Wednesday

1st Feb 2023

EU takes WTO action against China over 'bullying' Lithuania

  • EU Commission vice-president Valdis Dombrovskis announcing the action against China (Photo: European Commission)
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The EU launched a case against China at the World Trade Organization (WTO) on Thursday (27 January) over its coercive practices against Lithuania and exporters from other member states.

"Let me me be clear, these measures are a threat to the integrity of the EU single market," commission vice-president Valdis Dombrovskis told reporters, and added: "these affect intra-EU trade and EU supply chains and negative impact on EU industry."

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The move signifies a further escalation between the two economic giants. It is also a politically symbolic move by the EU towards one of its smallest members, as the WTO dispute-settlement process could take years before it yields tangible results.

The EU's main trading partner, China, started blocking Lithuanian products and goods from other EU countries that contained Lithuanian components at its customs in December.

China's de facto ban on Lithuanian exports came after the EU member in July allowed Taiwan to open a representative office in Vilnius, under the country's name - instead of the capital, Taipei.

Beijing saw that as a challenge to its integrity, as it considers Taiwan part of its territory with no right to diplomatic recognition.

In response, China recalled its ambassador and downgraded ties with Lithuania, but has denied blocking Lithuanian goods.

Lithuania's move irked other EU members at the time, as it has been a diplomatic tradition to use the capital for Taiwan's representation, and Vilnius had not tipped off other member states of its decision.

However, the EU's launch of the WTO case is considered "a sign of solidarity", the German foreign ministry said on Thursday.

Lithuania's prime minister thanked the commission for taking action.

"Pressure, restrictions and threats are incompatible with WTO rules and values of the free world," Ingrida Šimonytė tweeted.

Evidence

Dombrovskis said EU officials worked hard on collecting the evidence on Chinese customs banning Lithuanian imports, mostly affecting pharmaceuticals, lasers, electronics and food.

The measures also include rejection of import applications from Lithuania, and pressuring EU companies operating out of other EU member states to remove Lithuanian inputs from their supply chains when exporting to China.

Dombrovskis said there has been a 90-percent drop in trade from Lithuania to China in December 2021 compared to December a year earlier. Chinese firms are also cancelling orders from Lithuanian companies.

"The EU is determined to act as one and act fast against measures in breach of WTO rules," the Latvian commission vice-president added.

The case will be the first major test at the new dispute-settlement mechanism at the WTO, as the organisation's appellate body is not functioning after the US administration under former president Donald Trump held up appointments.

Consultations at the WTO will last for 60 days, after which the EU can ask for an adjudication panel. That will take at least six months to reach a verdict, while the EU can impose retaliatory tariffs. China can appeal the decision by the panel.

The commission said it is also pursuing diplomatic efforts to de-escalate the situation - but bilateral consultations have so far not produced results.

"China always acts in accordance with WTO rules. […] The allegation that China coerced Lithuania is groundless and inconsistent with facts. The issue is between the two countries is a political one and not an economic one," the Chinese foreign ministry said on Thursday.

"The fraught relations are a result of Lithuania's action in bad faith that hurt Chinese interest, and not a matter of China exerting pressure on Lithuania. It is a bilateral issue between the two countries and not something between China and Europe," the spokesperson, Zhao Lijian, said, urging Lithuania to "correct its mistake".

"We hope the EU side will tell right from wrong, and stay vigilant of Lithiania's attempts to hold EU-China relations at hostage," he said.

Few tools

In the meantime, Dombrovskis urged EU capitals and the European Parliament to approve an anti-coercion instrument, proposed last December, that would allow the commission to take urgent measures such as an import bans.

Spanish socialist MEP Inmaculada Rodríguez-Piñero, who is responsible for trade relations with China, said she was glad that "the Commission flexes its muscles and takes a clear stance against the bullying of Lithuania and other countries by China".

The EU has few tools to act fast if one of its members is under such trade pressure.

China has been courting the EU during the Trump presidency, by portraying itself as another defender of multilateralism in contrast to Trump's "America First" policy.

However, last year the EU joined Washington, the UK and Canada in imposing sanctions on Chinese officials over accusations they are linked to the abuse of the Uyghur ethnic minority.

Beijing retaliated by sanctioning five MEPs, among others, which practically froze the ratification of the massive investment agreement between China and the EU, pushed by Germany, and agreed in December 2020.

"The parliament has been clear that it will not proceed with this ratification of this agreement in a situation where members of European Parliament are under China's sanctions," Dombrovskis said.

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