UPDATE 1-China eyes EU luxury cars as trade dispute rages

Fri Jun 7, 2013 8:26am EDT

* China gets complaint vs EU cars with 2 litre-plus engines

* Any trade investigation could hit top German brands

* China angry over EU duties vs Chinese solar panels

* Chinese source, EU diplomats doubt investigation imminent

* No comment from China's commerce ministry, EU Commission

By Ethan Bilby and Christiaan Hetzner

BRUSSELS/FRANKFURT, June 7 (Reuters) - China may look into a complaint about luxury cars imported from the European Union, potentially escalating a trade dispute that started over solar panels and appears to be spreading to some of the most popular goods with wealthy Chinese.

The Chinese authorities, which on Wednesday launched a trade inquiry into sales of European wine, have received a complaint from an unknown person or persons over subsidies to cars imported from the EU with engines of 2 litres or larger, the European car industry association (ACEA) said on Friday, citing information from its Beijing office and legal counsel.

China's commerce ministry did not immediately reply to requests for comment, while a spokesman for the European Commission said it did not comment on speculation.

A Chinese source familiar with the matter, however, played down the risk of a formal investigation and any more duties on EU luxury car imports in the near future, adding Beijing was focused on talks to resolve the dispute over solar panels.

"We have two months to find an amicable solution. If we cannot settle the problem in two months, I don't know," the source said, speaking on condition of anonymity.

Any investigation of EU luxury car imports could signal a shift in stance by China, whose inquiry into EU wine imports was viewed as targeting southern European states such as France and Italy that back duties on Chinese solar panels, while largely sparing northern countries such as Germany that oppose them.

The EU luxury car market is dominated by Germany's quartet of premium brands - BMW, Daimler's Mercedes-Benz, and Volkswagen's Audi and Porsche - as well as Italian marques like Lamborghini and Ferrari.

"As you know, the main manufacturer of such cars is in Germany. It is unbelievable to have such a case right now," the Chinese source said.

Two EU trade diplomats also thought it unlikely that China would target EU luxury car imports at the moment.

"You don't do things that deliberately rub your friends the wrong way," one said, also speaking on condition of anonymity.

But European carmakers remained on edge.

"Some of the German members are taking this extremely seriously," an ACEA spokesperson said, citing their experience in 2011 when they were hit by Chinese import tariffs on their U.S.-built models like the Mercedes M-Class and BMW X5 SUVs.

"It's a realistic threat."

Germany's VDA car industry association urged the EU and Chinese to resolve their differences over the negotiating table.

"Punitive tariffs are a dead end," it said.

Audi, BMW and Ferrari declined to comment. VW, Daimler, Porsche and Lamborghini weren't immediately available.

NEGOTIATING TACTICS

China imported 572,000 passenger cars from Europe and 10,100 commercial vehicles last year, according to consultancy LMC Automotive, though it could not provide a breakdown of models or manufacturers.

ACEA put the figure at almost half a million vehicles and said the majority would likely be impacted by any trade duty imposed by China. It did not breakdown the figures either.

While many European carmakers manufacture vehicles in China, in part to avoid existing duties, their top-end ranges are usually still built at home.

Imposing more duties would be a blow, as the rapidly expanding ranks of wealthy Chinese are a key market for upscale European cars. Around half of all Mercedes S-Class flagship limousines, for example, are sold to Chinese customers.

China has been infuriated by the European Commission's decision to impose imposed anti-dumping duties on Chinese solar panels. The Commission has also warned China it is ready to start an investigation into Chinese mobile telecom equipment companies.

The official People's Daily newspaper said on Thursday China had plenty more cards to play in its dispute with Brussels, though both sides say they hope to resolve the row via talks.

ACEA said it expected China to begin a preliminary investigation into EU luxury car imports in early July at the latest and believed provisional duties, if imposed, could be announced as soon as September. Any full investigation could take around 12 months.

According to data from the VDA and the European Commission, China already levies a 25 percent customs tariff on EU car imports, excluding further charges such as excise duties.

Gian Primo Quagliano, president of auto think tank Promotor, said any further duties would also be felt deeply in Italy.

"China is a very important market for Italian luxury car makers like Lamborghini and Ferrari. It's one of their principal markets. It would be a big blow for them," he said.

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