EU Prepares Import Cap on Chinese Hybrid Cars to Balance Trade

The European Union is preparing so-called safeguard measures that would limit imports of Chinese hybrid vehicles into the bloc in a bid to improve the trade relationship.

The European Commission, which handles trade matters for the EU, may impose the restrictions after Chinese-made hybrid sales surged in Europe, according to people familiar with the matter. They now make up a quarter of total sales, while the growth of imports of Chinese electric vehicles, which already face steep EU tariffs, has slowed.

Safeguard measures allow the EU to restrict products from a sector if there’s been a surge of imports into the bloc. One way the commission can enforce this is through the use of tariff-rate quotas, which place a levy on imports above a certain volume. The cap proposed by the EU would be time-limited, the people said.

The commission plans to use hybrids as a test case, which, if successful, could be replicated with other sectors where the bloc sees trade imbalances, according to people familiar with the matter.

The EU’s trade chief, Maros Sefcovic, will travel to Beijing later this week for talks with Chinese Commerce Minister Wang Wentao, and the bloc’s plans could change depending on how those discussions go, said the people, who spoke on the condition of anonymity.

A key aim by the EU would be to keep the cap on hybrids low enough to avoid a retaliatory response from Beijing, said the people.

A spokesperson for the commission declined to comment.

The EU’s trade deficit with China exceeds €1 billion ($1.1 billion) a day, and the commission has been scrambling to harden its trade policy to defend European sectors falling prey to Chinese imports. EU leaders will meet in mid-October to discuss the situation and possible new instruments they can use to strike back against China’s trade practices.

The commission is scheduled to present by the end of the year a series of tools to address the trade imbalance and diversify the bloc’s supply chains. Brussels and Beijing launched negotiations earlier this year, with the EU setting an October deadline to unlock tangible results toward achieving a more balanced trade relationship.

In addition to trade and investment, negotiations have also focused on intellectual property rights, World Trade Organization reform and export controls where the bloc is seeking a fast-track application system to speed up China’s supply of critical raw materials. The bloc also wants China to improve access to its market by lowering trade barriers, as well as ease restrictions on goods including brandy, pork, and dairy products.

Beijing has so far been open to discussing investments and boosting imports from the EU but has been reluctant to explore ways to tame its own exports. It is unclear whether Beijing will entertain proposals to cap shipments of hybrid vehicles, the people said.

China previously opposed earlier talk of a voluntary cap on hybrid car exports. “These so-called voluntary export restrictions seriously violate WTO rules and run counter to the laws of the market economy and the principle of fair competition. China firmly opposes this,” a spokesperson for the Commerce Ministry said in a statement last month.

China has asked the EU to loosen its own export controls but the bloc’s executive arm has pushed back against those demands, arguing that the area is a member state competency.

Chinese automakers grabbed a record share of Europe’s car market in August, with brands including BYD Co. making up nearly 12% of total new-car sales in the region. They accounted for one in four sales of all hybrids — or one in three for hybrids with a plug.

Chinese hybrid vehicles don’t currently face the same steep EU tariffs as electric-vehicle imports from the country. Beijing has pushed to replace those levies with so-called price undertakings, a mechanism to control overall export volumes by setting minimum prices.

Earlier this week, France and Germany proposed that the EU develop and adopt a new tool that could restrict access to the bloc’s single market in the event of a trade war. The EU’s two biggest economies also called on the bloc to launch new trade probes in critical areas such as chemicals.

EU ambassadors will be briefed on the outcomes of this week’s meetings on Sunday, the people said.