Wednesday

19th Sep 2018

Focus

Trump chaos breeds better EU-China relations

  • Trade commissioner Cecilia Malmstroem is key to forming the EU's China policy - along with Jyrki Katainen, commissioner for jobs, growth, investment and competitiveness (Photo: European Commission)

As the US is increasingly becoming an unpredictable global player under the Donald Trump presidency - by ignoring international agreements and upsetting the rule-based world order - the EU and China more and more find themselves to be allies in wanting to uphold multilateralism in dealing with global issues.

But there is a level of unease between the EU and China: while the two global players increasingly need each other, the lack of trust persists.

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  • 'China and the EU have a joint responsibility,' China's ambassador to the EU, Zhang Ming, argued (Photo: Mission of China to the EU)

That underlying dynamic was evident at a conference on Monday (7 May) at the European Economic and Social Committee on how the EU and China could work together to achieve the UN's sustainable development goals, a set of targets set out in 2015 to prevent poverty and climate change, and address health, education, sanitation, energy, and social justice in the developing world.

Since Trump ushered in his 'America First' policy, China has started portraying itself as a defender of multilateralism and global rules-based trade.

The EU has encouraged China to takea central role in fighting protectionism , but has insisted it needs to reform to be fair to European investors and traders.

China is the EU's biggest source of imports and its second-biggest export market, while China and Europe trade on average over €1bn a day.

China's ambassador Zhang Ming told the conference that "sustainable development would be out of the question without solid economic recovery and a rules-based trade and investment environment".

"The current environment for development is not resilient enough, and cannot afford reckless acts of unilateralism and protectionism," he said.

"We must firmly uphold the multilateral trading system that is free, open and non-discriminatory, and fight protectionism in any form or under any pretext. China and the EU have a joint responsibility in this regard," China's ambassador argued.

He added that Beijing is ready to "step up dialogue" on environmental protection, clean energy and the 'circular economy', whereby more materials are recycled and reused in products.

European Commission vice-president Jyrki Katainen agreed that the EU and China must be "exemplary" in refusing unilateralism.

"If China and the EU, two of the largest economic and political powers in the world, cannot show leadership in this respect, others for sure won't be able to compensate this," he said.

Katainen however insisted on the need to "uphold democratic values at home, the rule of law".

He also said the EU and China "must promote an open, rules-based and fair trade order".

"This means that we must support the WTO [World Trade Organisation], but also upgrade its rules – for instance by negotiating new rules on subsidies – to fight overcapacity and promote a level playing field," Katainen said.

Chinese overcapacity?

Chinese overcapacity in steel and its cheap exports have been blamed for the new US tariffs introduced by Trump, despite the US administration's unwillingness to address the issue alongside its European allies - rather than introducing unilateral punishing tariffs.

A Swiss-based trade watchdog, Global Trade Alert, however warned in a report last Thursday that the concept of global excess capacity, commonly cited against China, is exaggerated as a justification for US protectionism.

But overcapacity is not the only issue that is a concern to the EU.

European investors have been concerned about Chinese barriers.

In 2016, Chinese investment flows into the EU rose to a record high of almost €40bn, while EU investment into China fell to a 10-year low of less than €8bn.

The issue should be addressed within the EU-China investment agreement - that has been under negotiation since 2013 without a breakthrough.

"We must also ensure more reciprocal openness towards one another," Katainen said.

"China still has many barriers to foreign investment and has repeatedly announced that it will lift them. It is important that such reforms are carried out and that this is enshrined in an ambitious bilateral investment agreement," the commission vice-president added.

Bernard Dewit, chairman of the Belgian-Chinese Chamber of Commerce, stressed at the conference that for investors, the investment agreement would be a crucial framework, even if not all the details are yet hammered out.

"The EU-China investment treaty will give a clear framework for all European companies, it will push for more trade relationship between China and EU," he said.

However, other experts warned the EU against pushing China into a corner with trade defence instruments and veiled protectionist measures.

Renato Antonini, a lawyer dealing with large trade defence investigations, and who recently successfully represented Chinese companies at the European Court of Justice, said at times tools originally designed to promote 'sustainability' can be used as a form of protectionism.

He warned there could be a tendency to use the EU's new trade defence instruments, or the 2017 report on China's market distortion practices by the European Commission in anti-dumping cases as a form of protectionism. Instead controversial issues should be dealt with at international forums, he argued.

"Will we use these tools to implement protectionism, or [use] these tools sincerely ... to push forward certain elements of sustainability?," he asked, rhetorically.

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Analysis

Beyond US dispute, EU still aiming at China

On the day it outlined its reaction to US tariffs on steel and aluminium, the EU commission also launched a case against China on property rights - an issue on which EU and US are working hand-in-hand.

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