By Philip Blenkinsop

BRUSSELS (Reuters) -The European Union will press ahead with hefty tariffs on China-made electric vehicles, the EU executive said on Friday, even after the bloc’s largest economy Germany rejected them, exposing a rift over its biggest trade row with Beijing in a decade.

   The proposed duties on EVs built in China of up to 45% would cost carmakers billions of extra dollars to bring cars into the bloc and are set to be imposed from next month for five years.

The Commission, which oversees the bloc’s trade policy, has said they would counter what it sees as unfair Chinese subsidies after a year-long anti-subsidy investigation, but it also said on Friday it would continue talks with Beijing.

A possible compromise could be to set minimum sales prices.

In a pivotal vote on Friday, 10 EU members backed tariffs and five voted against, with 12 abstentions, EU sources said.

It would have taken opposition from a qualified majority of 15 EU members, representing 65% of the EU population, to block the proposal. Reuters reported on Wednesday that the measure was likely to pass with France, Italy and Poland in favour.

The region’s biggest economy and major car producer, Germany, voted against the proposal, sources said on Friday.

The EU executive said it had obtained “the necessary support” to adopt the tariffs, although it would continue talks with Beijing to find an alternative solution.

Noah Barkin, senior adviser at Rhodium Group, said it was a big victory for the Commission after acute pressure from Germany and China and strengthened Brussels’ hand in negotiations, although chances of a deal were slim.

“The risk is that Beijing feels a need to respond to the duties with retaliatory measures of its own, which torpedo the chances of a negotiated solution,” he said.

Friday’s vote reflected divisions over EU commercial relations with China. Some nations want a firm line against what they see as excessive state subsidies and are mindful of the EU’s failure to impose tariffs on Chinese solar panels a decade ago. China has a share of over 90% of the EU photovoltaic market.

Other countries want to encourage Chinese investment or fear a tit-for-tat trade war.

Shares in European carmakers Renault and Volkswagen rose on hopes the tariffs will help them compete with Chinese rivals on their home turf when global demand is falling.

Concerns among some domestic players have grown though that tariffs will spur Chinese companies to accelerate plans to build production capacity in the region.

In what was already seen as a retaliation, Beijing this year launched its own probes into imports of EU brandy, dairy and pork products. European cognac and pork producers are concerned.

“The French authorities have abandoned us. We do not understand why our sector is being sacrificed in this way,” the French cognac association said.

The Chinese government has also discussed raising import duties on large-engined gasoline vehicles, which would hit German producers hardest.

A FATAL SIGNAL?

China’s Commerce Ministry expressed strong opposition to planned EU tariffs, calling them “unfair, non-compliant and unreasonable”, violating World Trade Organization rules, although it made no mention of any counter measures. It has already launched a WTO challenge.

BMW Chief Executive Oliver Zipse described the vote as “a fatal signal for the European automotive industry”. Geely Holding expressed “deep disappointment” in the Commission’s decision.

Hungarian Prime Minister Viktor Orban said the EU was headed for an “economic cold war” with China.

However, France’s PFA car association said it was good EU members had backed duties, adding it was in favour of free trade, as long as it was fair.

Stellantis said the sector was under pressure from ambitious carbon reduction plans and “the Chinese global commercial offensive”.

For consumers, the tariffs could mean higher EV prices, undermining the EU goal of being carbon neutral by 2050.

Campaign group Transport & Environment said the EU should not delay 2025 CO2 reduction targets, as some carmakers want, as this would cause EU production of EVs to stagnate.

“The EU risks having the worst of both worlds if it delays the 2025 CO2 targets while limiting the affordable models imported from China,” it said.

HARDENED STANCE

The EU’s stance towards Beijing has hardened in the last five years. It views China as a potential partner in some areas, but also as a competitor and a systemic rival.

The Commission says China’s spare production capacity of three million EVs per year is twice the size of the EU market. Given 100% tariffs in the United States and Canada, the most obvious outlet for those EVs is Europe.

As part of continued negotiations with China, the Commission could re-examine a price undertaking – involving a minimum import price and typically a volume cap.

A case in point is Volvo Cars, which is majority owned by Geely. The company hopes to avoid hefty tariffs when importing its China-made EVs by reaching a pricing agreement.

The EU tariffs range from 7.8% for Tesla to 35.3% for SAIC and other companies deemed not to have cooperated with the EU investigation. These tariffs are on top of the EU’s standard 10% import duty for cars.

Laurent Ruessmann, partner at RB Legal, who defended EU industry in the solar panel case a decade ago, was sceptical about the effectiveness of the measures.

“It was so difficult even to get these measures,” he said. “It’s better than solar panels, but is it enough to save an industry? I would be surprised.”

(Reporting by Philip Blenkinsop, Simon Johnson, Stine Jacobsen, Christoph Steitz, Gilles Guillaume; Editing by Josephine Mason, Barbara Lewis and David Evans)

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