Bring on those Chinese ev's.
Notwithstanding its commitment to fight climate change
our government has reasons not to bring them on.
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The acts, policies and practices of the Government of China in the electric and hybrid vehicle sector are having adverse effects on Canada’s trade in goods. If left unchecked, China’s non-market support for its electric vehicle (EV) sector could lead to an exponential surge of imports that could adversely affect the transformation and planned investments in Canada’s vehicle sector.
Background
EVs and their associated supply chains represent a strategic sector in support of Canada’s clean future. Over the past four years, manufacturers of EVs and goods in the EV supply chain have announced $44 billion of investments to expand Canada’s EV production capacity all along the supply chain, from critical mineral refinement to battery production to final vehicle assembly, which will play an important role in building Canada’s clean economy and securing long-term opportunities for workers in the sector.
China’s pervasive use of non-market policies and practices has led to significant overcapacity in its EV production. These include, but are not limited to, pervasive subsidization, including of the supply chains of necessary components; insufficient or non-existent labour and environmental standards; and other measures to artificially lower production costs. As a result, China is exporting EVs at unfairly low prices, distorting global trade. There has already been an increase of imports of EVs made in China into the Canadian market, from $84 million in 2022 to almost $2.3 billion in 2023.
On July 2, 2024, the Government launched a 30-day consultation on potential policy responses to protect Canadian workers and EV supply chains from unfair Chinese trade practices, including the imposition of a surtax on Chinese-produced EVs, and possible additional measures such as adjustments to the federal Incentives for Zero-Emission Vehicles and the Incentives for Medium- and Heavy-Duty Zero-Emission Vehicles programs and investment restrictions. The consultations also sought comments on cyber and data security related to protecting Canadians’ privacy and Canada’s national security interests, and perspectives on policies driving China’s overcapacity and surging exports of EVs, including labour and environmental standards, and unfair and non-market practices.
Section 53 of the Customs Tariff provides for the ability to apply trade measures (including surtaxes) to respond to acts, policies or practices of other countries’ governments that adversely affect, or lead directly or indirectly to adverse effects on, trade in goods or services of Canada.
Canada found evidence of significant and diverse acts, policies and practices of the Chinese government for EV manufacturing and the production of key inputs in China from both the central and regional levels of government. These include
- pervasive subsidization in various forms, including production subsidies, demand incentives, below-market financing and preferential tax treatment supporting both EV production as well as the production of key inputs, such as steel, aluminum and EV batteries;
- concerning labour practices: evidence that Chinese EV companies and their suppliers have benefited from a lack of rigorous labour standards, including selective enforcement of labour rules, weak or non-existent worker representation and bargaining rights, as well as evidence of forced labour in the Xinjiang region;
- lax environmental standards: China’s EV production is characterized by a distinctly higher emissions intensity, mainly attributable to a comparatively high carbon footprint in EV battery production and key inputs, such as aluminum and steel. China’s reliance on fossil fuel (particularly coal-fired) power generation was a key contributor to the higher carbon footprint. Canada also found evidence of environmental damage related to China’s mining of minerals used in battery production; and
- other protectionist measures, such as export restrictions on key inputs, foreign ownership restrictions and other unfair practices, including the favourable application of Chinese laws, which have also unfairly supported the development of Chinese EV manufacturing.
These unfair Chinese practices, which benefit Chinese-made EVs by enabling them to be produced at artificially lower prices and which have led to significant overcapacity, are currently having adverse impacts on the trade in goods of Canada in at least three ways:
- Chinese-made EVs are unfairly competing with Canadian producers.
- Chinese-made EVs have rapidly increased their share of Canada’s EV sales market, growing from only 2% of Canada’s EV market in 2022 to 11.3% in 2023, including 25.9% of the fully EV market in 2023. This rapid rise means Canadian producers of substitute products are forced to compete with unfairly advantaged Chinese-made EVs that put unwarranted downward pressure on pricing, challenging the profitability of Canadian producers.
- Additionally, Chinese-made EVs generally use Chinese inputs, including steel, aluminum, batteries and other components, while Canadian-made vehicles tend to use a much higher proportion of Canadian and North American inputs. This means that the rising prevalence of Chinese-made EVs in Canada also has adverse effects on Canada’s steel, aluminum, battery and auto parts industries.
- Chinese-made EVs are taking import share away from imports of other countries.
- Aside from their increasing share of Canada’s EV sales market, Chinese-made EVs have also considerably increased their share of overall EV imports into Canada, gaining approximately a 13% share of EV imports into Canada in 2023. This growth has coincided with a drop in the import share of the United States (U.S.) from 60% in 2021 to 40% in 2023. For fully EVs, the impact has been even more pronounced, with the U.S. import share declining from 74% to 38% in a single year, from 2022 to 2023. This significant change in import patterns reduces choice for consumers and poses adverse effects for Canada, as imports made with pervasive subsidization and under lax labour and environmental standards crowd out imports from jurisdictions that are made fairly and subject to higher labour and environmental standards.
- Chinese-made EVs are undermining investments in Canadian EV production.
- The rise in Chinese-made EV imports also undermines investments in Canada’s production of EVs and comparable vehicles. In the consultations, stakeholders underscored concerns with an unfair playing field that devalues existing investments and deters future investments. Therefore, it directly or indirectly leads to an adverse effect on the trade in EVs in Canada.
There are also concerns that, absent a policy response from Canada, the adverse effects of increasing Chinese EV imports are expected to undermine the growth and development of the Canadian EV industry. Chinese EV production now exceeds its domestic consumption, and it is expected that Chinese companies will produce millions of automobiles in excess of China’s domestic demand in the coming years. This overcapacity is already resulting in the exponential growth of Chinese EV exports from Can$4.7 billion in 2020 to Can$58.6 billion in 2023. Correspondingly, the import share of Chinese EVs in third-country markets (the European Union [EU], the United Kingdom, Australia and Mexico) is rising rapidly. In 2023, Canada represented approximately 3.84% of Chinese EV exports, but could see that share rise considerably in the coming years if no trade action is taken, particularly if other countries take action to reduce Chinese EV access to their markets.
As well, a lack of policy response to restrict the entrance of Chinese EVs into the Canadian market could threaten the continued integration of the North American auto market. Canada’s automotive industry is heavily integrated with the North American automotive industry, with hundreds of suppliers that provide thousands of parts for vehicles, some of which cross the border seven to eight times as they are assembled into the final vehicle. In fact, from 2021 to 2023, automotive trade (including finished vehicles and parts) represented 16% of total Canada-U.S. bilateral trade. An increase in imports of Chinese EVs would undermine North American integration by taking more market share away from fairly traded Canadian and North American production and further undermining investments in Canadian EV production.
Some other like-minded trading partners, including the U.S. and the EU, have identified similar concerns with support programs in the Chinese EV sector and have taken steps to protect their markets. The EU is currently applying provisional countervailing duties on Chinese-produced EVs, and the U.S. announced that it will increase its 301 tariffs on Chinese EVs to 100% this year from the current 25%.
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October 9, 2024, Part 2, Volume 158, Number 21, Canada Gazette
gazette.gc.ca
www.ctvnews.ca
