The EU asssassination of e-bike businesses

1302 days ago

10 minutes

The electric bicycle sector in Europe is currently suffering from a dire shortage of supply to meet demand. No one was prepared for COVID-19 and the market explosion that the virus caused. The worldwide stock of parts is exhausted and many electric bicycle dealers are only taking orders. But there is more to it. The scarcity is also a direct consequence of the trade policy that the EU has been pursuing since 1993 in the field of bicycles and electric bicycles. In doing so, the intention seems to be to eradicate part of the European e-bike sector. Be warned, it is a long and difficult story.

Anti-dumping measures are temporary measures to solve a temporary problem. The exception to prove this rule is the anti-dumping measures on bicycles from China. They have been in place for 27 years. Despite the measures, there is no bicycle manufacturing left in the EU. For purely economic reasons, those who effectively produced bicycles, including the guiding forces behind the dumping complaint, have moved on to buying components, to a large extent in China, and assembling them into bicycles in the EU. In the meantime, assembly cost in the EU is in some instances lower than in China.

Non-existent Union production

Component production in the EU has also disappeared to the point where, in 2018, the EU decided to suspend regular import duties for a number of bicycle components. In Regulation 2018/2069 the Council states: “The Union production of 87 products (…) is inadequate or non-existent. It is therefore in the interest of the Union to suspend totally the autonomous CCT duties on those products.” These products included a number of bicycle components. The Regulation ensures the supply of these components from countries outside the EU, to a large extent from China.

This Regulation was implemented even though in 1997 the EU extended the dumping measures for bicycles to some of the same bicycle components listed in the above Regulation. As a result of Regulation 88/97, if you wanted to import these components from China to assemble them into bicycles in the EU, you had to pay 48.5% so-called anti-circumvention duties. The Commission had found that the anti-dumping duties on bicycles were being circumvented in two ways:

  • by shipping semi- or completely knocked down bicycles, which only required minimum assembly in the EU
  • by transhipping containers with bikes from China through 3rd countries to be sold in the EU without anti-dumping duty.

So, the EU extended the anti-dumping duties to some countries accused of assisting in transhipping, as well as to the import into the EU of certain components. However, assemblers in the EU were enabled to obtain an exemption from anti-circumvention duties on components from the Commission. They had to prove that no more than 59% of the value of their bikes consisted of Chinese components or that they added 25% to the value through their assembly.

Almost all EU bicycle companies who applied in 1997 and shortly afterwards, obtained the exemption for an indefinite period and without much further ado. Obtaining an exemption in a later stage proved to be much more challenging. According to the Regulation, you must first import for at least 6 months, in other words pay an extra 48.5% on Chinese components before you can apply for an exemption. Not many start-ups would be able to overcome such a financial pitfall.  For one party we know of, the Commission took 4 years, whilst the applicant was subject to the 48.5%.

27 years anti-dumping

So, this measure is almost an insurmountable obstacle to start a new bike assembly operation in the EU. The companies behind the anti-dumping complaint saw their mission accomplished. The anti-dumping measures ensured that China would be kept away from their core business, i.e. mid- and high-range bicycles. What’s more, the exemption system for anti-circumvention duties ensured that very few new EU competitors would come on the market. Everything went on quietly. No more competition meant no opposition against five yearly reviews, which resulted in 5 extensions. Today, 27 years later there is no prospect of ever getting rid of this temporary measure for a temporary problem. This is all the more the case since the EU bicycle manufacturers now also rely on the anti-dumping measures against bicycle and bicycle components from China to secure a similar position in the EU e-bike market. This is how the fork is in the stem.

Some but not all so-called EU bicycle manufacturers were involved in the e-bike trend from the beginning. Again, these “manufacturers” were not manufacturing e-bikes, they were buying parts assembling them into e-bikes. As for those e-bike components, Bosch at that time was non-existing in the e-bike world and Shimano was still doubting heavily as to the longevity of the new invention.

Hesitation in the conventional bicycle sector allowed new companies to come on the market and thrive. Whilst the “old” EU bicycle companies were tied to the demand and expectations of their dealer-network, the new companies could choose between Internet, brick and mortar shops or both, whilst not carrying any history in negotiating distribution deals. Some of these EU companies became extremely successful and fast growing. They had managed to set up a lean and efficient supply chain in China. As a result, they offered more reasonably priced e-bikes and more tempting terms and conditions.

0.9% below expectation

Even though the EU market grew consistently, the EU bicycle assemblers were confronted with more competition, the inability to conquer Internet and e-bike growth being at the expense of their conventional bike business. So, once again they went to the Commission whom they had been frequenting so long. The Commission chose to believe the allegations about distressed EU manufacturers, thousands of EU jobs being under threat and assorted concoctions about cheap Chinese e-bikes flooding the market. The Commission found the profitability of the distressed companies to be 0.9% below their expectation and consequently hit large numbers of European companies assembling in China with up to 79.3% duties.

These European companies had to turn their business plan upside down overnight. LEVA-EU assisted a group of 14 importers in this case. We calculated that the damage to these 14 alone, resulting just from the investigation amounted to € 100 million. When the duties became effective in January 2019, some EU assemblers definitively moved their activities to the EU, others went elsewhere in Asia.

Of those who came to the EU, some managed to have their assembly being done by companies that had an exemption for conventional bicycle parts. But capacity in the EU was too limited to meet the full demand. So, others set up new assembly activities in the EU and very quickly ran into trouble again.

Horror stories

Everywhere in Europe, alarm bells at customers’ services went off. Essential bicycle components were imported by non-exempted parties. Not that they had any premeditated intention to circumvent the duties on essential bicycle parts. They were simply unaware of the fact that their electric bike parts were identical to bike parts subject to anti-circumvention duties. They were also unaware of the fact that the Commission had published Regulation 512/2013 as a result of which essential bicycle components were exempted from duties, if used for the assembly of e-bikes.

Only, to obtain that exemption, you had to prove to customs that you were not using the parts for conventional bikes nor selling them to non-exempted parties. Only with a so-called end-use authorisation, were you allowed to import these components for e-bikes free of anti-circumvention duties. And the national customs’ services had the liberty of developing their own rules for proving end-use.

Several young European companies have applied for end-use authorisation but are confronted with customs who are making their life extremely difficult. We have a growing collection of downright horror stories.

Exclusive favour

As said, companies that started from conventional bikes had an exemption and were using this to import components for electric bicycles. However, there was uncertainty as to the legality of this procedure. Last September, the Commission published a new Regulation as a result of which exemptions attributed for bicycle components are extended to include those components for electric bicycles.

The Commission decided to grant this favour only to bicycle companies that also produce electric bicycles, not to companies that only produce electric bicycles. Also, the procedure appears to be automatic and the Regulation does not mention any procedure to control the system. The question is for instance what happens if components are imported for e-bikes but, in reality used for conventional bicycles, thus exceeding the 59% circumvention threshold.

Whilst conventional bicycle assemblers who also assemble electric bicycles can rejoice over this extremely useful favour from the Commission, EU electric bike assemblers are suffering and sometimes confronted with the most surreal problems. Most of them are kept waiting by the customs for an end-use authorisation. One of these waiting assemblers has been recently raided by customs and accused of anti-circumvention, despite the fact that he has consistently paid 48.5% on the bike components in anticipation of the end-use authorisation. In another case, the customs are in the process of proving that the wheels with hub-motors he imported are components for conventional bikes. He had to pay 48.5% on them as a guarantee.

Shutting doors

In the meantime, the Commission continues to shut doors. Upon the duties announced in January 2019, some assemblers moved to countries with non-preferential origin such as Taiwan, Thailand or Malaysia. Recently, the Commission decided to change the rules of origin for these countries. An electric bike will only be considered to originate in these countries if 45% of the ex-works price is originating. The question is how many of these companies will be able to obtain a motor and/or battery in the country where they are assembling. Also, there is no transition period whilst, in normal times, lead-times for e-bikes are 3 to 6 months. Today, some companies have already ordered components for 2022.

And what is the alternative for these companies? GSP and LDC countries are still an option today but how long before the EU shuts that door as well? In that case, they are only left with the option of assembly in the EU. Here however, they will have great difficulties to obtain end-use authorisation to be able to import certain components without 48.5%. And by now, there are no European bicycle assemblers with exemptions left who have any available capacity.

The big losers?

There is still one measure to be taken: anti-circumvention duties on e-bike components. Only those companies that today have secured the supply of motors and possibly also batteries from outside China are certain to survive such anti-circumvention measures. And those are … the EU bicycle assemblers who are behind the anti-dumping duties. Competition wiped out, supply secured, control over prices regained, Commission convinced to keep the measures on for the next 27 years … mission accomplished.

Besides the EU companies that are bound to perish, who are the big losers? The EU-citizens! They will have to pay a lot more for their electric bikes. A lot less e-bikes will come on the market then what is needed to make mobility more sustainable.

Furthermore, the chance to achieve climate goals will be considerably reduced. Again, the citizens loose. But the EU bicycle assemblers have even this covered since they have very close and friendly ties with the European cyclists’ congregation. And as for the Commission, it is ironic how one DG issues a Green Deal to throw billions at green mobility, while another DG is assisting in the assassination of part of the sector that should produce that green mobility. A rather special interpretation of the Biblical saying: do not let your left hand know what your right hand does.

In light of all the above, LEVA-EU is consulting with lawyers on the possible infringement of EU competition rules and on possible court actions.

Annick Roetynck,
LEVA-EU Manager

Photo by Felix Mittermeier on Unsplash

Annick Roetynck

Annick is the Manager of LEVA-EU, with decades of experience in two-wheeled and light electric mobility.

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