Rusty old dumping ground

Await the Chinese backlash

The latest European passenger vehicle emissions standard (“Euro5”) was introduced in September 2009. Since that date, in Europe it has been illegal to sell new vehicles that do not meet this standard. Older models that only met the Euro4 standard can only be exported outside Europe to markets with more lenient standards. Within Europe the cars have little value – they can only be disassembled in order to reuse the components – and this value is therefore below cost.

This situation alone raises the possibility that dominant carmakers in the other markets will already be very suspicious of Euro4-compliant automakers. But it can get worse, much worse. Imagine that the government in another market introduced emissions standards that the locally dominant carmakers were not meeting, but with which the Euro4 vehicles were compliant. Imagine that, to compound that, the local market had only recently introduced a new emissions standard so many vehicles were in the early phases of their marketing cycles and the automaker had not had much time to prepare for the new emissions standard.

So the consequence is that the locally dominant carmakers find that (part of) their range is no longer legally saleable before they have achieved payback, plus they do not have new compliant models waiting for release to fill the gaps. And so the Euro4 compliant automakers find a hungry market for their formerly almost-worthless cars.

Well from July 2010, China will require compliance with Chinese5 emissions standards. And guess what? Chinese5 is basically the same as Euro4. So vehicles that become unsaleable in Europe last year remain compliant in China whilst some competing models in that market will be withdrawn from sale. And guess what else? Chinese3 emissions standards were only introduced in July 2008. So some of the vehicles to be withdrawn may have only been available for two years.

So perhaps there will be an opportunity for China to complain about dumping?

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