China on Monday announced provisional anti-subsidy duties of up to 42.7% on certain dairy products from the European Union, the latest escalation in a deepening trade dispute between the two economic powers. The European Commission dismissed the measures as unjustified and said it would challenge them.

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The duties, effective December 23, or Tuesday, target products including fresh and processed cheeses and some cream varieties, according to China's Ministry of Commerce on Monday. Rates range from 21.9% to 42.7%, with French dairy firm Fromarsac facing levies of 30% and Dutch cheesemaker FrieslandCampina hit with duties as high as 43%.

The measures follow a probe launched in August last year that concluded EU subsidies caused "substantial damage" to China's domestic dairy industry. The move intensifies trade friction that flared after Brussels imposed tariffs of up to 45% on Chinese electric vehicles in October.

"The Commission's assessment is that the investigation is based on questionable allegations and insufficient evidence and that the measures are unjustified and unwarranted," commission spokesman Olof Gill said. The EU has challenged China's dairy probe by requesting consultations via the World Trade Organization (WTO).

Targeted Products and Companies Face Varied Rates

According to the Commerce Ministry's preliminary ruling, most EU companies will face rates below 30%. Companies that cooperated with the investigation are subject to duties of 28.6%, while those that did not cooperate face the maximum rate of 42.7%.

Products affected include blue cheeses such as France's Roquefort, along with fresh and processed cheeses and certain milk and cream varieties. Chinese dairy stocks rallied on the announcement, with Lanzhou Zhuangyuan Pasture closing 10% higher in Shenzhen.

FrieslandCampina director of corporate media relations Jan-Willem ter Avest said the company "has taken note of the preliminary decision" and "is committed to constructive interaction" with the Chinese ministry. Fromarsac did not immediately respond to requests for comment.

Limited Market Impact Masks Political Tensions

The duties' economic impact may be modest. China was the EU's ninth-largest destination for cheese exports in the first eight months of this year, according to the European Commission. Chinese cheese imports from the bloc declined by almost 15% during that period compared with 2024. New Zealand accounted for more than 60% of China's 156,000 tons of cheese imports in the first 10 months of the year, with the EU supplying 14.5%.

"The anti-subsidy query in EU dairy is seen by the European Commission not as a technical dossier, but as a political one," said Alexander Anton, secretary general at the European Dairy Association. The commission said it was "doing everything it takes to defend EU farmers and exporters" against "China's abusive use of trade defence instruments."

Escalating Friction Following EV Tariff Battle

The dairy duties mark the latest volley in trade tensions that intensified when the EU imposed tariffs on Chinese electric vehicles last year. Last week, China imposed final import tariffs on EU pork ranging from 4.9% to 19.8%, sharply lower than preliminary rates of up to 62.4% announced in September. The EU in November challenged China's tariffs on EU brandy at the WTO, saying the measures violated trade rules.

The probe was initiated at the request of the Dairy Association of China and the China Dairy Industry Association and has been conducted in accordance with Chinese laws and WTO rules, the ministry said. The deadline for concluding the investigation and imposing final measures is February 21.