How EU trade defence measures on e-bikes are destroying EU companies
14 days ago
On Thursday 16 November, LEVA-EU has consulted with several e-bike companies on the major problems resulting from the trade defence measures against e-bikes from China. Their testimonies clearly show that the dumping and countervailing legislation has become an inextricable tangle, leading companies to make insurmountable errors due to ignorance and/or lack of knowledge. Shockingly, the European Commission’s reluctance to acknowledge and address these legal aberrations and the total indifference of national and European politicians, particularly in the European Parliament’s INTA committee, are contributing to the destruction of European companies.
Just after the meeting, we learned that, yet another company had succumbed to the legal chaos, while dozens of others await their fate anxiously. Some business owners have been waiting for several years for a verdict and even face a prison sentence.
EU companies who complied with the above rule had to be enabled to buy and assemble Chinese components without paying the 48.5% duties, thanks to an exemption scheme set up by the Commission. However, when the assembly of electric bikes in the EU started to grow, the Commission realized that essential bike components subject to 48.5% duties, were being used for the assembly of electric bicycles. Since the original duties concerned conventional and not electric bikes, it was legally incorrect to subject the import of bike components for electric bikes to these duties.
After the Commission had extended the exemption to components used for e-bikes through end-use authorization, as set out in Regulation 512/2013, LEVA-EU raised concerns, highlighting discrimination between bike + e-bike assemblers on the one hand and e-bike assemblers only on the other hand. LEVA-EU submitted a detailed proposal with amendments aimed at applying the Commission exemption procedure instead of the end-use authorization to e-bike assemblers. Sabine Weyand, the Director-General of DG Trade, responded that this was legally not possible since: “the operations of electric bicycles remain outside the scope of the Exemption Regulation”. When LEVA-EU pointed out to the Commission that electric bicycle assemblers who also assemble conventional bikes were in the scope of the Exemption Regulation, despite the statement of Ms Weyand, the mind-boggling response was that these were not electric bicycle assemblers but “hybrid” assemblers!
Erroneous EBMA statements
By the time the EU imposed trade defence measures on e-bikes from China, component production had nearly entirely shifted to China. As a result of these measures, EU assemblers of e-bikes not only had to ensure a Commission exemption or end-use authorization, but also had to ensure that the value of Chinese components in their e-bikes was no more than 59% of the total value or that they added 25% in the assembly of the e-bikes.
China was and still is the main supplier of bike components, batteries and motors for e-bikes. This begs the question how ALL EU assemblers are supposed to assemble an e-bike, while limiting the value of Chinese parts to no more than 59% of the total value. The available offer outside China is by no means sufficient to meet EU demand. This was, by the way, officially recognized by the European Commission in the justification for the Regulation on the suspension of regular import duties on, among other things, some essential bike parts, motors and batteries. The Commission explained that this measure was necessary “in order to ensure a sufficient and uninterrupted supply of certain (…) products, which are unavailable in the Union and thereby avoid any disturbances in the market for those products (….).”
The 59/41% or 25% requirement is especially challenging for smaller companies that cannot purchase the required volumes from non-Chinese suppliers. Moreover, many EU companies are unaware of the legal obligation to limit Chinese components to 59% or add 25% value in the assembly of e-bikes. Or, they believe that the Commission exemption or end-use authorization exempts them from duties on parts, full stop. This misconception is reinforced by statements from none other than European Bicycle Manufactuers Association (EBMA) representatives, assuring companies that it is okay to use 100% Chinese parts in their European assembly of e-bikes! The above-mentioned confirmation of Sabine Weyand, that “bicycle parts for the assembly of electrical bicycles are legally not subject to the extended anti-dumping or countervailing measures” further strengthens their conviction.
OLAF & customs attacks based on non-legally binding rule
When the measures were imposed on e-bikes from China, some companies moved assembly to the EU, while others chose countries with a non-preferential trade status like Taiwan or Thailand. In 2019, the rule of origin for e-bikes in those countries allowed either a change of tariff heading (CTH) or no more than 55% Chinese content. Change of tariff heading means a product complies with the rule of origin when the non-originating materials used in its production are classified in a different HS heading than the one of the final product. That was the case for e-bikes with code 8711, since batteries and motors are under code 85 and mechanical components under code 8714.
There is case law from the European Court of Justice that confirms that “(…) the mere assembly of previously manufactured parts originating in a country different from that in which they were assembled is sufficient to confer on the resulting product the origin of the country in which assembly took place, provided that from a technical point of view and having regard to the definition of the goods in question such assembly represents the decisive production stage during which the use to which the component parts are to be put becomes definite and the goods in question are given their specific qualities;”
However, in 2020 the European Commission responded to a unilateral request from EBMA to change the rule of origin without consulting other parties. The exclusion of bike parts, batteries and motors from the CTH-rule made the rule in effect obsolete. There was no prior warning and no transition period for companies who had moved their assembly from China to countries with non-preferential status, whilst continuing to source their components from China. They were supposed to find component suppliers outside China overnight.
And yet, this is no obstacle for OLAF and national customs services to set up an impressive series of cases against European companies that have either purchased e-bikes from companies that did not comply with the 2020 amended rule, or that have had e-bikes assembled there themselves. In one case, a company is being attacked based on that rule for products that were made before 2020, i.e. before the Commission published the change of rule. Customs argue that the amended rule applied to the period before October 2020 because the October amendment was only meant to reflect how the rule should have been interpreted all along.
Starting e-bike business = paying duties
The testimonies at the LEVA-EU meeting of 16 November highlighted the numerous and diverse problems. Starting up a new business in Europe is impossible without paying anti-dumping duties for an indefinite period. For those wanting to start both bike- and e-bike assembly, they must be operational for at least six months before applying for an exemption from the Commission. Even if the exemption is granted, duties already paid will not be refunded! In March this year, the Commission further tightened the conditions for the exemption, imposing a guarantee, tripling the waiting period for reapplication if the original application is rejected or revoked and an extended record-keeping time. Net result, it is now a lot more difficult to obtain a Commission exemption, than in 1997. The question as to why the Commission found it necessary to tighten the rules remains unanswered.
Companies that assemble only e-bikes face even more challenges with the end-use authorization. National customs services are often not properly informed on specific legislation for e-bikes, leading to many companies failing to obtain end-use authorization.
The Finnish customs, until two years ago, rejected applications for end-use authorization for e-bike assembly, claiming such a procedure didn’t exist. Although the Union Customs Code stipulates that customs must decide within 120 days on the granting of the authorization, Belgian customs spent an astonishing 698 days declining an application, during which the company dutifully paid 48.5% anti-dumping duties on the parts. When the decision finally arrived, it revealed mishandling, as the application was treated as an exemption for importing less than 300 pieces a month, a procedure not applicable to electric bikes! In the meantime, the company got raided by another customs department on suspicion of circumventing the measures on e-bikes!
When applying for end-use authorization, which confirms the use of bike parts for assembly of e-bikes not conventional bikes, in certain Member States 48.5% duties must be paid on those parts until authorization is granted. Again, this is despite Ms Weyand stating that these parts are legally not subject to the extended anti-dumping or countervailing measures.
Even after obtaining authorization, those duties, which are legally not applicable may not be refunded, companies must comply with complex requirements and ensure the timely use of parts in assembly. There are now companies that are unable to fulfill that obligation due to the supply chain problems.
To be or not to be a criminal offence
Companies that have been on the market for several generations also fall prey to aggressive actions by customs. The meeting revealed very considerable differences in customs approaches across Member States. In the Netherlands for instance, possible infringements of dumping legislation are not considered criminal offences, allowing companies to challenge proposed amounts in court. Unfortunately, there are companies who, for some reason or other, are unable to wait several years for a court decision. If they don’t have the resources to pay the customs’ bill, there’s no solution left but to file for bankruptcy, as happened a few days ago.
However, in Belgium, Finland and Italy, infringements of dumping legislation are taken to criminal courts! In Belgium, customs may demand fines of up to 2000% and prison sentences of up to 5 years, the same penalty as for sexual offences. As a result, several European companies that have been on the market for decennia, are on the brink of destruction. The owners have been subject to raids, in one case involving customs carrying guns, and searches not only of their companies but their houses as well. Computers, telephones, files and all other material considered potential proof was confiscated. Their staff was summoned and questioned, while the owners of the companies were interrogated, one of them for 9 hours. After all that, they then must wait for several years until a court ruling further determines their fate. They are mentally broken.
it is also astonishing how the interpretation of customs services differs in the Member States. In most cases, imports of parts that do not comply with the rules are treated as a violation of anti-dumping legislation on conventional bicycles for which duties amount to 48.5%. In Italy, however, everything is almost automatically linked to General Interpretation Rule 2.(a) A of the Combined Nomenclature. As a result, the import of parts is treated as a circumvention of anti-dumping legislation on electric bicycles on which the duties are not 48.5%, but 79.3%.
Life-threatening for EU companies
The meeting clearly confirmed that the trade defence measures against conventional and electric bicycles from China are causing life-threatening issues for many European e-bike companies. The meeting was a clear boost for the lawyers present, who particularly appreciated being able to exchange experiences with colleagues about legislation, argumentation and procedures. LEVA-EU plans to facilitate networking between lawyers to optimize the defence of affected companies. LEVA-EU will also address the Commission with concrete proposals for legislation improvement and with a clear request for guidelines for a more transparent and homogeneous customs approach.
Finally, LEVA-EU will contact politicians once again, in the hope that at least someone in the INTA committee of the European Parliament will take the time to investigate this very questionable file. Meanwhile, the Commission is considering an extension of measures against the import of e-bikes from China. There seems little doubt that they will initiate a review procedure. Over the past five years, it has become clear that measures allegedly aimed at China are actually causing unacceptable damage to European companies. The only question now is whether there will be any European companies left to be pushed out of the market with the new measures.
This particularly unfortunate case clearly also harms the European economy and the interests of European citizens. With every company that disappears, jobs are lost, and treasuries lose income from tax, social security and VAT. With every company that disappears, competition shrinks, retailers come under pressure, and prices for consumers rise. It is also difficult to understand how, in view of the effects of these trade defence measures, the European Parliament’s prediction that the number of jobs in the EU cycling ecosystem could be scaled from 1 to 2 million by 2030, will be achieved.
Most of the companies under attack are SMEs started up by young, entrepreneurial people. The current trade defence measures against electric bikes from China destroy these European companies and the European jobs they have created. The measures result in market foreclosure for European companies not enjoying the Commission’s exemption for so-called “hybrid” assemblers. It is not in the European Community’s interest to restrict the electric bike industry and market in this way.