The European Union-China relationship is one of the most important and least understood relationships in the world today. Where there used to be cooperation between the Chinese and the Europeans, competition has now emerged, and new issues have appeared in areas which were not that relevant in the past, such as China’s role in Africa. Since mutual understanding in a more objective manner is a pre-requisite for mutual trust, this paper aims at understanding the potential of a trade partnership between the European Union (EU) and China. China is a strong economic power with increasingly sophisticated production in its coastal regions and attempts to establish itself as a gravity center by concluding many bilateral free-trade agreements (FTAs) in the region
Although China’s power base is in the Far East, there may be specific policy areas in which China’s influence would be global. As will be analyzed later, there are many differences and difficulties between the EU and China in the trade field, some of which are of serious concern to the EU. With this in mind, this paper raises various questions: is the EU an attractive trade partner for China? Does the EU want cooperation with China? What can the EU expect from cooperation with China? What are the EU’s priorities in its foreign trade policy? With which instruments can the EU engage China
The paper is divided into six parts. After the introduction, Part II explains the steps taken for negotiating a new comprehensive framework agreement between China and the European Union, whereas Part III is devoted to EU-China trade relations and Part IV to the bilateral trade relations from a Chinese perspective. Part V, before the conclusions in Part VI, examines the various ways to improve the currently difficult EU-China trade relation.
II. A New Bilateral Agreement in the Making
The EU is China’s largest trading partner since 2004. In terms of volume of trading, the EU-China trade relationship is the second largest bilateral trade relationship in the world, only after the EU-U.S. trade relationship. Diplomatic relations were established in May 1975 between the EC and China. Already in early 1978, a trade agreement was concluded between the European Economic Community (EEC) and China, which was replaced by a Trade and Economic Cooperation Agreement between China and the EEC in 1985 [Council Regulation 2616/85  OJ L 250/1, 19 September 1985]. The EU continues to work towards improving bilateral trade relationships. Commissioners Peter Mandelson and Benita Ferrero-Waldner met with Chinese trade Minister Bo Xilai on 4 November 2005 to discuss the Doha trade round, but also a wide range of issues including the environment, energy, and intellectual property.
Certainly, the EU-China relations have not always been smooth. For example, in November 2008, the Chinese government told the French EU Presidency that Chinese Prime Minister Wen Jiabao would not be travelling to Lyon for the EU-China summit, which was expected to focus on disputes over China’s high trade surplus with the EU as well as coordinating a global response to the financial crisis, which has expedited China’s rise to more responsibility to maintain international order in global economic governance [For an official recount of China’s ten responsibilities in the world, see http://bit.ly/c8EutF]. The Chinese government based its decision on the fact that the Dalai Lama was going to visit several EU Member States at the same time as the EU-China summit had been scheduled and he was going to meet with heads of state and government as well as presidents of European institutions. One could infer from this Chinese retaliation that Chinese leaders consider isolating Tibet and the Dalai Lama a bigger priority than enhancing the Sino-European strategic partnership [EurActiv, “Brussels stunned as Beijing cancels EU-China summit,” available at http://bit.ly/9pR9ep]. This retaliation raises interesting questions: what does it mean from a Chinese perspective that EU countries have meetings with the Dalai Lama at the same time as the Chinese Prime Minister is supposed to have meetings in those countries? Why are EU countries not interfering more in the China-Tibet situation?
The first EU-China Strategic Dialogue at Vice Foreign Minister level was held in London in December 2005. At the 9th EU-China Summit in September 2006 in Helsinki, the EU and China agreed on opening negotiations for a new comprehensive framework agreement covering topics such as energy, sustainable development, cooperation in Africa, and the protection of intellectual property rights. This was due largely to the mutual agreement by both parties that the 1985 Agreement no longer reflected the scope, depth, or overall nature of their current relationship.
So negotiations about a more comprehensive Partnership and Cooperation Agreement (PCA) started in January 2007. The PCA will cover all components of the EU-China relationship and provide a comprehensive management framework. The prospective PCA is expected to lay the foundation for enhanced cooperation, including the enforcement and, where possible, the upgrading of environmental, social, labor and safety standards. It will also hold comprehensive dialogues on over 20 ongoing sectoral dialogues with a view to promote cooperation in all sectors, including on economic and financial matters, in both bilateral and multilateral fora. With regard to these existing sectoral agreements, the PCA will complement rather than replace these agreements [Emerging Markets Group & Development Solutions, “Trade sustainability Impact Assessment of the Negotiations of a Partnership and Cooperation Agreement between the EU and China – Draft Global Analysis Report, p. 8, August 2007].
By re-negotiating the 1985 Trade and Economic Cooperation Agreement, the EU and China face several difficulties. The new agreement is expected to boost the EU-China dialogues. However, despite the ever intensifying commercial links between the two sides, discussions over the scramble for energy supplies, human rights, and other issues have hampered a renewed convergence of interests. Furthermore, the 2008 global financial crisis made itself felt and is expected to have a profound impact on Sino-EU relations in political and economic spheres.
In general, the PCA will be negotiated on the basis of a commitment to the principles of good governance, rule of law, effective multilateralism, the fight against corruption, and improved transparency. As such, the PCA will contain a standard clause on human rights—an issue where China continues to have a poor record domestically (despite the fact that Article 33 of the Chinese Constitution affirms that the State shall respect and guarantee human rights) and where China has provided aid to foreign countries without paying attention to the importance of human rights. For example, China’s unconditional aid policy in Africa has infuriated many EU countries that consider Chinese intervention counterproductive to Europe’s efforts to promote human rights, good governance, and environmental health in Africa. Even countries such as Germany and France, whose former leaders once were China’s best friends, have now become more skeptical of China. The PCA will foster cooperation to find international solutions to global issues such as climate change, including energy cooperation, by stimulating energy efficiency and the promotion of renewable energy. Increased cooperation will also be sought in education, culture, and science. It is envisaged there will be increased grass-roots level peer-to-peer exchanges of unions, students, academics, business associations, non-governmental organizations and other areas of cooperation.
However, although cooperation dialogues between the EU and China already exist on many levels, a free-trade agreement (FTA) between the EU and China is not on the horizon since it would alienate other EU trading partners and it would create much resistance from within the EU and from third countries. China is already very competitive without an FTA with the EU.
III. Current Difficulties in EU-China Trade Relations
Trade can be used as a “carrot” or as a “stick.” It is used as a “carrot” when preferences for certain countries create competitive advantages versus third parties. Trade can also be used as a “stick” or punishment. For example, 1) to deny preferences to a certain country when granting them to others, thereby creating discrimination and trade diversion; 2) through trade defense instruments such as anti-dumping and safeguard measures; and 3) by legally punishing the wrongdoer to compensate the victim through the World Trade Organization (WTO) dispute settlement system [see Article 22.1 Dispute Settlement Understanding]. Knowing that trade with the West is vital, Chinese leaders railed against the dangers of protectionism during the 2008 economic recession.
Where there used to be cooperation between the Chinese and the Europeans, competition and tension has now emerged as a result of defensiveness on both sides. There are many differences and difficulties between the EU and China in the trade field, some of which are of serious concern to the EU: the protection of intellectual property rights [see generally, European Commission, “Intellectual Property Rights in China,” available at http://bit.ly/cFwfJd]; counterfeiting and product piracy; an illustration of product piracy is the fact that, a few years ago, Nobel Prize winner in Economics and Columbia University Professor Joseph Stiglitz, was approached by a Chinese publisher who wanted him to write a foreword to a pirated edition of one of his books [See lecture delivered by Joseph Stiglitz on 27 August 2006 at the Edinburgh International Book Festival 2006, p. 6, available at http://bit.ly/9IiZP2]; product safety concerns, a ballooning bilateral trade deficit (although the bilateral trade deficit has been reduced since the 2008 global economic crisis started, because there is less trade); China’s undervalued currency; China’s delay in complying with and enforcing WTO rules; China’s competitive advantage from poor social and environmental standards; and unfair subsidies to favored national industries, (which is a manifest violation of one of the fundamental principles of WTO law, that of no unfair trade) to name but a few.
Examples of unfair trade practices are Chinese export restrictions on a number of key raw materials. The EU has unsuccessfully raised the issue with China on several occasions, including through formal WTO consultations. As a result, the Europeans have decided to use the WTO’s dispute settlement system, hoping that China will comply with its international obligations [See European Commission, “EU requests WTO panel on Chinese export restrictions on raw materials,” 4 November 2009, available at http://bit.ly/2KTHNY].
Intellectual property rights theft remains a serious problem for European businesses in China. Almost 60% of all counterfeit goods seized at European borders in 2007 came from China. Seven out of ten European businesses operating in China say that they have been the victim of intellectual property rights violations [European Commission, “EU-China trade in facts and figures,” May 2009]. The EU, therefore, pushes China hard to trade fairly, respect intellectual property rights, and meet its WTO obligations. However, in Chinese culture, focus is more on the system than on the individual and traditionally it is an honor for the inventor if his/her ideas are copied by others. One wonders whether this has an impact on the Chinese application of intellectual property rights. In a nutshell, there are frustrations on both sides: the EU’s frustrations stem from the perception that it is losing ground in China amidst a soaring bilateral trade deficit, whereas China feels that the EU is not appropriately appreciating a mutually beneficial relationship and is frustrated over the recurring calls for protective measures. Furthermore, China has recently set up special courts dealing solely with intellectual property rights issues.
All this raises interesting questions: is the EU using the Chinese violations of intellectual property rights politically? For example, the EU has stated that it will continue to give China the non-market economy treatment in anti-dumping cases until China improves in various areas, including intellectual property rights [See “China—Market economy status in trade defence investigations,” Brussels 28 June 2004, available at http://bit.ly/9fJynQ]. Is the EU really interested in granting China a market-economy status in the anti-dumping field? The fact that the EU does not grant China a market-economy status is certainly a concern to China, which pushes EU Member States to grant China a market-economy status even when EU Member States have little role in trade matters. Let us remember that anti-dumping is one of the very few tools to legally make a trade obstacle towards the import of Chinese products.
Under WTO law, there is no definition of market economy. One valid definition, however, is ‘an economy in which the price mechanism determines what is produced and traded, though too often price signals are distorted by subsidies, industry policy and other types of government intervention’ [See Walter Goode, Dictionary of Trade Policy Terms, 5th ed., Cambridge University Press, 2007, p. 274]. Some countries have granted China market-economy status in the anti-dumping field. It follows from Article 15 of the WTO Accession Agreement of China that it is left entirely to the other WTO Members on a bilateral basis to give China a market-economy status in anti-dumping cases. For example, countries such as Australia, Argentina, Brazil, and several Asian countries treat China as a market economy in anti-dumping cases, whereas the EU and the U.S. treat China as a non-market economy.
China’s economy since the late 1970s has changed from a centrally planned system that was largely closed to international trade to a more market-oriented economy that has a rapidly growing private sector and is a major player in the global economy [See Central Intelligence Agency, “The World Factbook: China,” available at http://bit.ly/2J7bUe]. Reforms started in the late 1970s with the phasing out of collectivized agriculture and expanded to include the gradual liberalization of prices, fiscal decentralization, increased autonomy for state enterprises, the foundation of a diversified banking system, the development of stock markets, the rapid growth of the non-state sector, and the opening to foreign trade and investment [Ibid]. China has generally implemented reforms in a gradualist or piecemeal fashion. In recent years, China has re-invigorated its support for leading state-owned enterprises in sectors it considers important to economic security, explicitly looking to foster globally competitive national champions [Ibid].
According to the European Commission, ‘China is the single most important challenge for EU trade policy’ [European Commission, “Accompanying COM(2006) 631 final: Closer Partners, Growing Responsibilities. A policy paper on EU-China trade and investment: Competition and Partnership,” COM(2006) 632 final, 24 October 2006, p. 3]. As argued by former trade commissioner Mandelson, ‘doing business in China remains attractive. However, it is equally clear that much work needs to be done to create a level playing field for European companies, concerning market access, transparency and protection of intellectual property’ [European Commission, “Mandelson discusses opportunities, barriers in China with EU Business,” 17 September 2008, available at http://bit.ly/cDOFbg ]. In this sense, according to the European Commission, European services companies find it very difficult to break into the Chinese market and are often discriminated against. Although China has signed agreements to open its market, since 2001 it has granted 22,000 telecoms licenses in China and only 12 have gone to foreign companies. Moreover, although imports from China have surged thanks to the EU’s open market, Asia’s share of total EU imports has increased only very moderately by 10% over the last decade. The bilateral trade deficit reflects the considerable problems EU businesses still have accessing the Chinese market. One wonders whether the GATS rules about services in general, and its special rules about telecommunication services in particular, are good enough to ensure EU service providers access to the Chinese market.
According to the European Commission, for the bilateral relationship to be politically and economically sustainable in the long term, the EU “should continue to offer open and fair access to China’s exports and to adjust to the competitive challenge. The EU needs to develop and consolidate areas of comparative advantage in high-value and high-tech design and production and to help workers retrain. China for its part should reciprocate by strengthening its commitment to open markets and fair competition” [European Commission, “EU – China: Closer partners, growing responsibilities,” Communication from the Commission to the Council and the European Parliament, Brussels, 24 October 2006, COM(2006) 631 final].
China maintains investment and ownership caps in many sectors such as banking, construction and telecommunications. Moreover, foreign law firms in China are not allowed to employ Chinese lawyers and are not permitted to participate in bar exams to gain Chinese qualifications [European Commission, “EU-China trade in facts and figures,” available at http://bit.ly/b3m99W]. Furthermore, even if China is the EU’s fastest growing export market, the Chinese market is still relatively closed to the goods Europe seeks to export [European Commission, “Mandelson discusses opportunities, barriers in China with EU Business,” 17 September 2008, available at http://bit.ly/cDOFbg]. The EU exported around € 78.4 billion worth of goods to China in 2008 and this figure increased by 9% in 2008 compared to 2007. Exports from the EU to China grew by approximately 65% between 2004 and 2008. Nevertheless, the EU still exports more to Switzerland (a market of 7.5 million people) than to China (a market of 1.3 billion people) [See European Commission, “EU-China trade in facts and figures,” May 2009]. China may have lowered its tariffs substantially since 2001, but barriers ‘behind the border’ in the Chinese market are costing European businesses more than EUR 20 billion every year in lost exports. Nevertheless, when comparing with the rest of the BRIC countries (Brazil, Russia, India, and China), China is the main partner for both EU imports and exports.
IV. A Chinese Perspective of the EU-China Trade Relations
EU-China commercial ties have grown increasingly stronger to the extent that the EU-China economic and trade relationship is today one of the largest, most exciting, and challenging bilateral trade relationships in the world. The following four graphs show the progression of China’s trade relations with the EU from 1975 to 2008:
Graph 1: China’s Trade with the EC (1975-1989)
Unit: hundred million (US$)
Source: Chinese Customs Yearbook
Graph 2: China’s Trade with the EU (1989-1993)
Unit: hundred million (US$)
Source: Chinese Customs Yearbook
Graph 3: China’s Trade with the EU (1992-2004)
Unit: hundred million (US$)
Source: Chinese Customs Yearbook and the Ministry of Commerce, People’s Republic of China
Graph 4: China’s Trade with the EU (2002-2008)
Unit: hundred million (US$)
Source: Ministry of Commerce, People’s Republic of China
The traumatic political breakdown as a result of the 1989 Tiananmen Square incident delivered a serious blow to the European Community-China trade relationship [See European Council Declaration on China, 26-27 June 1989]. Trade volume dropped in 1990-1991. In 1992, the trade value started to recover and, since then, it has been growing considerably. This can be partly attributed to the complementary nature of the Chinese and European economies and partly to the full normalization of bilateral relations in 1994-1995, which ultimately was to develop into a comprehensive strategic partnership in 2003-2004.
Europe was one of the earliest interlocutors that China approached in its campaign to resume membership of the General Agreement on Tariffs and Trade (GATT) [see Snyder, F. (ed.) The European Union and China, 1949-2008: Basic Documents and Commentary, Oxford and Portland: Hart Publishing, 2009, chapter 9]. China’s former Vice Premier and Minister for Trade, Li Lanqing, recently disclosed in his book how the Chinese trade negotiator viewed the European Community (EC) when, in 1987, China started to pursue negotiations for the resumption of its GATT membership with the EC,
“The European Communities are a powerful trading group, holding a very important position in the GATT second only to the United States. China has an excellent relationship with the European Communities. Politically, the EC welcomes and supports China’s request for resuming its GATT membership, but when negotiating the terms of China’s resumption of GATT membership, the EC took an uncompromising approach and seized on every economic interest. Therefore, as we see the EC as one of our major negotiating interlocutors, we need to lobby hard and enhance mutual understanding. On the one hand, we should elaborate upon our position and views on resumption of GATT membership, state China’s policies of opening-up and economic reform, and show our sincerity and determination to participate in the multilateral trading system. On the other, we should listen to the EC’s feedback on China’s request and have a good understanding of the specific requests from the European Communities.” [Li, L. Breaking Through: the Birth of China’s Opening-Up Policy, New York: Oxford University Press, 2010]
In the EU-China WTO accession talks, former EU trade commissioner Pascal Lamy played tough, pressing for further market access concessions, after the U.S. and China had already signed a market access deal in November 1999 [See for instance China’s accession to the WTO: first and second stages of integration under the Agreement on textiles and clothing, OJ C 356, 14 December 2001, p. 0004]. Lamy managed to conclude the talks in May 2000. He was demanding, but was well-aware that allowing China to join the WTO was not only a necessity for the EU’s commercial interests, but also an inevitable historical trend, as China was re-emerging onto the world stage and committed to becoming part of the existing multilateral trading system.
The first time that the EU witnessed China’s genuine commercial power and massive build-up of its exporting capabilities was in the textile sector, where the EU directly experienced the tensions among European consumers, producers, importers, retailers, EU Member States representing their interests, as well as China. There were three main points on the minds of the Chinese decision-makers: 1) ensuring the stable growth of China’s textile exports to the EU market, 2) maintaining positive EU-China relations, and 3) avoiding harming the interests of other developing countries.
After the conclusion of the China-EU Textile Memorandum of Understanding in 2005 in Shanghai, Chinese Minister of Commerce Bo Xilai emphasized China’s strategic thinking regarding Sino-EU relations by stating that consideration must be given to the overall situation of China’s diplomacy. Furthermore, he stated that China’s relationship with the EU is much broader than the textile case alone and therefore one cannot allow the textile issue to affect the China-EU comprehensive strategic partnership [For a Chinese official view of the China-EU Textile Memorandum of Understanding, see Ministry of Commerce of the People’s Republic of China, “China and EU Signed Memorandum on Textile Trade,” available at http://boxilai2.mofcom.gov.cn/aarticle/activity/200506/20050600117183.html]. Chinese Premier Wen Jiabao acknowledged the importance of considering the commercial interests of other developing countries when he met with the Prime Minister of Mauritius on 6 November 2006. At that meeting, Premier Wen stated that the agreements that China signed with the EC and the U.S., had, to a large extent, taken into consideration the interests that African countries have in the EU and American markets [Chinese Government’s Official Web Portal, “Premier Wen meets four African leaders,” available at http://english.gov.cn/2006-11/06/content_433774.htm].
The result was the final development of a “win-win-win” agreement, as Commissioner Mandelson said to the press, in the sense that “(the) agreement will be fair on both sides. It provides clarity, certainty and predictability and will also provide relief for developing country textile exports to Europe. It is an agreement that helps everyone’s interest.” [European Commission Press Release No. 62/05, “Details of EU-China Textile Agreement,” 13 June 2005, available at http://www.eurunion.org/news/press/2005/2005062.htm].
While the buzzword of the EU-China trade relationship in 2005 was “textiles,” in 2006-2007 it became “trade deficit.” History repeats itself. When negotiating the 1978 EEC-China Trade Agreement, China was suffering from a serious trade deficit vis-à-vis the EEC, and therefore tried to obtain a trade balance clause (Article 3) that would “foster the harmonious expansion of their reciprocal trade” and help to attain “a balance in such trade.”
The strong urge to tackle the 2008 financial crisis prompted the Chinese side to hold two summits with the EU in 2009 and send 10 purchasing missions to the EU. Premier Wen Jiabao spent his 2009 Spring Festival in the EU, sharing with EU policy-makers confidence, courage and hope in difficult times. Although in 2009 total EU-China trade dropped by 14.5%, the EU remained China’s largest trading partner, with nearly 19.7% of China’s total exports ending in Europe and 12.7% of China’s total imports coming from Europe [For an overview of EU-China trade statistics, see European Commission Directorate General for Trade, http://trade.ec.europa.eu/doclib/docs/2006/september/tradoc_113366.pdf].
In a nutshell, the important elements for the stability and development of the EU-China trade relations are the strategic nature of the relationship, the unswerving support and personal involvement of leaders from both sides, regular and timely updates of bilateral institutional frameworks, a good use of dialogues, mutual trust, and confidence, especially in difficult times.
V. Possible Ways to Improve EU-China Trade Relations
What can the EU do in the trade field to improve its relations with China? Can trade policy be used to improve bilateral relations with China and induce China to be more responsible and multilateral? China is the EU’s second largest trading partner, behind the United States. Cooperation is a priority despite the fact that the European Commission has mentioned in the past the use of tougher measures if China does not rectify some of its actions. Perhaps an extension of a high-level strategic dialogue similar to the U.S.-China Strategic Economic Dialogue would make sense. In fact, there are bilateral dialogues on virtually every topic to reduce bilateral differences.
In this sense, Commission President Barroso and Chinese Prime Minister Wen launched a new EU-China High Level Economic and Trade Dialogue (HED) Mechanism in Beijing on 25 April 2008 as an effort to maintain cooperation between the two players. The HED is a Chinese initiative and was established in order to address the imbalance in trade flows between the EU and China. The broad remit of the HED is to examine the global trading system, strategic bilateral trade-related issues, investment, innovation, technology and intellectual property rights, as well as EU-China economic cooperation. The HED mechanism is to function as a complement and reinforcement to already established EU-China dialogues.
Proposed by the Chinese authorities and approved at the EU-China Beijing summit in November 2007, this mechanism will strengthen the dialogue between both sides, and will provide a new tool for dealing with the problems confronting European companies trying to establish themselves in China, especially in the fields of investment, market access, and protection of intellectual property rights. The main goals of the HED are to examine: 1) the multilateral trading system, specifically the role of the EU-China trade relations in the wider WTO framework; 2) strategic bilateral trade issues such as market-access and technical barriers to trade; 3) investment issues in order to enable greater bilateral investment flows; 4) innovation, including intellectual property rights and technology given that an effective protection of intellectual property rights is key for both parties; and 5) the EU-China economic cooperation, which includes close coordination on energy, sustainable development, transportation, and better regulation [European Commission, “Second meeting of the EU-China High Level Economic and Trade Dialogue: 7 and 8 May 2009 in Brussels. Factsheet,” Brussels, 8 May 2009].
Regarding the protection of intellectual property rights, in March 2009 high-level officials from China and the EU met the European industry in Brussels to present progress on intellectual property rights’ protection and enforcement. This progress was made under the bilateral cooperation program on the protection of intellectual property rights, i.e., the EU-China project on the protection of intellectual property rights (IPR2 project).
A second meeting of the EU-China High Level Economic and Trade Dialogue took place in May 2009 to discuss ways to improve business opportunities between the two sides. The HED is a continuous process to drive the bilateral economic relationship forward and it provides a forum for resolving bilateral frictions. On trade and investment, it was agreed at the second meeting to focus on creating a more balanced trade relationship, including fair competition, by strengthening the EU’s and China’s customs and regulatory cooperation to create a harmonious trading environment. It was also agreed that the EU would open a European small and medium enterprise center in Beijing by the end of 2009. On investment, the EU and China agreed to step up their bilateral investment relationship with a view to ensure an open, stable, and predictable transparent environment for two-way investment.
Furthermore, at the second meeting of the EU-China High Level Economic and Trade Dialogue, it was also agreed that the EU and China should step up their cooperation in improving product safety. Because sanitary and phytosanitary rules are harmonized across the EU, this simplifies market-access processes.
What are the motivations for an EU-China High Level Economic and Trade Dialogue Mechanism? First, there is a need to avoid EU-China policy sliding into a tit-for-tat protectionism. For this reason, China is keen in promoting multipolarity, gradually more worried about protectionism. Increasingly hostile rhetoric on both sides (especially in the EU) prevents further market-access liberalization. There are considerable benefits to be gained from a deepened commercial integration on both sides, although currently there is no adequate framework for moving bilateral relations further.
Second, there is a potential market access from reciprocal bargains and from actions by China to open its markets further and to make more efforts to enforce its WTO obligations. Third, the EU-China trade negotiations within the PCA to update the 1985 Trade and Economic Cooperation Agreement between the EEC and China should not be put together with other issues of the negotiations for a PCA, given some highly contentious issues on the PCA such as human rights and climate change. If trade issues are negotiated in the same context as the PCA, there is a risk that negotiations on most topics will end up at a halt. Therefore, the HED can oil the trade negotiations between the EU and China by giving them a medium-to-long-term context and concrete, small-scale, low-key achievements. And the fourth motivation for an EU-China HED is bilateral trade dispute consultations. If the HED develops in a friendly manner to inspire effective, business-like problem-solving attitudes, many of the EU’s concerns will be solved without a long, uncertain WTO legal dispute.
Other constructive approaches to improving EU-China trade relations could include addressing the non-market economy treatment of Chinese companies in anti-dumping matters, the launch of a cooperation program with China on intellectual property protection, closer cooperation between the EU and the U.S. on intellectual property rights with a joint action in key markets such as China, or the creation of an intellectual property rights helpdesk for EU businesses in China. However, China has grown very self-confident in recent years and knows that EU businesses depend on access to the Chinese market.
The EU is undoubtedly an attractive trade partner for China as it provides much in its trade relations. In fact, the EU is China’s largest trading partner and China is the EU’s second largest trading partner. Dealing with China was one of the main arguments in favor of having ratified the Lisbon Treaty because it provides with a permanent president of the European Council and a single foreign affairs post for the entire EU, which facilitates the EU’s coherence in its external affairs.
China is in some areas much more assertive than other emerging economies such as Brazil and India. So an EU partnership with China is more difficult than with Brazil and India. The EU is not in a stronger position vis-à-vis China due to the large Chinese market and China’s growing economic and political power. However, the best results with China—whether it is on climate change, fighting the macroeconomic recession, or fighting terrorism—can only be achieved through partnership with the EU. It seems, therefore, that China has overestimated the EU and the EU has underestimated China.
Regarding the PCA, ambitious but realistic goals should be a priority. The PCA negotiations provide a mechanism to move EU-China objectives forward. Although negotiations for a PCA have already started, the process will not be easy due to the broad scope, complex nature, and importance of EU-China relations and the intra-EU structure of governance. Dealing with micro-issues first (such as unfair subsidies or market access) might be a better way forward to minimize bilateral tensions than tackling macro-issues (such as the undervalued Chinese currency or the bilateral trade deficit). On the EU side, negotiations will need to balance the interests of the various stakeholders on relevant issues, ensure policy coordination at all levels, and find a common position with a single voice on key issues toward China.
Although the EU does want cooperation with China—whether it is via the PCA or the EU-China High Level Economic and Trade Dialogue—in my opinion, using trade policy as a “carrot” in a policy-centered approach does not have much scope beyond current existing efforts. The European Commission’s Directorate-General for external trade is already very active. So, few new initiatives seem possible. Therefore, the EU must adopt a new and better approach with China. Let us hope that the PCA currently being negotiated will bring this new approach, where mutual respect should be the basis of the bilateral relations.
Furthermore, given the high volume of commercial transactions as well as the widening and deepening economic cooperation between the EU and China, it is necessary to have a comprehensive treaty law basis. However, an FTA with the EU does not seem to be a suitable trade instrument at the moment. Nevertheless, the EU can expect a mutual benefit as well as greater economic and political ties with China.
What remains to be done? In my opinion, it is not about what, but how one negotiates: the European Commission should negotiate the prospective PCA more constructively, without patronizing, and instead accepting China as an equal player in the current multipolar framework of global economic governance.