China launches dairy probe as trade tensions rise over EV tariffs

China initiated an anti-subsidy investigation into dairy imports from the European Union (EU) on Wednesday, intensifying trade tensions between the two parties. This move came just one day after the EU revised its proposed punitive tariffs on Chinese-made electric vehicles (EVs).

On Tuesday, the EU adjusted its planned duty on Chinese EV imports from the initial 37.6% to 36.3%. However, despite Beijing's call to abandon the tariffs entirely, Brussels did not eliminate them. The revision was met with criticism from China's Ministry of Commerce, which expressed its strong opposition and concern, pledging to take necessary actions to protect Chinese businesses.

The anti-subsidy investigation on dairy, announced by China's Ministry of Commerce, is the latest in a series of Chinese probes targeting EU agricultural products. The focus will be on a range of dairy goods, including cheeses, milk, and cream intended for human consumption. The probe was triggered by a complaint filed on 29th July by the Dairy Association of China and the China Dairy Industry Association on behalf of the country's domestic dairy sector.

China's investigation will scrutinise 20 subsidy programmes across the EU's 27 member states, with particular attention on subsidies from Austria, Belgium, Croatia, the Czech Republic, Finland, Italy, Ireland, and Romania, according to a statement from the ministry.

Olof Gill, a spokesperson for the European Commission, asserted that the EU would "firmly defend the interests of the EU dairy industry and the Common Agricultural Policy". Gill emphasised that the bloc would take appropriate measures to ensure that the investigation complied fully with World Trade Organization (WTO) regulations.

Similarly, the European Dairy Association expressed confidence that EU agricultural subsidies adhere to WTO standards and pledged to clarify the role of dairy in the complex trade relationship between the EU and China.

Among the EU member states implicated in China's investigation, Ireland stands out as the largest exporter of dairy products to China, having exported goods worth $461 million to the country in 2022. The French dairy sector body CNIEL also confirmed France's involvement in the probe, noting that France is China's second-largest supplier of cream, following New Zealand.

According to Chinese customs data, the EU was China's second-largest source of dairy imports in 2023, accounting for at least 36% of the total value, with New Zealand leading the market. EU dairy exports to China totalled €1.7 billion in 2023, a decline from €2 billion in 2022, as reported by the European Commission's Directorate-General for Agriculture and Rural Development.

China has also initiated other investigations into EU agricultural products. In June, it launched an anti-dumping probe into EU pork imports, primarily affecting Spain, the Netherlands, and Denmark. Earlier in January, a similar investigation into EU brandy imports, largely focused on France, was also announced.

Chim Lee, a senior China analyst at the Economist Intelligence Unit, remarked that the combined value of EU pork and dairy exports to China is significantly smaller than China's battery EV exports to the EU, which were estimated to be around $13.5 billion in 2023. Lee suggested that China, grappling with domestic economic pressures, would likely avoid taking an overly confrontational stance in trade matters due to its reliance on external demand to support its economy.