China rejects EU request for voluntary curbs on hybrid car exports as trade talks begin in Beijing: What it means

China has rejected a request from the European Union to voluntarily curb hybrid car exports to the bloc, adding a new flashpoint to trade talks between Brussels and Beijing as both sides seek to avoid a wider trade conflict, the Financial Times reported on Wednesday, citing two diplomats briefed on the talks.

Earlier, according to the report, the European Commission asked China to voluntarily limit the supply of Chinese-made hybrid vehicles to Europe.

The development comes as EU Trade Commissioner Maroš Šefčovič travels to Beijing for two days of talks with Chinese Trade Minister Wang Wentai.

The aim of the negotiations is to resolve the EU’s deepening trade deficit with China, with Chinese exports of relatively cheap electric and hybrid vehicles appearing to be a key issue.

Why are hybrids becoming the focus of EU-China trade?

The EU is increasingly concerned about the rapid growth of sales of Chinese vehicles on the European market.

Chinese automakers took a record nearly 12% share of the European new car market in August and accounted for about one in three plug-in hybrid sales in the region, Bloomberg reported.

The surge has therefore put hybrid vehicles alongside electric cars at the center of EU concerns over China’s growing car exports.

The European Commission is now considering safeguard measures that could curb imports following a surge in Chinese-made hybrids entering the European market.

One option under consideration is a tariff quota, which would allow imports up to a certain volume, while vehicles imported above that limit could face additional duties, Bloomberg reported.

The proposed restrictions would be limited in time, the Bloomberg report said.

Why did the EU pursue voluntary export restrictions?

The EU’s original approach was to seek a negotiated solution rather than immediately impose new trade restrictions.

The European Commission sought China’s agreement to voluntarily limit the export of hybrids to Europe.

The Financial Times reported on 17Sep17 that Beijing could face higher tariffs if it did not go ahead with such restrictions.

The commission hopes to get Beijing to accept a unilateral EU mechanism to curb imports of hybrids, rather than China voluntarily curbing exports, the FT reports.

what’s next

The issue is expected to be at the forefront of the latest round of EU-China trade talks in Beijing, which begin on Thursday.

According to The Guardian, Šefčovič and his team are scheduled to hold two days of meetings with Chinese officials with discussions aimed at reducing the trade imbalance without provoking a wider confrontation.

The outcome could affect whether the European Commission proceeds with its proposed safeguard measures.

The commission is also reportedly looking at hybrids as a potential test case. If the measures are effective, similar instruments could potentially be considered for other sectors where the EU sees significant trade imbalances, according to Bloomberg.

Read also | Will UK impose tariffs on Chinese electric vehicles under EU pressure? What we know so far

For the EU, continued growth in China’s vehicle exports is putting pressure to address concerns about an unequal trade relationship.

China has a large trade surplus with Europe, and the hybrid car dispute could therefore risk becoming part of a wider trade dispute.