Mandelson strongly critical of Chinese trade policy

He wrote that while the EU has become the largest export market for Chinese manufactured goods, the EU still sells more goods to Switzerland than to the Asian giant.

According to the commissioner, trade is obstructed by tariffs, state subsidies and intellectual property rights not being enforced - something that results in widespread counterfeiting.

He added that this situation is costing European firms billions of euro each year and is causing a huge and growing trade deficit with China, referring to it as a "policy time bomb".

Mr Mandelson went so far as to call China a "juggernaut" that is "to some extent, out of control" and is "procedurally obstructive" wherever dialogue has been set up.

"The Chinese must recognize the political realities and play their part in providing reciprocal openness for European investment and trade," a commission trade spokesperson said on Thursday (18 October) when asked about the letter.

"It's clear we had some success with the Chinese in terms of specific policy areas, but it's also true that the process has been frustratingly slow," he added.

The spokesperson also stressed that if China did not make significant progress on issues such as intellectual property and opening up on services, protectionist measures could be taken.

"If China does not pull its weight, then inevitably we will be faced with calls for a different approach. Maintaining open trade in both directions is the best solution for both sides. This remains our objective if China is committed to practical measures," he said.

"That different approach would clearly be a more protectionist approach. This is not in Mr Mandelson's view an approach that is desirable or appropriate," he added.

Getting tougher on China

Mr Mandelson now wants to turn to the WTO and use its dispute settlement procedure more often, in particular to tackle the problem of dumping goods on European markets.

Since 2001, the EU has only launched this procedure once against China, while the US has done so six times in the same period.

If the procedure finds China guilty of non-compliance with WTO rules, but fails to resolve the quarrel, the EU is allowed under these rules to retaliate with economic sanctions.

The trade commissioner's letter reflects the EU's new and tougher stance towards China, following the demand for a stronger Chinese currency and the extension of the high tariffs on Chinese light bulbs.

It is also expected that the EU leaders meeting on Thursday evening in Lisbon will be critical on China.

In a statement prior to the meeting, Mr Barroso said that member states "are concerned, very concerned, with the huge trade deficit between Europe and China."

Europe's trade deficit with China increased from €41.3 billion to €50.4 billion in the first half of this year, compared with the same period last year – a jump of 22%.