Wednesday, December 05, 2007

At Odds With China

Unlike the US, which has always maintained a more direct stance on China trade relations, the EU, as usual, has relied more on its soft power. Its officials prefer to reason with their Chinese counterparts, in the hope that clear but sensible dialogue would bring them to address the trade topics more willingly. Alas, it seems that speaking softly hasn’t aided the European position. Increasingly, Eurocrats are beginning to understand that the saying ’speak softly and carry a large club’ seems to hold more truth than calm conversation on its own.

In its 2007 antidumping report, the European Commission demonstrated the number of antidumping measures which were employed, and investigations and proceedings commenced during 2006. Of the latter, there was a clear rise to be noted in the number commenced that year. Furthermore, of the 36 new antidumping measures put into effect, 12 were aimed specifically at Chinese exports.

The sectors mainly targeted by these new and existing measures are the chemical, metal and electronic industries. However, at the same time, the European Commission reported to the WTO, stating that no new investigations were started in the first half of this year. This could be interpreted by Chinese and Hong Kong based companies that the EU’s antidumping activities have eased somewhat, however it is well known that the European Commission changes into a higher trade-defense-gear in the latter part of the year, especially in the current and upcoming months. This can also be deduced from the murmurs in Eurocrat offices, where officials seem to be gearing up for new confrontations with China over trade policies and trade defense.

It took the EU far longer, and perhaps too long, to fully grasp the impact of the rising dragon. The EU was still preoccupied with matters closer to home, namely the expansion of the bloc towards the East and the large influx of cheap(er) labor once the borders had been opened. Only now has it dawned on the EU that more effort needs to be put in the trade relations with China as there are several areas which are becoming ever more problematic for the various European economies. The most pressing issues are the enormous bilateral trade deficit between the EU and China, with China’s upper hand growing daily. This is combined with the fact that the Yuan still has been allowed to appreciate, which in combination with a rising Euro makes Chinese exports even cheaper.

The second group of problems concerns the lack of IPR enforcement by the Chinese government. While it is clear that European countries must switch to an entrepreneurial economy, with a very strong emphasis on innovation and knowledge production (rather than material production), as they cannot possibly compete on production costs with China, it is of crucial importance that the innovations that they produce are safeguarded.

However, lack of respect for IPR remains an endemic problem in China, and many cases can be named where Western companies see their technology copied without persecution. Neelie Kroes, the EU Commissioner for Competition, advised the Chinese government that the newly introduced anti-monopoly law must not be used for protectionist purposes, as several analysts fear that the law provides the legal ground for IPR theft. Moreover, it also keeps the door open for unequal treatment of foreign companies by the Chinese government.

Suggestions of the EU going to the WTO to take on China are being voiced, especially now that is has become clear that China does not respect the obligations it agreed to when it joined the WTO. And conversely, the WTO could serve as the EU’s big stick, to be kept behind the door when talking softly to China.


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