EUROPEAN FOREIGN POLICY SCORECARD 2012

Trade liberalisation and overall relationship

4 - Trade and investment disputes with China

Grade: B-
Unity 3/5
Resources 3/5
Outcome 5/10
Total 11/20
Scorecard 2010/11: B- (12/20)

The EU has taken action on raw materials and on anti-subsidies. But whether these steps are enough to enforce free trade with China remains to be seen.

Europeans want trade and investment to be a “two-way street”, as Herman Van Rompuy put it during his visit to China in May – that is, they want equal market access and an improvement in economic imbalances in the relationship. There are several ongoing trade disputes between the EU and China. Chinese restrictions on the exports of rare earths are a source of concern for the EU and especially Germany, whose high-tech manufacturing sector is particularly dependent on the minerals. In July, the WTO ruled that Chinese restrictions on the export of raw materials such as bauxite, coke and magnesium were unlawful following a joint complaint by the EU, Mexico and the US in 2009. China subsequently said it would reform its rules on the exports of rare earths. If China does not abolish quotas, the EU is likely to go back to the WTO. But China could in turn respond by nationalising the companies involved in mining rare earths in order to maintain control over production and make quotas harder to challenge in the WTO.

A second dispute between the EU and China was around anti-subsidy tariffs, with the first case ever by the EU on glossy paper in May 2011. This followed anti-dumping cases and was potentially less divisive among member states since anti-subsidies directly target acknowledged parts of the Chinese state-driven economic model such as cheap loans, discounted allocation of land and tax incentives. This is a new tool to enforce free trade and new cases are likely, according to Karel De Gucht. Free-trade oriented countries such as Germany and the UK were more positive on anti-subsidy measures, where the stance on anti-dumping is adversarial. In 2011, the EU also prepared for an EU–China investment agreement that could protect Chinese investments in Europe at a time when they are rising sharply and reciprocally secure the EU more market access in China. But the announcement of negotiations was delayed because of the postponement of the EU–China summit.