CEEasia Briefing: EU tariffs on EV’s from China, EU defense partnership with Japan and ROK, Modi at G7

Welcome to the latest edition of CEEasia Briefing!

In this issue, we dissect the following topics:

1. EU provisional import tariffs on EVs made in China
2. EU defense industry partnerships with Japan & South Korea
3. Modi at the G7 summit in Italy

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1. EU announces provisional import tariffs on Chinese EVs

What’s going on? Following its anti-subsidy investigation into Chinese EVs announced in October 2023, the European Commission has concluded that the entire Chinese automotive supply chain benefits from unfair subsidization. As a result, the Commission has decided to impose provisional countervailing duties on China-based EV producers.

Going deeper… The duties will be imposed on both Chinese and European producers that have their manufacturing bases in China, with the level of duties determined by the level of individual producers’ cooperation with the Commission’s investigation. BYD and Geely will be subjected to 17.4% and 20% duties, respectively, with both companies having cooperated with the investigation. SAIC, which did not cooperate, will be subjected to 38.1%. All other non-cooperative producers (including Volkswagen) will be subjected to the 38.1% duty level, whereas other co-operative producers will receive 21%. All these duties are provisional and will be introduced from 4 July, but collected only if/when definitive duties are imposed, which is to be announced by October 2024.

Unsurprisingly… Hungary has strongly condemned the tariff imposition. The reaction in Germany was a bit more mixed. The economy minister Robert Habeck, for example, tried to soften China’s expected retaliation during his three-day trip to Beijing that took place shortly after the Commission’s announcement. And, although Habeck’s meeting with Chinese premier Li Qiang was canceled last minute, the German opposition to the anti-subsidy investigation seemed to have played a role in China’s calculations; the Chinese countermeasures are expected to target industries prominent in the countries that pushed for the EV investigation in the first place, such as the spirits industry in France or agricultural industry in Spain. China has launched an anti-dumping investigation into pork imports from the EU, with almost half coming from Spain.

This means… The duty level of up to 38.1% was much higher than initially expected. Moreover, once added on top of the existing 10% duty, the highest duties can reach almost 50%, which the Rhodium Group calculated as the minimum level needed to make the European market unattractive for Chinese producers. At the same time, however, some of the most vertically integrated Chinese manufacturers like BYD (that the Rhodium Group calculated would need to receive even higher than the 50% duty level) will receive the lowest duties. Moreover, as several CEE countries continue attracting Chinese EV investments, the localisation of production offers opportunities for tariff circumvention.

2. EU defense industry partnerships with Japan & South Korea

What’s going on? The EU has reportedly shown interest in establishing security and defense industry partnerships with Japan and South Korea, which would allow for cooperation on military equipment development. These would be the first such partnerships between the EU and Asian countries.

Going deeper… For Japan, the current security environment in Asia Pacific encompasses several threats. With North Korea’s increasingly frequent missile tests and provocations, and China’s assertive behavior in the Taiwan Strait and the South China Sea, Japan is worried that a conflict could arise in its back yard. Moreover, during the recent visit of Vladimir Putin to North Korea, Moscow and Pyongyang signed a “comprehensive strategic partnership”, further deepening their alliance and mutual military support, including supply of weapons.

This means… Although Japan’s constitution explicitly renounces war, Japan has been rapidly expanding its military capabilities to be able to protect itself should a military conflict in the Indo-Pacific potentially arise. Tokyo has significantly increased its defense spending in the past two years, in what some describe as Japan’s “biggest military build-up since World War II”. But Japan’s defense industry is still relatively small, dependent on imports from the US and facing high production costs. This is also because Japan was not exporting any military equipment for five decades until 2014 given its pacifist constitution,

Moreover… Partnering with the EU could give Japan access to defense technology and new markets for Japanese manufacturers, and vice versa. In a sign of this, South Korea has already secured a large military equipment contract with Poland two years ago. And Japan, for example, last year agreed to cooperate with Italy and the UK to develop a new supersonic stealth jet.

3. Modi at the G7 summit in Italy

What’s going on? Shortly after assuming office for a rare third term, India’s Prime Minister Narendra Modi concluded his first foreign visit to Italy on behalf of the G7 summit. During his trip he held bilateral talks with several world leaders including his far-right Italian counterpart Giorgia Meloni to further mutual relations with Rome.

Going deeper… Modi has for a fifth consecutive time attended the G7 summit held in Italy’s Apulia region between June 3rd-6th this year. The southern-Italian region was strategically chosen by the Italian government as an economically weaker point bordering the Mediterranean which is an entry point for people fleeing to Europe from third countries. The summit was also attended by representatives from the so called “Global South” , including Argentina, Kenya and the United Arab Emirates. Also present were Pope Francis and Ukrainian President Zelensky. Modi held bilateral talks with Pope Francis, President Zelensky, and each of the G7 representatives but the Canadian PM Justin Trudeau. The bedrock of Modi’s discussions, however, happened with his Italian counterpart Giorgia Meloni. The two exchanged views on deepening cooperation in defense, culture, technologies (including AI), and green energy.

This means… Georgia Meloni is, like Modi, often described as a far-right conservative and her Fratelli d’Italia party recently swept European elections in Italy by almost a third of all votes. Italy is an increasingly close partner of India with the two having signed a Strategic Partnership in March 2023 and Defense Cooperation Pact later in October 2023 – signaling a breakthrough after nearly a decade of diplomatic tensions. Moreover, an MoU on Industrial Property Rights and Migration and Mobility Agreement have been signed recently and now await for proper implementation. India’s strategic outreach to Italy takes place in the broader context of diversifying its defense and trade partners, and coordinating with the allies in the Indo-Pacific. The Italian aircraft is poised to take part in the joint exercise with the Indian Air Force in August 2024.

Quick takes on CEEasia developments

CHINA | The European Business in China Business Confidence Survey 2024, which was published in May, revealed a continued decline in business confidence among European firms. Structural issues like sluggish demand, overcapacity, real estate challenges, market access, and regulatory barriers negatively impact companies. Notably, 68% of respondents find business more difficult, and 55% cite economic slowdown as a top-3 challenge, with many firms considering cost-cutting measures (52 %) and reducing investments.

CHINA | The Sino-Slovak EV battery plant that was announced as part of a joint venture between Chinese company Gotion High Tech and Slovak InoBat in November 2023 will receive 150 million EUR in subsidies and 64 million EUR in tax breaks from the Slovak government. The overall investment is worth 1,2 billion EUR, which is the second largest in Slovak history.

SOUTH KOREA | South Korean Defense Minister Shin Won-sik visited Romania and Poland to discuss bilateral defense and arms cooperation. In 2022, South Korea signed an agreement to deliver hundreds of pieces of military hardware, including tanks, self-propelled howitzers, and fighter jets to Poland. And as European countries eye restocking their warehouses after sending much of their military equipment to Ukraine, Romania has also expressed interest in Korea-made hardware, such as howitzers, infantry fighting vehicles and tanks.

SOUTH KOREA | On April 29, South Korean KHNP (Korea Hydro and Nuclear Power Company) submitted its final bid for the construction of four new nuclear blocks in Dukovany and Temelín in the southern regions of the Czech Republic. The only other bidder is the French state-owned energy company EDF (Electricity of France). The winner is expected to sign the contract in March 2025 and begin the construction in 2029.

TAIWAN | During the visit of Czech Senate Vice President Ji?i Draho? and his 19-member delegation Czechia launched the Czech Center Taipei to promote its culture and foster mutual exchanges. The visit also witnessed the signing of a cooperation agreement between the National Museum in Prague and Taiwan’s National Palace Museum.

BHUTAN | The Czech Republic has opened its first Honorary Consulate in Thimphu “to strengthen bilateral relations between the Czech Republic and Bhutan in education, economy and culture.” The current Honorary Consul Mr Tenzing Yonten, has been appointed in February 2024 and will serve in this position for five years. He is a member of the board of the Bhutan National Bank and of the National Task Force for the Development of the 21st Century Economic Roadmap.

INDIA / JAPAN / SOUTH KOREA | India, the US, Japan, South Korea, and the EU have launched the Biopharmaceutical Alliance on June 6th during the Bio International Convention 2024 in San Diego. Being a response to drug supply shortages during the Covid-19 pandemic, the initiative aims to strengthen the supply chain in the biopharmaceutical sector and ensure reliable access to essential drugs and materials.