Sunday

21st Jul 2019

Analysis

Beyond US dispute, EU still aiming at China

EU trade commissioner Cecilia Malmstroem sprung a surprise last Friday (1 June), when she not only took the US but also China to the World Trade Organisation (WTO) in what stops just short of an all-out global trade war.

In addition to the expected response to US tariffs on EU steel and aluminium imposed from that day, Malmstroem announced that the EU was challenging Chinese legislation which, she said, "undermines intellectual property rights of EU companies."

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

  • Trade commissioner Malmstrom: "We cannot let any country force our companies to surrender this hard-earned knowledge at its border" (Photo: European Commission)

"If players in the world do not stick to the rulebook, the system might collapse," she said, linking the two issues.

Challenging both Washington and Beijing "demonstrates we are not choosing any sides," she said, suggesting that the reply to US tariffs should not be considered as the main issue.

"Despite everything that is going on with [US president Donald] Trump, it is in no way the scale of the trade issue the EU has with China," noted Hosuk Lee-Makiyama, from the European Centre for International Political Economy (ECIPE).

According to the European Commission, the EU and China trade "on average over €1 billion a day", amid EU calls for more "reciprocity" on access to markets and stepped-up EU measures against Chinese dumping and strategic investments.

In fact, by opening a procedure on property rights against China, the EU followed the US, which launched its own, slightly different, case in March and presented to the WTO just days before Malmstroem's announcement.

Investment talks

The US argued in Geneva, where the WTO is based, that what it called "forced technology transfer" was a "systematic, state-directed, and non-market pursuit of other [WTO] members' cutting-edge technology in service of China's industrial policy," according to notes published by Reuters.

The issue was also discussed last Thursday (31 June) in Paris between Malmstroem, US trade representative Robert Lighthizer, and Japan's minister of economy and trade Hiroshige Seko, as part of trilateral talks over global trade issues, including steel overcapacity.


In a statement, they said that "no country should require or pressure technology transfer from foreign companies to domestic companies."

Sources said that while opening an EU case against China was not a US demand as part of a larger bargain in their trade dispute, both sides had discussed a common approach and had been exchanging information on Chinese practices.

EU-US talks were also continuing in Brussels this week to coordinate further action.

Ahead of a China-EU summit in Beijing next month, the EU is looking for more cooperation with China on security, especially the survival of the Iran nuclear deal, climate change, and illegal migration, while trying to move forward on a long-term Comprehensive Agreement on Investment.

Member states are expected to soon start talks on an EU screening mechanism for foreign investment that is mainly targeted at China. The WTO case on property rights is another means to force China to rebalance investments relations.

'We have to react'

For years, EU companies that wanted to enter China have been required to grant ownership or usage rights of their technology to domestic Chinese entities, and have had to accept joint-ventures with Chinese companies.

"It's more and more difficult for EU companies to do business in China," MEP Franck Proust told EUobserver, noting that many faced the same pattern.

"You lure them with the size of the market, you attract investors which you oblige to get into joint venture and allow transfer of technology, and four or five years later you become a player yourself," he said.

The French centre-right MEP, who is a member of the European Parliament's international trade committee and the house's point man on the screening of foreign investment, warned that it would be "terrible" for the EU to have only a short-term vision.

"When I see some laboratories, some companies, opening research centres in China … Allow me to have doubts on the long term viability of this kind of strategy," he said.

"We have to react," he said.

"Technological innovation and know-how is the bedrock of our knowledge-based economy," Malmstroem argued last week. "We cannot let any country force our companies to surrender this hard-earned knowledge at its border," she said.

Acting alongside the US and Japan is a means for the EU to have more leverage on Beijing.

Looking at the weakest link

"What we have learned over the years is that China knows how to deal with lawlessness," said Lee-Makiyama.

"It can deal with a G0, a G1 or even a G2," he said, referring to a world order where there would be no dominant power, or just the US, or the US and China. "But it won't deal with a G3 or a G4 [with the EU and Japan]. Once they get cornered that have no choice than to reform," he said.

However, the trade expert warned, "China is looking at the weakest link, and it thinks it's the EU."

He pointed out that China had "better compliance with WTO rules" than many other members of the organisation and that it has always implemented WTO rulings.

"As they have no bilateral trade deals, they are bound to follow rules. It's the minimum standard," he noted.

China has rejected both the US and the EU's accusations on property rights.

It said it has "always attached great importance to the protection of intellectual property rights and adopted strong measures to protect the legitimate rights and interests of domestic and foreign intellectual property rights holders."

According to WTO rules, the EU will have to prove that beyond situations faced by EU companies, there is a deliberate policy by Chinese authorities, which violates the organisation's rules.

"There must be some kind of policies to challenge. It's not easy to do," Lee-Makiyama noted. "China never writes anything down. How can you prove things?", he said.

'Not shooting from the hip'

The EU is arguing that Chinese legislation is discriminatory to foreign holders of intellectual property right and restricts their ability to protect their rights.

The EU and China have 60 days to discuss the dispute. If no "satisfactory solution" is found, the WTO will be asked to set up a panel to rule on the outcome.

While bilateral talks, held at the WTO in Geneva, will be mostly technical, political discussions, especially at the summit in Beijing, are likely to influence the outcome of the consultations phase.

Just before Malmstroem launched the case on Friday, Chinese foreign minister Wang Yi was in the office of her boss Jean-Claude Juncker.

According to a commission source, the two men only "briefly discussed trade issues of common interest."

Asked by EUobserver about the meeting, Juncker's spokesman summarised the EU mood by saying the showdown is about to begin.

"We're not shooting from the hip. We prefer a rule-based international trade system," he said.

Focus

Trump chaos breeds better EU-China relations

The EU has encouraged China to take a leading role in fighting the new US protectionism - but has also insisted that Beijing needs to reform and needs to be fairer to European investors and traders.

Focus

MEPs tell Chinese ambassador of concerns on trade

In an exchange with the new Chinese ambassador to the EU - his first appearance at an EU institution - the EU Parliament international trade committee called for action to meet commitments to open up China's market and reduce overcapacity.

Focus

China's 'new era' means balance with EU

Under Xi Jinping's second term as leader, China wants more equality with the US and the EU, while waiting for Europeans to show their global clout.

Feature

Romania enlists priests to promote euro switchover plan

Romania is due to join the single currency in 2024 - despite currently only meeting one of the four criteria. Now the government in Bucharest is enlisting an unlikely ally to promote the euro to the public: the clergy.

Trump and Kurz: not best friends, after all

The visit of Austrian chancellor Sebastian Kurz to the White House on Wednesday showed that the current rift in transatlantic relations is deepening by the day.

Stakeholders' Highlights

  1. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  2. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues
  3. Nordic Council of MinistersNo evidence that social media are harmful to young people
  4. Nordic Council of MinistersCanada to host the joint Nordic cultural initiative 2021
  5. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  6. Nordic Council of MinistersEducation gets refugees into work
  7. Counter BalanceSign the petition to help reform the EU’s Bank
  8. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  9. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  10. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  11. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat
  12. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North

Latest News

  1. EU goes on holiday as new UK PM arrives This WEEK
  2. Survey: Half of EU staff 'don't know' ethics rules
  3. Von der Leyen signals soft touch on migrants, rule of law
  4. Timmermans: von der Leyen will be tough on rule of law
  5. Timmermans trolls 'idiot' Brexit negotiators
  6. Rudderless Europe: Will real Germany please stand up?
  7. PiS & Fidesz claim credit for von der Leyen victory
  8. Von der Leyen faces gender battle for commission posts

Stakeholders' Highlights

  1. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  2. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  3. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  4. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year
  5. Nordic Council of MinistersNordic commitment to driving global gender equality
  6. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan
  7. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria
  8. Nordic Council of MinistersNordic talks on parental leave at the UN
  9. International Partnership for Human RightsTrial of Chechen prisoner of conscience and human rights activist Oyub Titiev continues.
  10. Nordic Council of MinistersNordic food policy inspires India to be a sustainable superpower
  11. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID
  12. Counter BalanceEU bank urged to free itself from fossil fuels and take climate leadership

Stakeholders' Highlights

  1. Intercultural Dialogue PlatformRoundtable: Muslim Heresy and the Politics of Human Rights, Dr. Matthew J. Nelson
  2. Platform for Peace and JusticeTurkey suffering from the lack of the rule of law
  3. UNESDASoft Drinks Europe welcomes Tim Brett as its new president
  4. Nordic Council of MinistersNordic ministers take the lead in combatting climate change
  5. Counter BalanceEuropean Parliament takes incoherent steps on climate in future EU investments
  6. International Partnership For Human RightsKyrgyz authorities have to immediately release human rights defender Azimjon Askarov
  7. Nordic Council of MinistersSeminar on disability and user involvement
  8. Nordic Council of MinistersInternational appetite for Nordic food policies
  9. Nordic Council of MinistersNew Nordic Innovation House in Hong Kong
  10. Nordic Council of MinistersNordic Region has chance to become world leader when it comes to start-ups
  11. Nordic Council of MinistersTheresa May: “We will not be turning our backs on the Nordic region”
  12. International Partnership for Human RightsOpen letter to Emmanuel Macron ahead of Uzbek president's visit

Join EUobserver

Support quality EU news

Join us