China and the European Union have made notable progress this month in their high-stakes trade negotiations, as both sides edge closer to resolving key disputes before a landmark leaders’ summit in Beijing on July 24–25. Recent breakthroughs include a tentative agreement on minimum import prices for European brandy, fresh commitments to expedite rare earth approvals for EU firms, and advancing discussions on electric vehicle tariff reform. These developments, while still subject to formal sign-off, signal a renewed willingness to compartmentalize contentious issues and forge sector-by-sector deals amid broader geopolitical tensions.

Linking Brandy and Automobiles: The Cognac-EV Nexus

In late June, French cognac producers and Chinese authorities reached a provisional accord setting minimum import prices for brandy—ranging from basic VS offerings to premium XXO labels—designed to replace punitive anti-dumping duties of up to 39 percent. Yet China has made finalizing that agreement contingent upon progress in parallel talks over EU tariffs on Chinese-made electric vehicles. Beijing’s linkage underscores how Brussels and Beijing are seeking to leverage concessions in one sector to unlock movement in another, reflecting a more transactional approach to trade diplomacy.

Under the proposed framework, major houses such as Hennessy and Rémy Martin would accept price floors well below current duty-inflated levels, in exchange for Chinese pledges to green-light similar minimum price commitments for imported EVs. EU negotiators have so far resisted adopting a binding price-commitment model for cars, arguing that such a mechanism departs from the rules-based tariff approach enshrined in WTO practice. Nevertheless, discussions have accelerated after Chinese Commerce Minister Wang Wentao and EU Trade Commissioner Maroš Šefčovič met in Paris on June 3, with both sides reporting that the EV dialogue has entered its final stage.

While remaining cautious about publicizing details, EU officials acknowledge that Beijing has indicated it will grant a firm answer on the cognac deal by China’s July 5 deadline for its brandy probe. In parallel, Brussels is intensifying efforts to secure reciprocal commitments on EV duties, aiming to replace the EU’s 17.4 percent tariff on battery-powered vehicles with an outcome that offers Chinese automakers predictable market access. Should both quid pro quos materialize, it would mark one of the first substantive bilateral trade reversals since the EU imposed duties on Chinese EVs in mid-2024.

Critical Minerals: Fast-Tracking Rare Earth Supplies

Beyond automotive and spirits sectors, China has signaled readiness to speed up approvals for rare earth export applications from EU companies, a move directly tied to the bloc’s industrial priorities. Rare earth elements—vital for high-performance magnets, electronics, and renewable-energy technologies—remain under tight Chinese export controls implemented after the U.S. imposition of tariffs last year. During talks in Shanghai on June 7, Chinese officials pledged to establish a “green channel” for EU firms, promising to streamline licensing for controlled materials and give clarity on outstanding applications.

EU leaders have made access to these critical minerals a top agenda item for the upcoming summit, reflecting concern over supply-chain vulnerabilities. In March, the European Commission formally requested that member states designate rare earths as a strategic raw material, allocating up to €5 billion in investment to secure alternative sources and processing capacity. China’s provisional commitment to expedite EU applications provides immediate relief to key sectors such as automotive, defense, and wind-turbine manufacturing, even as Brussels pursues longer-term diversification with partners in North America and Australia.

In tandem, European negotiators are seeking to lock in assurances that any new Chinese licensing protocols remain transparent and non-discriminatory. Chinese officials, mindful of domestic security considerations, are pressing for export approval processes that ensure materials do not end up in military applications—an echo of the dual-use concerns that slowed approvals earlier this year. The delicate balance between strategic trust and national security will shape whether the rare earth breakthrough becomes a template for future resource cooperation.

Tackling Broader Trade Frictions Ahead of the Summit

While the cognac-EV and rare earth discussions have dominated headlines, talks have also addressed a suite of other disputes that have hampered EU-China commerce. In May, Brussels launched anti-dumping investigations into Chinese tinplate steel and placed duties on construction-machinery imports amid allegations of unfair subsidies. China, in turn, has probed EU pork and dairy exports, citing sanitary concerns, and last week moved to restrict procurement of certain medical devices from European manufacturers.

During a meeting on June 4, the EU’s trade chief emphasized that resolving these outstanding probes will require parallel progress on both sides. EU negotiators are advocating for a “package deal” in which China commits to concluding its brandy inquiry and lifting barriers on pork and medical devices, while the EU agrees to phase down its EV tariffs and suspend steel duties. Chinese officials have signaled flexibility on the agricultural front, proposing enhanced cooperation on food-safety standards to reassure Beijing about the quality of European meat and dairy.

The broader context for these sectoral negotiations is the 50th anniversary of diplomatic ties between the EU and China. Both parties have framed the July summit as an opportunity to reset relations after years of rocky cooperation. European Commission President Ursula von der Leyen has publicly stated that trade talks are a priority, while Chinese President Xi Jinping has made clear that Beijing expects concrete deliverables rather than general pledges. Against a backdrop of U.S. pressure on both Brussels and Beijing, the EU’s strategy has been to pursue a “third-way” approach: deepening economic engagement with China while safeguarding Western security and values.

For EU industries, every day counts. Automotive manufacturers in Germany and France have already faced rolling output cuts due to uncertainty around EV tariffs and import costs. Machinery and equipment exporters worry that anti-dumping measures could extend into other industrial goods. Meanwhile, European cognac, pork, and cheese producers have seen their shares slump in China, amplifying domestic political calls for a robust response from EU capitals.

On the Chinese side, policymakers are under pressure to demonstrate economic openness while maintaining strategic autonomy. Efforts to rebalance towards domestic consumption have struggled to offset weaker export demand, and local government revenue has been squeezed by falling land-sale incomes. By using trade talk linkages—such as tying cognac to EV tariffs—Beijing seeks to extract high-value concessions without triggering accusations of favoritism. At the same time, China’s broader “dual circulation” strategy emphasizes strengthening home-grown industries, meaning any deal must offer real long-term benefits for domestic firms.

Countdown to Beijing

As the July 5 deadline for China’s brandy probe and the midsummer summit approach, both sides are racing to finalize technical details. Working-level teams in Brussels and Beijing are drafting memoranda of understanding on minimum price schemes, EV tariff phase-downs, and rare earth licensing protocols. A successful outcome could see China lift duties on cognac and grant EU carmakers tariff relief, while the EU removes or reduces barriers on Chinese EVs and rare earths—effectively decoupling politics from commercial interests.

Yet the path remains fraught. Dissent persists within the European Parliament, where lawmakers have called for tougher measures on human rights and reciprocity before any tariff rollback. In Beijing, hardliners within the commerce ministry caution against over-eager concessions that could undermine domestic champions. Ultimately, the success of these multifaceted talks will hinge on mutual trust and the willingness to treat sectoral breakthroughs as building blocks for a broader, rules-based partnership. With just weeks to go before leaders meet in the Chinese capital, the latest developments offer cautious optimism—but also underscore how deeply intertwined economic interests and political imperatives are in shaping the future of EU-China trade relations.

(Adapted from Reuters.com)

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