Is it Germany’s Chancellor, or the European Union’s Trade Commissioner?
A high-powered German political and trade delegation visited China for two days at the end of August. It was led by the indomitable, Teflon-coated German Chancellor, Mrs. Angela Merkel, accompanied by nine of her own government’s cabinet ministers together with a bevy of German industrialists.
For all intents and purposes the visit seemed to be aimed at strengthening bilateral German-Chinese economic and trade interests. These shared interests are considerable for both countries: trade between the two export-oriented economies amounted to € 150 billion last year; Germany’s Mittelstand companies have invested heavily in setting up China operations and manufacturing facilities; its automotive brand behemoths such as Audi, Mercedes-Benz, Daimler , BMW and Volkswagen are profiting handsomely from demand by the wealthy Chinese consumer’s love of luxury and quality brands; while Chinese firms – eager to acquire German technology and know-how with an eye to displacing German competition in future – have recently begun to reciprocate by buying Mittelstand companies. Little wonder that Germany, alone among EU countries, claims to have a ‘special relationship’ with China.
Leading a bilateral mission – or was it EU?
Ostensibly Mrs. Merkel’s visit was to be a bilateral country-to-country affair. Yet in terms of what was on the German-China meeting agenda and what was actually discussed one could be excused for thinking Mrs. Merkel was also heading up a European Union delegation. As Germany’s Chancellor she is indeed an ex-officio member of the EU’s leadership and as leader of its strongest economy she has earned international opprobrium and plaudits in equal measure for her efforts in trying to sort out the Eurozone’s messy and protracted sovereign debt crisis.
Not surprisingly China rolled out the red carpet for the German delegation because it sees Mrs. Merkel as holding more than an ex-officio position. For them the German Chancellor is the EU’s de facto leader, one of the few – and perhaps the only one – who speaks for Europe and as someone with whom they can do business without receiving an embarrassing public lecture on human rights: “with each visit to China, Merkel’s soft-spoken approach becomes even softer,” commented Spiegel about her August visit.
The German Chancellor and the Chinese Premier enjoy a train ride on their day out to Tianjin
What China wants
China views Mrs. Merkel as the key to delivering what it desperately hankers for most from the EU: recognition of China’s status as a ‘market economy’. Recognition would lessen the fall-out from anti-dumping disputes and all but eliminate the likelihood of EU sanctions or swingeing duties being imposed on Chinese products suspected of receiving unfair subsidies from the state. As of May 2012 the EU had 53 anti-dumping measures and one anti-subsidy in effect against a range of anti-competitive China imports.
Only a year ago, before China’s dramatic 2012 economic slowdown, Premier Wen Jiabao explicitly if somewhat crudely suggested that China might help with an EU bail out in exchange for market economy status. Nothing came of it except the feeling that China had played hardball with a vulnerable Europe in the midst of a crisis. One year on with China’s export economy slumping largely as a result of slack demand from Europe, there was more talk of helping the Eurozone by buying debt, this time without ‘market economy’ strings attached.
With protectionist sentiment increasing among Europe’s political and business establishments, more EU-China trade friction is expected in the foreseeable future. This would be bad for both China and the EU, but particularly damaging for German-China trade and investment which has been coasting along quite nicely from both countries’ perspectives.
Strength as a single trading bloc
Therein lies the rub of Mrs. Merkel and China’s treatment of her as the EU’s de facto leader and spokesperson. Germany’s bilateral economic interests should not take precedence over the EU’s when it comes to dealing with China on regional trade issues. If the EU has any economic clout at all during this period of global economic weakness, especially when it comes to relations with China, it is as a single regional trading bloc. Unity – however difficult to achieve with 27 bickering countries – is a strength at a negotiating table.
While in Beijing Mrs. Merkel departed from that script. In telling Premier Wen Jiabao she favoured ‘talks’ to resolve a dispute over China’s alleged dumping of cheap solar panels which has severely hurt European producers, Mrs. Merkel explicitly contradicted the more robust anti-dumping action being considered by Karel de Gucht, the EU Trade Commissioner. The irony is that the dumping complaint against China’s solar panel manufacturers has been brought to the EU’s attention by SolarWorld, a German producer.
As it is an EU trade dispute and not a bilateral one, it should be dealt with by the EU Trade Commissioner and not by Germany’s leader. A tactful silence would have been more appropriate on the part of Mrs. Merkel rather than sending out mixed messages which appear to compromise the EU commissioner’s authority on European trade matters.
Defending collective trade interests
Mr. de Gucht has consistently taken a tough line over Chinese products suspected of receiving indirect or direct state support and subsidies, including a major investigation into illegal subsidies for telecommunications equipment suppliers Huawei and ZTE that could potentially result in punitive tariffs. Unlike Mrs. Merkel with her cosier, more accommodating style of bilateral diplomacy, China’s political leadership finds Mr. de Gucht’s muscular stance in defending EU trade interests far less endearing or comfortable. As far as defending the EU’s collective trade interests are concerned, that is all to the good.
A whiff of divide-and-rule
For there is a potent whiff of divide-and-rule tactics in the way China flatters Mrs. Merkel and Germany. “Germany has the ability to lead a more independent diplomacy in global politics. It should not bury itself in old Europe,” opined the Global Times, an English-language newspaper that acts as the Chinese government’s official mouthpiece. Decoded, it means Germany should be more assertive as a sovereign state and place its bilateral interests and relationships above those of the EU. That would make it easier for China to deal with EU trade issues through a single but powerful European interlocutor such as Germany.
Chancellor Merkel and Premier Wen pose for a photo op inside Beijing’s Forbidden City
Whatever one might think about Mr. de Gucht’s robust style as EU Trade Commissioner, at least he is framing trade issues within the parameters of a multilateral Europe to serve the economic interests of all 27 EU member states.
He speaks especially for European companies impacted by China’s mercantilist trade policies that limit open competition in the Chinese market, particularly the lack of opportunities in the public procurement area. For example, only 23 of the 22,000 telecommunication licenses awarded in China since 2001 have been to foreign companies. A recent survey of European companies doing business in China confirms that they still feel the regulatory environment discriminates against them in favour of domestic competitors. There is a “perception that the regulatory environment will continue to deteriorate for European enterprises… that vested interests in China will stymie reform.” The body best equipped to manage the collective concerns of European companies sits at a regional EU level and not in the Bundestag.
China’s exports under scrutiny
Since taking up his Trade Commissioner role in 2010, Mr. de Gucht has been assiduously scrutinizing a range of Chinese exports from bicycles to glossy paper suspected of benefitting from indirect state-supported subsidies that allows indigenous manufacturers to profit from unfair price advantages at the expense of European companies.
He has also encouraged European companies to file anti-subsidy cases against China to expose unfair practices. But he also knows that many European firms doing business with China are reluctant to table complaints for fear of company-targeted countermeasures (or to put it bluntly, selective punishment) by Chinese authorities which could lock them out of the mainland’s market. China is quite capable of its own forceful countermeasures too, as evidenced by the EU’s policy of imposing a carbon tax on airlines using European airspace. China simply ordered its own airlines not to comply and cancelled € 11 billion-worth of aircraft orders that had been placed with Airbus.
Speak with one voice
It is difficult enough representing 27 European countries in trade matters – the proverbial herding cats syndrome – let alone managing the EU trade relationship with China, the world’s second biggest economy and growing in ebullient confidence by the day.
The EU is committed to the principle of free trade and open markets and has transparent processes in place to deal with trade disputes. Whenever these arise, they need to be dealt with by the EU Trade Commissioner who is vested with the authority to see that due process – of arbitration, negotiation, enforcement, and so forth – are complied with in the best interests of Europe’s overall competitiveness . The EU Trade Commissioner is the key spokesperson on EU bilateral trade issues, not the German Chancellor nor any other government leader of a single European sovereign state.
If Europe is to benefit from one of its remaining strengths – that is, as a regional trade bloc – it needs to speak as, and through, one voice. Sure, there can be dissent and there should be debate, but not as public spats between European leaders. That simply encourages China to exploit disunity by dealing bilaterally with whichever European country seems to be in accord with or closest to China’s own national trade interests.
This point is made far more acutely by Timothy Garton-Ash in a recent New York Times article which argues that as Europe’s economic power declines, it is ever more important to use the collective scale of its EU members : “In a world of giants, you had better be a giant yourself: A trade negotiation between China and the European Union is a conversation between equals; one between China and France is an unequal affair”. That applies just as much to Germany as France, Mrs. Merkel.