It started as a diplomatic dance reminiscent of a stately pavane, delicately side-stepping recent trade controversies.
It wasn’t meant to be rock ‘n’ roll (in any case, most unsuited to the classical environs of Brussels’ Palais d’Egmont where the proceedings took place) but it very nearly became that.
On the face of it, bilateral trade issues didn’t seem to feature too prominently in the recent 15th China-EU Summit even though significant disputes have erupted between the two partners over the last six or seven months.
Beneath the surface
But they were simmering beneath the surface of diplomatic decorum, no matter how hard Mr. Van Rompuy and Mr. Barroso tried to keep a lid on them. The summit in this respect was orchestrated to be a diplomatic dance. It was designed to avoid a prickly trade row and laud the decade-long achievements of a China-Europe trade relationship now worth a hefty €429 billion in goods and another €43 billion in services. Almost as important the summit gathering was about to witness Premier Wen Jiabao’s valedictory speech to the EU before he steps down from his post in October. Help the man out. Keep the summit civilised.
Signs were flashing before the high-level meetings had even started that the EU leadership sought to side-step a potentially rancorous summit meeting centred on trade problems. A few days earlier an advance guard of Chinese officials from the Commerce Ministry arrived in Europe to discuss, lobby and take the heat out of the solar panel ‘dumping’ dispute being investigated by the EU Trade Commissioner. Chinese solar panel companies are already suffering an acute downturn in global demand and over-supply with some, such as Suntech, known to be cutting costs, reducing production capacity and laying off workers.
Another sign of the EU leadership’s softly-softly approach was a surprise announcement by Karel de Gucht, EU Trade Commissioner, on the eve of the summit meeting. He announced that he’d instructed his officials to delay a controversial investigation into export credits and alleged ‘illegal’ subsidies received by China’s telecomm sector (specifically Huawei and ZTE). The case “required stronger evidence before it could proceed”, he is reported to have said. That might well be true since European telecoms manufacturers are known to be unwilling` to support the investigation for fear of Chinese counter-measures against them But the timing of the announcement was suspect, and one can only speculate as to whether or not Mr. de Gucht had been leant on by Messrs van Rompuy and Barroso. If that was the case, the ‘good cops, bad cop’ routine was played impeccably well.
Rock ‘n’ roll
Yet however much the EU leaders tried to avoid mentioning the trade disputes in public they had not reckoned on the temerity of their guest, Premier Wen Jiabao. He had little time for a gracious pavane and began rocking and rolling. He veered away from the carefully choreographed EU message in his opening speech.
After cataloguing what had been achieved between the two partners over 10 years Premier Wen expressed “deep regret” about a continuing EU arms embargo and the lack of progress in recognising China as a fully-fledged market economy. The latter would eliminate European tariffs on Chinese goods and all but extinguish EU anti-dumping measures and punitive countervailing duties. Both, of course, are big trade issues founded on a polarisation of principles, the first political in nature, the second of free market economics.
Even the Chinese officials panicked when the Premier went off-message, asking EU technicians to cut the audio feed that was transmitting his speech to journalists. Apparently Wen’s criticism was not for public consumption and was meant to be reserved for his private audience with EU leaders.
Often it’s the expression of regret which tells us much more about deeper motivations and inner goals than actual performance or achievement. Premier Wen’s regrets – that is, China’s – are clearly congenital ones indicating the strength of the EU’s future negotiating position on the current trade issues. The periodic pronouncements of Chinese ministry officials also speak of “extreme disappointment” in the EU’s refusal to recognise China’s market economy status (MES). Last year Wen explicitly linked China’s help with a Eurozone debt bailout in exchange for recognition. The EU wasn’t so easily bought and the recommendation came to nothing.
What was discussed behind the closed doors in the Palais d’Egmont can only be guessed at though Wen’s two ‘regrets’ would surely have been among the most important topics. China’s deep desire for market economy status gives the EU leverage in its various trade disputes. These are principally fuelled by MES questions: the problems caused by state support for Chinese manufacturers through a variety of subsidies, permitting them to undercut the price competitiveness of European firms and sometimes threatening their survival.
This negotiating leverage also applies to the growing problem of market-access barriers faced by Western companies doing business in China. The barriers are subtle and often bureaucratic in nature, but European businesses are experiencing them all the same, claiming they are anti-competitive and discriminatory. In a recent survey 48 percent of European companies operating in China “reported missing out on business opportunities due to regulations barring their access to certain markets”.
Not until such fundamental problems are resolved can Europe proceed to recognition of China as a market economy. All the other issues that have led to trade tensions between China and Europe during the past year are symptoms of them. Both partners appear to have acknowledged this in the summit’s Joint Press Communiqué which states: “particular importance should be given to working for the resolution of the Market Economy Status (MES) issue in a swift and comprehensive way.”
The difficulties of dealing with China cannot be underestimated, especially when so little is known about the attitudes and policies of the new leaders-in-waiting and indeed, whether they share the same ‘regrets’ as Premier Wen.
One EU spokesperson summed up the high-level meeting by saying that “it is not a summit for big decisions.” That proved to be true. But the decisions on trade won’t go away. They are just lying in wait a little further down the road. In the coming months the EU Trade Commissioner will have his work cut out.