EU to Cap Chinese Hybrid Car Imports at 350,000 Each Year

The European Union will cap the import of Chinese hybrid vehicles at 350,000 cars per year, with the safeguard measure taking effect as soon as Dec. 1.

The 350,000 car limit will apply for the first year of the cap, then will increase by 6% annually from the second year of application, according to a document outlining the plan and seen by Bloomberg. The measures will apply for four years, during which time both countries will pledge to abide by World Trade Organization rules.

Read More: China Moves to Stave Off Wider EU Trade War With Hybrid Deal

The EU’s trade chief, Maros Sefcovic, met with Chinese Commerce Minister Wang Wentao in Beijing this past week as the bloc seeks to bring down a trade deficit that exceeds €1 billion ($1.1 billion) a day. Safeguard measures allow the EU to restrict products from a sector if there’s been a surge of imports into the bloc.

A cap will apply to all imports of hybrids, not just those originating from China, to comply with the WTO’s principle of non-discrimination, according to the document. China’s quota will be no less than any other source of hybrid imports.

A spokesperson for the European Commission, which handles trade matters for the bloc, didn’t immediately reply to a request for comment.

Surging Chinese hybrid car sales have become a symbol of Europe’s frustration with Beijing — but it’s a fraction of the overall issue. EU leaders will meet in Brussels Thursday to discuss the hybrid issue as well as ways to stop China from flooding the continent with subsidized, low-cost goods that erode local industry. If successful, similar safeguard mechanisms could be explored for other sectors, Bloomberg previously reported.

Sefcovic is due to meet his Chinese counterparts in the new year to take stock of the agreements reached and discuss next steps. Though the talks have generated tangible results so far, some European officials worry that progress toward tackling the massive trade gap will be too slow given its size and the bloc doesn’t have much time.

The commission is scheduled to present various tools by the end of the year to diversify supplies and address the trade imbalance with China.

The agreement reached between the EU and China would apply to both hybrid electric vehicles and plug-in hybrid cars. It will cover all sources of EU imports, including nations with whom the bloc has a free-trade agreement, according to the document.

Members of the European Economic Area, Ukraine, Kenya and developing WTO members with small import shares will be exempt. It’s unclear from the document whether tariffs could be applied to shipments above the quotas or if the rates will function as a hard cap.

In parallel, China will remove tariffs on some auto parts and halve duties for shoes, ice-cream and olive oil, the document says. Those moves, which will also apply temporarily, would cover about €4 billion worth of exports.

The two sides will also discuss ways to ease export controls and licenses, in particular regarding the supply of rare earths and permanent magnets, according to the document. The EU and China also agreed to exchange more information on their respective export restrictions.

EU ambassadors briefed by Sefcovic on Sunday broadly welcomed the results while stressing that they viewed it as just the beginning of the process to rebalance the trade relationship, according to people familiar with the talks, who spoke on the condition of anonymity.

Chinese carmakers like Chery Automobile Co. have massively stepped up vehicle shipments to the EU in response to a slump in their home market, exacerbating a deceleration plaguing European peers, which are among the worst-performing globally. Mercedes-Benz Group AG car sales dropped by 8% in the third quarter, while Volkswagen AG last month slashed its profit forecast following a similar warning from BMW AG in June.

Chinese hybrid car sales have escalated in part because they escaped the EU’s 2024 tariffs on electric vehicles. In August, Chinese-made cars accounted for about a quarter of European hybrid sales.

“The trade deficit is a mountain of a challenge for the EU, felt in every member state. It is unsustainable and it demands a credible path to rebalancing,” Sefcovic told reporters in Beijing Friday. “We must defend our industries and restore a level playing field that has been distorted by global overcapacity.”

Ahead of this past week’s talks, France and Germany called on the EU to significantly expand its retaliatory economic powers — suggesting it should even consider severing trade ties with bad actors that launch trade wars. Europe’s two largest economies also want the EU to investigate whether subsidized imports are harming sectors like chemicals and plastics — probes that could produce more tariffs.

The proposal was seen as a pressure tactic targeting Beijing, putting Germany’s weight behind forceful moves it had previously opposed.

The toughening stance reflects Europe’s growing awareness that its trade deficit with China, which reached €360 billion last year, is crippling local industry. At the same time, however, China is increasingly relying on those exports to support its own growth.

“I came here with one clear purpose: to start rebalancing the EU-China trade relationship,” Sefcovic said.