The EU has learnt its lesson on China, according to former European trade commissioner Karel De Gucht.
The bloc is ramping up pressure on Beijing over its ballooning bilateral trade deficit, and, De Gucht said, its policy must be influenced by the outcome of a previous bout of trade tensions.
Back in 2013, De Gucht was investigating alleged Chinese subsidies for solar panel production. The Belgian commissioner was dining with his wife when he got a call from his then-boss, European Commission president José Manuel Barroso.
“I just had [then-Chinese premier] Li Keqiang on the line. He is yelling at me, he is very, very mad,” Barroso told him.
“OK. Then we should continue with what we are doing,” De Gucht replied.
But in retrospect, the resulting antidumping duties imposed in June 2013 were insufficient to save Europe’s solar panel manufacturing sector, De Gucht said.
“We were not hard enough. We were not quick enough. And by that time there were no European producers any more,” he told the Financial Times in an interview.
It is a mistake the EU is determined not to repeat. This week the commission launched two new anti-dumping investigations into China.
The investigations into exports of titanium dioxide and of aerial work platforms for the building maintenance industry follow a probe into alleged Chinese electric vehicle subsidies launched in October.
Together with a flurry of other trade cases, the moves add up to an unprecedented push by Brussels for changes in Chinese trade policy and practice that some EU officials say is showing signs of bearing fruit.
This time the commission has begun its assessment of subsidies to Chinese electric-vehicle manufacturers before they gain a big foothold in its market.
And it is threatening a range of measures across other industries that are intended to widen support from European business and member governments, and to spread the pain of any Chinese retaliation.
This month, the commission confirmed it would levy provisional anti-dumping duties on some plastic imports from China after manufacturers of material used in bottles and packaging said they were being driven out of business.
Commissioners have threatened to open an anti-subsidy case over wind turbine parts. There is persistent speculation they are examining new measures to protect the much-reduced solar panel sector. And Brussels has accused China of restricting medical device imports.
A procession of European commissioners heading to Beijing has pressed Chinese authorities to change their ways.
Commission president Ursula von der Leyen, who visited in April, complained this week that Chinese dumping “distorts our market” and that a Beijing summit with President Xi Jinping on December 7-8 must yield results. “China is capable of change,” she said.
The bloc, which once relied on traditional — and slow-moving — trade defence techniques involving the World Trade Organization has equipped itself with several new tools in the past three years.
They include an anti-coercion instrument that could help it retaliate against countries using trade embargoes over political issues, such as the boycott of Lithuanian exports that China imposed after Vilnius allowed Taiwan to open a representative office there.
The EU can also now block investment by companies funded by overseas governments and cut businesses out of procurement contracts if their own domestic market is closed to EU bidders.
And it is working on an EU-wide export controls regime. Under US pressure, the Netherlands is stopping exports of high-end chipmaking machines to China. Brussels is pushing member governments — which retain sole power over national security matters — to come up with a joint list of technologies to restrict.
EU countries are worried by a widening trade deficit — which doubled in 2022 to almost €400bn, pushed in part by the war with Ukraine that has jacked up energy prices in Europe, sapping its competitiveness.
Chinese support for Russia has also raised tensions, said Noah Barkin, senior adviser at consultancy Rhodium Group. “There is a volatile cocktail of issues pushing the EU into a tougher stance,” he said.
EU members also worry about China’s dominance of green supply chains, particularly the critical raw materials needed for electric car batteries, and solar and wind energy systems.
Beijing recently restricted exports of germanium, gallium and graphite, which western governments viewed as a response to the chip controls.
But with its economy slowing and the US blocking Chinese investment and some imports, Beijing needs the EU now more than it did, Barkin said. “China’s economic problems give Europe a degree of leverage and Europe is using its leverage in a way we have not seen before.”
Traditionally, the EU’s 27 member states have been divided over China. Some, including Italy, Greece and Hungary, even joined the Belt and Road Initiative, Beijing’s $1tn global infrastructure scheme. Others such as Germany have huge investments and sales in the country.
However, one EU official said bloc leaders were now “united in seeing China for what it is”.
“There is a feeling that everything is said and now it’s time for the Chinese to show in deeds that they need us,” the official said.
Policymakers in Brussels say there are signs Beijing is responding to the pressure.
China has condemned the EV anti-subsidy investigation as a “naked protectionist act” and this week criticised the EU’s methodology for the probe, saying it was “not transparent” and “not fair”.
But Beijing has also stepped up efforts to court European business, as it tries to counter a slowdown in the Chinese economy.
This month, the commerce ministry said it would address many complaints made by the European Chamber of Commerce in China, which recently made more than 1,000 commission-backed recommendations for improving the treatment of foreign-invested enterprises.
Chinese companies are already opening battery factories in the EU and Barkin said building EV plants in the bloc could help improve political relations as well as exempting their output from tariffs.
Beijing was likely to make more concessions that would help to rebalance trade, but the EU pressure could still backfire, he said. “There is a risk that China overreacts and we enter a tit-for-tat downward spiral.”
Additional reporting by Joe Leahy in Beijing
Source: Economy - ft.com
