On 13 September 2023, European Commission President Ursula von der Leyen announced in her annual State of the Union Address that the European Commission (Commission) will launch an anti-subsidy investigation into Chinese subsidies to electric vehicle (EV) makers in China under EU trade rules. The Commission’s concern is that “global markets are now flooded with cheaper electric cars […] and their price is kept artificially low by huge [Chinese] state subsidies”. The investigation concerns battery-powered EVs from China and will include not only Chinese car brands but also non-Chinese brands produced in China. There is a considerable risk that the Commission will, in parallel, also scrutinise Chinese electric vehicles under the new Foreign Subsidies Regulation (FSR), which is enforced by the Commission’s Directorate-General Competition (DG Competition). Reed Smith’s EU trade and FSR team in Brussels highlight key aspects of the EU’s anti-subsidy investigation and a possible parallel FSR scrutiny. Both investigation tools are relevant to all EV manufacturers potentially targeted by the Commission.
The announcement of the anti-subsidy investigation follows a significant market growth for Chinese car makers in the EU in recent years. According to the Commission, the share of Chinese EVs sold in Europe has recently risen to 8 per cent and could reach 15 per cent in 2025, noting prices are typically 20 per cent below EU-made models.1 While the announced anti-subsidy investigation gives the Commission the power to impose punitive import tariffs for Chinese EVs imported to the EU in the future, in parallel, Chinese EV producers active in Europe are also facing a considerable risk that the Commission will use its newly gained powers under the EU’s FSR and initiate a market investigation to take redressive measures against undue subsidies granted since July 2018.
EU anti-subsidy investigation on Chinese EVs
Scope of the investigation: The scope of the investigation will be for the Commission to assess whether (i) imports from China benefit from countervailable subsidies, including those identified before the case is initiated or discovered in the course of the investigation; (ii) the EU industry suffers material injury; (iii) there is a causal link between the injury and the subsidised imports; and (iv) putting measures in place is in the interest of the European Union.
What is subsidy? A subsidy is a financial contribution by a government or a public body conferring a benefit to a specific recipient (e.g., a company, an industry or a sector as a whole). It can take various forms, such as grants, loans, tax credits, debt forgiveness, provision of goods/services or purchases of goods for less or more than adequate remuneration. A subsidy may also take the form of any income or price support.
Risk of countervailing measures: If the investigation reveals that subsidies are causing injury to the EU industry, the Commission will impose countervailing measures, which, as in the case of dumping, will take the form of additional duties at the border to offset the negative effect of the subsidies and restore a level playing field on the EU market. Countervailing measures last for an initial period of five years. The measures can be – and often are – extended for an additional period of five years.
Formal initiation: The anti-subsidy investigation will formally start only once a notice of initiation is published in the EU’s Official Journal. The notice will detail the product under investigation, the rights and obligations of interested parties to the proceeding and relevant deadlines. An investigation can generally be triggered by a complaint from an EU industry or – more exceptional, but press reports suggest so in this case – the Commission’s own initiative (ex officio). The investigation is likely to be initiated in the days or weeks to come.
Questionnaires, sampling and verification visit: When the notice of initiation is published, the Commission’s responsible Directorate of Trade (DG Trade) will place a questionnaire at the disposal of exporters and authorities in China, EU producers and importers and users. When there are more companies than can be investigated, the Commission will sample the largest ones. The deadline for replies to the questionnaire is typically 37 days from the Commission’s determination of the sample. After reviewing the questionnaires, DG TRADE will conduct on-spot verification to check submitted data. Additional questionnaires may follow.
Risk of non-cooperation: While exporting producers are not required to submit a response to questionnaires, those that do not reply are considered to be not cooperating with the investigation. In such cases, the Commission will continue the investigation and may use other information available. The duty imposed on a non-cooperating exporter will be a high punitive duty. Cooperating exporting producers, if they are in the sample, receive a duty calculated based on the data they have submitted, or – for all non-sampled companies – a weighted average of the duty of the sampled producers.
Timeline: The Commission (DG Trade) will complete the investigation within 13 months from the initiation of the investigation (i.e., from publication of the notice of initiation in the Official Journal of the EU). Provisional duties may be imposed earlier, but no later than eight months from initiation. Duties can sometimes be imposed retroactively, but only if the Commission decides to require the registration of the imports, and retroactive imposition can cover imports made before registration was ordered.
Candidate for first market investigation under the Foreign Subsidies Regulation?
Heightened FSR enforcement risk: There is a considerable risk that the Commission will also initiate a market investigation against one (or more) Chinese car manufacturers active in the EU under the new FSR that entered into force on 12 July 2023. While the Commission has wide discretion for opening a market investigation under the FSR, the strategic importance of automotive production in the EU, the sector’s rapid transition to EVs and the recent success of Chinese EV producers in the EU make Chinese subsidies for EV producers also a hot candidate for enforcement under the FSR. In addition, compliance with the FSR will be important for Chinese producers, which are subject to an FSR notification requirement in case of M&A transactions or the participation in tenders in Europe.
Scope of FSR investigation: In an FSR market investigation, the Commission would assess whether the manufacturer concerned benefitted from foreign subsidies and whether they had distortive effects in the EU (i.e., they improve the competitive position of the undertaking concerned and thereby actually or potentially negatively affect competition in the internal market). If a foreign subsidy is found to have distorted the EU internal market, the Commission may consider the potential positive effects of the foreign subsidy, if any, and balance those effects with its negative effects.
Redressive measures: While countervailing measures concern future imports into the EU (see above), the FSR gives the Commission the power to impose redressive measures (or binding commitments) for foreign subsidies granted since 12 July 2018(!). Redressive measures may include structural or behavioural measures, such as divestment of assets, reduction of capacity or market presence (including by means of temporary restriction on commercial activity), granting access to infrastructure (including, for example, research facilities, production capabilities or essential facilities) and/or repayment of the foreign subsidy (including interest). This means that the enforcement tools available to the Commission under the FSR are wider in nature than in anti-subsidy investigations.
Investigatory powers: The Commission, acting through DG Competition, has far-reaching powers to investigate potential beneficiaries of foreign subsidies, including the power to request information, conduct unannounced inspections within and outside the EU and impose fines and periodic penalty payments on companies if they provide incorrect, incomplete or misleading information or take interim measures. These mirror those under available antitrust rules which DG Competition has routinely been applying in antitrust investigations for the last 20 years. That several Chinese manufacturers have already established a local presence in Europe, whether through participations or own operations, in practice facilitates a potential investigation under the FSR by the Commission. Contrary to anti-subsidy investigations under EU trade rules, the FSR does not provide for a specific timeline within which the investigation must be concluded.
Long limitation period: The limitation period for investigating foreign subsidies under the FSR is 10 years, i.e., there remains a continuous threat to EV producers with links to China for an opening an ex officio market investigation for the foreseeable future.
Closer scrutiny of M&A deals and tenders: Irrespective of the above, ongoing and future M&A investments and participation in public tenders in the EU by Chinese (and other) car manufacturers benefitting from Chinese (and other non-EU subsidies) will potentially trigger mandatory notification to the Commission and be subject to closer scrutiny as of 12 October 2023, and affected businesses are required to ensure full consistency with the new FSR rules.
The Commission‘s anti-subsidy investigation on electric vehicles originating from China is likely to be initiated in the days or weeks to come. The investigation will be officially launched when a notice of initiation is published in the EU’s Official Journal. To be heard and to impact the outcome of this investigation, active cooperation with the Commission is essential.
EV manufacturers active in the EU and benefitting from Chinese subsidies also face a considerable risk that the Commission will start a market investigation under the EU’s new FSR in the future. Potential “target” companies are therefore advised to assess their potential risk exposure under the FSR. For exporters and/or importers questioned in the Commission’s anti-subsidy investigation, responses will potentially trigger follow-on scrutiny under the FSR.
If you would like to discuss any of this in more detail, please do not hesitate to contact our EU Trade and FSR team in Brussels or your usual contact at Reed Smith.
Our EU Trade team has represented manufactures in EU trade defence investigations for over 20 years, including in a majority of the anti-subsidy investigations that the EU has initiated against China, and litigating against these measures before the courts of the European Union in Luxembourg.
Our FSR team has a strong record in representing businesses in antitrust investigations (mirroring the investigation powers under the FSR) and regularly advises businesses on the implications of the new FSR on their investments and operations in the EU. We have actively followed the coming into force of the new FSR rules since the adoption of the White Paper in June 2020 (see, e.g., It’s a wrap: EU’s new foreign subsidies regime adopted (December 2022), European Commission sharpens pencil to control foreign subsidies in the EU (May 2021) and EU pushes for closer scrutiny of foreign subsidies in the EU (June 2020).
1. See, e.g., “EU to investigate ‘flood’ of Chinese electric cars, weigh tariffs”, Reuters (13 September 2023).