MNI: EU Nears China Trade Action Despite Reprisal Threats

European Union states aim for a draft common position by the end of June on the Industrial Accelerator Act, which aims to boost demand for locally-manufactured products in strategic sectors and has attracted threats of Chinese retaliation, an EU official told MNI.

With the European Parliament likely to give a reading on the Act by October, it could be law by the end of the year or early in 2027, following so-called “trilogues” including the European Commission, the official said, at the same time as the bloc decides between a menu of options for other trade measures against China.

While France has favoured a more aggressive posture against China than Germany, with its extensive investments in the Asian nation, Berlin is coming round to the need to take action to save European industry, and is likely to support the Accelerator Act, the official said. The Act, which would introduce “Made In Europe” requirements for procurement and mandate technology sharing for industrial investment, will only need a qualified majority in the Council.

"It does not look like there is a blocking minority at the Council. Also, the very fact that there is a Commission proposal on the table normally suggests that national support is okay,” the official said.

The surge in China’s electric vehicles production, and its dominance of batteries and solar panels, have unnerved European leaders, though not all stakeholders are convinced by the Accelerator Act. (See MNI: EU Action On China Would Cut Off Key Supplies - Advisor)

“The idea that foreign investors will be willing to share technology while remaining minority partners is unrealistic. In my view, much of it risks becoming a box-ticking exercise,” a leading Spanish industrialist told MNI, asking not to be named. “China does not need such arrangements, and European companies are not in a position to exert that kind of leverage.”

OVERCAPACITY INSTRUMENT

Other tools under consideration by the EU include “safeguard” import restrictions and tariffs similar to measures already taken to protect steel, though these would not just function against China. Alternatively, an option favoured by France would be the EU’s new overcapacity instrument, which has been proposed by the Commission and would specifically target Chinese goods.

It is unclear whether Germany would support the overcapacity instrument, the official said, though he noted that Spain’s Teresa Ribera was the only European commissioner to express reservations against the tool at a May 29 orientation debate. A June 18 leaders’ summit could call for Brussels to prepare by September a formal proposal to deploy the tool, he said.

"The EU is between a rock and a hard place,” a Brussels trade lawyer told MNI. “It can address China's overcapacity and then go to direct trade war with China, which is very complicated politically given the interests that China has developed with some states, or pretending it's not all about China by using safeguards and hitting other countries."

CHINESE REPRISALS

Chinese reprisals could include tariffs as well as restrictions on supplies of photovoltaic modules, energy storage equipment components and on minerals including rare earths, a Chinese policy advisor told MNI. Reciprocal measures could be taken against Europe’s conventional car industry if Chinese electric vehicles are targeted, said Zhao Yongsheng, director of the French Economic Studies Center at the University of International Business and Economics.

Import quotas or tariffs on European dairy products, wine, cosmetics and luxury goods could also be imposed, said Zhao, though he noted that for the moment Beijing still needs to lobby against possible EU action and to avoid measures which might harm countries within the bloc which view it more favourably.

Much European Parliament debate on the Accelerator Act has focussed on how to define “Made in Europe”, with the Commission’s proposal specifying minimum 50% contributions from EU workers and components, and a 49% limit on foreign ownership. 

The Act will allow for some countries outside the bloc to be considered as European in public tenders and publicly-financed projects, with many parliamentary groups insisting that such allowances be made on a reciprocal basis. The left-leaning S+D bloc wants favoured countries to have equivalent levels of social protections and workers’ rights to the EU.

Parliamentarians are also wary of the Commission’s preference for choosing which countries to favour.

(Additional reporting by Santi Pinol in Rome)