you covered.

What’s so bad about cheap imports, anyway?

In and of themselves, cheap imports are no bad thing. They can enable the importing market to scale up innovations in green technology and lower the cost of adopting them.

But once the exporters start to compete unfairly — and unfairly is the key word here — cheap imports will eat away the market share of European companies that provide jobs, taxes and local know-how. And, once the local industry is eliminated, there is nothing to stop the monopoly supplier from jacking up prices.

Especially if the land grab is underwritten by subsidies on production or services, the importing market ends up with a tough choice: matching those subsidies or charging a duty at the border.

Well, I’ve heard about this probe into Chinese electric vehicles.

Makes sense, since it’s the most high-profile investigation that the EU has launched in recent years. It’s also unique because it wasn’t started based on a usual complaint from the European industry, but rather “ex-officio” on the Commission’s own initiative (though of course there’s more to it than that).

The probe is a trade defense measure, in this case a so-called anti-subsidy investigation. These are always limited to a certain product from one or a handful of countries. It checks whether producers exporting to the bloc have received domestic subsidies. If — and only if — this causes “injury” to EU carmakers, the Commission will impose import duties on Chinse EVs.

After visiting several producers for the necessary evidence, the Commission then establishes the amount of subsidies they received and introduces a duty on the EU’s border to compensate for that. This happens in two stages: provisional duties nine months after initiation of the case and definitive ones several months after that.

What about Chinese subsidies for wind turbines?

Good question, but this is where it gets tricky. Because the FSR falls under the remit of EU competition chief Margrethe Vestager — and not trade czar Valdis Dombrovskis. It covers subsidies that land inside the European single market — not those backing imports.

Under the foreign subsidies rules, which took effect last year, companies taking part in public tenders in the EU, or buying a company in the bloc above a certain value, must report any financial contributions they have gotten from a third country above a certain threshold. 

If the Commission finds evidence that foreign money is tilting the playing field in a deal or procurement, it can open an investigation to dig further. 

This year, we have already seen the first three investigations under the FSR: One into a Bulgarian rail contract; a second into a Romanian solar farm; and a third, broader investigation into wind turbine operations in Spain, Greece, France, Romania and Bulgaria from this week. 

Aha, so this is the shiny new tool?

Absolutely, and the Commission is clearly ready to use it. In the Bulgarian case, the Chinese bidder withdrew from the competition after the Berlaymont went public. While that removes the threat of unfair competition, it also means that the regulation has yet to be put to the test, veteran Brussels trade lawyer Laurent Ruessmann told POLITICO.

“First off, the FSR targets only individual companies. After one company withdraws, another might just compete in the next tender. Trade defense catches a whole sector,” said Ruessmann, who is a partner at Ruessmann, Beck & Co. “Secondly, the Commission is now not able to apply any remedies and test if this new regulation holds up.”

One initial concern was that the Commission’s competition department was too short-staffed to pursue investigations proactively — but its strike rate following recent hiring indicates that staffing is now less of a constraint.

Does that mean the rest of these probes will be less relevant?

Definitely not, since they are designed to tackle different symptoms of the same problem: any foreign attempts to get rich unfairly off the EU’s huge single market. 

On top of that, “the EV probe” — as people in Brussels call it for short — breaks new ground in several ways. Firstly, it targets a finished consumer product rather than the less-visible industrial inputs that these measures are usually applied to. Secondly, Germany (against) and France (in favor) don’t see eye-to-eye on this topic, making it highly political.

Additionally, the FSR can’t address imports or production outside of the EU. It doesn’t offer the option to slap duties on a product, unlike trade defense. Its main deterrent is shining a light on the subsidies a company receives, while actual remedies — such as repaying those subsidies or other “commitments” — would be less forceful.

And there’s more?

So glad you asked! The Commission can also investigate dumping, which is the practice of exporting products more cheaply than they would cost in your own market — often even below the cost of production — just to grab market share. The EU starts anti-dumping cases on a regular basis.

Once duties are set, the exporters might of course try to keep targeting the EU’s market with their products. This is usually done by shipping the product to another country, pretending to relabel it and then sending it off to Rotterdam or Genoa anyway. In a word: circumvention.

It can quickly become an industry-level cat and mouse game: China has found sophisticated workarounds, for instance by investing in steel production in countries like Indonesia. The Commission, in an innovation, targeted that maneuver with an anti-subsidy investigation — which held up in court.

“These new tools will remain window dressing,” Ruesmann expects. “Full-scale trade defense is what will matter in the long run.”