The summit due to take place in Brussels this week comes at a crucial and sensitive time in trade relations between the EU and China. It is an opportunity to reduce the tensions in what is becoming a fractious trading partnership without papering over the issues.
But the last thing Europe needs is symbolic diplomatic gestures and silky handshakes resulting in a vacuous communiqué when there are serious trade differences to be dealt with.
A great deal has happened since last February when the last summit took place in Beijing between the two trading partners. Then they issued an upbeat joint communiqué praising the “positive developments in the bilateral trade and investment relationship… (whereby) both sides recognized the importance of continuing efforts to fight trade and investment protectionism.”
In the seven months that has elapsed since that 14th EU-China summit, those ‘positive developments’ have taken a divergent and negative path in exactly the opposite direction to the spirit of the communiqué. Protectionist sentiment on both sides is creeping insidiously into the relationship and trade friction between the two partners is intensifying on a number of hot button issues. The partnership is fraying and looking more like a slug-fest between two rivals.
Collective threat
Above all else it is the collective threat that these individual issues pose to the bilateral trade relationship which the 15th Summit should address as the strategic priority at a time when both Europe and China need each other in toughening economic circumstances. Trade should sit at the top of the agenda for Mr. van Rompuy (the European Council President) and Mr. Barroso (European Commission President) when they meet Premier Wen Jiabao in Brussels.
Summiteering : Messrs Wen, van Rompuy, Barroso © The Council of the European Union, 2012
Since last February an escalation in trade tensions has characterised EU-China relations, in large part due to complaints brought by European firms as well as the pro-active assertiveness of the EU Trade Commissioner, Karel de Gucht. Mr. de Gucht takes a no-nonsense approach in challenging China on trade disputes. He is the European bull in the China shop and yet – notwithstanding his testosterone-driven style – he has every reason to be: if he doesn’t champion the EU’s regional trade interests by bringing China-related trade issues to the table, then nobody else will. One hopes Mr. van Rompuy and Mr. Barroso have been well-briefed by the Trade Commissioner and that they’re suitably equipped with position papers concerning the disparate trade issues bedevilling EU-China trade relations.
Good cops, bad cop
As the ‘good cops’ Messrs Rompuy and Barroso should set a conciliatory tone and propose a high-level EU-China trade summit to iron out issues. They should not be tempted to work against the ‘bad cop’ EU Trade Commission; for it is there that the hard negotiations and solutions need to be hammered out with China. In dealing with a monolithic but edgy China, the EU has to speak with one voice and behave as if it is a unified region.
Certainly there are many sticky and divisive issues that have been piling up on each other since the previous bilateral summit. It could be said to have begun as the 14th Summit was underway in February when China’s State Council banned the country’s airlines from paying the EU’s carbon emissions tax and threatened retaliatory measures. Then in April European bicycle manufacturers lodged complaints with the EU against Chinese producers with a range of allegations about anti-competitive behaviour, from unfair loan terms to beneficial tax treatment.
Two months later, in June (though somewhat more seriously in terms of technology than the humble push bike) the EU Trade Commission announced a probe into China’s telecommunications equipment companies, namely Huawei and ZTE. Both companies are alleged to have received illegal state subsidies while providing generous (state supported) credit terms to entice purchases by overseas customers. The EU action could potentially lead to punitive tariffs. Significantly it was the first time the EU had acted on its own initiative and not in response to formal complaints by European firms.
The EU telecom announcement touched a raw nerve. China’s response was swift and combative, threatening retaliation if the EU investigation went ahead: not only would China investigate EU subsidies for telecoms firms but they’d also widen their own probes to include European agriculture, automotive, and renewable energy sectors.
Shortly after the acrimonious telecoms clash, the EU received formal complaints in July from a consortium of European solar panel producers led by Germany’s SolarWorld alleging the dumping of artificially cheap solar panels by Chinese manufacturers. As expected, in early September the EU announced a formal investigation. Much to its credit China’s official response this time was muted, urging resolution through “consultations and cooperation”. Perhaps China’s economic slowdown and the dismal succession of anaemic month-on-month trade figures tempered the official reaction on that occasion.
They need each other
Escalation of trade tensions is in neither party’s interests. Both of them acknowledge their mutual need for each other: China because it seeks Europe’s technological know-how and a critical mass of buyers to arrest its declining export flows, and Europe because it needs both inbound investment to stimulate industrial growth as well as China’s market demand to compensate for the near-stagnant intra-regional EU trade.
China-EU: The two need each other to trade.
Nevertheless, European companies do not feel there is a level playing field when it comes to accessing the Chinese market: ‘invisible’ barriers of bureaucracy, indigenous innovation policies and closed government procurement contracts are perceived to work against competitive opportunity. Nor do European firms feel that China is playing fair in ‘dumping’ lower priced products within the EU that have benefitted from a range of discrete subsidies and which are putting the region’s companies – especially in the solar energy sector – out of business.
These issues of asymmetric trade have remained unresolved for a long time which is why the EU Trade Commission this year has ramped up the pressure on China to change its ways. “The real question is,” said de Gucht recently, “when will they be really ready to move and start to make trade-offs?” It is this impatience that has led to intensified EU action on a range of trade issues in previous months.
A high-level trade summit
The 15th China-EU Summit in Brussels is an opportunity to initiate a framework with a set a timetable for bilateral trade talks at the highest government level in the next few months. But is it likely to happen? Probably not in the way I’ve laid out the ideal scenario, for the Chinese delegation to the summit is headed by Premier Wen who is all but a lame duck. This will be his last official trip to Europe before he steps down to make way for his successor Li Keqiang at the 18th National Congress of the CPC in October.
Nonetheless, the EU leaders at the 15th China-EU Summit should tactfully give Mr. Wen a clear message to take back to Beijing’s leaders-in-waiting: now is the time to address comprehensively the underlying tensions between China and Europe over trade. For without a high-level dedicated trade summit that aims to eliminate EU-China friction and the current tit-for-tat escalation of the last seven months, there is every chance of it spiralling into a dangerous zero sum game: an all-out trade war.
Protectionism is not the answer