Two conditions. The strategic communication of the European Commission on China deserves only praise, as long as it is correctly interpreted and not taken as a separate entity from the technical "working document" which accompanies it. Interpreting it correctly means reading it in a way which does not limit itself just to the broad ideas and overall orientations, but which also takes due account of the analytical section of the annexed document which describes the situation "on the ground".
Under the title: "A Reinforced Partnership, Increased Responsibilities", the Commission has sketched out the objectives and broad outlines of the future partnership and cooperation agreement, designed to replace the current one, which dates back to 1985, a time when China was a long way from holding its current weight and responsibilities at global level. Supporting Chinese evolution towards more liberty, reinforcing Euro-Chinese cooperation in energy and the environment, extending dialogue to social issues, cooperating more in the international fight for sustainable development and monetary stability: who would argue with these objectives? It is quite logical for the Commission to quote them, just as it is quite normal for it not to take position on the delicate and controversial issue of the European embargo on the sales of arms to China. On this subject, it simply calls upon the Member States to continue their reflection on finding a consensus, given that the decision should not lead to either a qualitative or quantitative increase in the sales of European arms to China.
The general political framework does not rule out the fact that, for the time being, it is the commercial and economic questions at the centre of the concerns of both the Member States and various professional and social circles. However, the orientations are not all alike; that is the least that can be said of them. The case, in itself minor, of anti-dumping duties on certain categories of Chinese shoes confirmed this, whilst dividing the EU: the producing States are calling for a certain level of protection, within the limits allowed by international commercial rules; the others assign an absolute priority to the expansion of this trade. The split was clear for all to see between the interests of big business and those of shoe manufacturers. Above and beyond this symbolic example, it is largely the commercial segment of the document which must be correctly understood. In this field, as in the others, the general principle laid down by the Commission is incontestable. In line with the rules of the WTO, of which China is a member, "the EU must continue to offer open and fair access to Chinese exports, but China must guarantee reciprocity". This is self-evident. The mistake would be to keep hold of this principle whilst ignoring the long pages given over by the Commission to the actual situation on the ground. As I cannot claim that the citizens are going to jump at the chance to read the integral document, I refer you to the summary of it prepared by Emmanuel Hagry (see our bulletin 9293), which offers a well-balanced and objective overall view of it.
An eloquent and analysis. The aforementioned "working document", which was annexed to the strategic document, goes into more detail. The EU is China's largest export market and China is becoming Europe's largest supplier. At the same time, the EU is developing its exports on to the Chinese market, but in far more modest proportions: in 2005, Chinese exports to the EU reached a level of 158 billion EUR, and EU exports on to the Chinese market 52 billion, so that the European deficit was 106 billion. Has Europe, in return, benefited from an appreciable volume of Chinese investment? Not at all: China has increased its foreign investment almost exclusively with a view to guaranteeing itself access to natural resources: Europe gets just a minimal percentage, 2% of the total, which works out at somewhere in the region of... 60 million EUR. The contribution of Chinese low-priced products to the fight against inflation is often stressed. The Commission's document indicates that the OECD reckons this effect at 0.2% for the euro zone in the period 2001-2005. This is not nothing, but a balanced assessment would also take account of the costs (social and others) of these imports, over which silence reigned.
This being the situation (as has largely been confirmed by the provisional statistics for this year so far), the main question is this: is EU-China commercial trade being carried out under fair conditions? It is actually very far from being the case. This is borne out by the analysis of the Commission's services. To summarise:
A. Chinese exports to the EU. 1. China "is by far the principal source of pirated and counterfeit products seized on the borders of the EU". Despite a certain amount of progress on the part of the Chinese towards a system for the protection of intellectual property: "the application of and checks on the respect of legislation remain unequal or insufficient. Furthermore, EU businesses find themselves confronted with a legal and judicial system which remains opaque and complex and which fails to offer them sufficient guarantees for the protection of their rights".
2. The under-evaluation of the Chinese currency, which has been linked to the rate of the dollar, has the effect that every time the euro increases in value, Chinese exporters enjoy a competitive advantage.
3. A sophisticated system of export subsidies supports Chinese exports in certain major sectors, such as car-manufacturing and metals.
4. Failure to respect international standards "confers a competitive advantage" on Chinese products, a cumulative advantage based on three things: the absence of "reasonable" safety standards (half of all alerts launched in Europe about dangerous products relate to products which were made in China); incomplete environmental protection regulation, or implementation of the same which discriminates in favour of local producers; failure to apply international social standards (health and safety in the workplace, inspections, social protection, etc.).
B. Exports of European products to China. The "list of obstacles" to access to the Chinese market is long and impressive. I quote: "European exporters and investors are faced with an increasing number of unjustifiable non-tariff obstacles, in the form of product certification, labelling standards, harmonisation requirements for imports and the time taken to clear customs". Furthermore, "China has maintained a certain number of tariff peaks in sectors which are crucial to the EU, such as textiles and clothing, leather and fur, shoes, ceramics, steel and automotives". Added to this are "abusive sanitary requirements" (particularly in the field of agriculture) and non-accession to the agreement on public procurement (negotiations are set to start in 2008), with the result that "many public procurement areas remain closed to European businesses". If this were not enough, China also practices restrictions on the export of raw materials, which are incompatible with WTO rules.
The competition conditions for those wishing to carry out activities on the Chinese market are also distorted by obligatory technology transfers, discriminatory requirements relating to "local content", the obligation to have Chinese partners in order to set up a company in China and restrictions to investment in sectors such as automotives and petrochemicals.
Caution which is difficult to understand. The result of the above is that we are not competing on a level playing field. It would be absurd to make a moral issue of this, because in economic competition, everyone defends his or her own interests. But is Europe managing to defend its interests? If the rules exist and have been agreed to, then they must be followed everywhere. From this point of view, the Commission's document is mystifyingly weak. There is, in my view, no common measure between observing Chinese shortcomings in day-to-day practice and the planned European response. The Commission is hurrying to announce that it will lay emphasis on dialogue, by strengthening it at all levels in an attempt to achieve "regulatory convergence", which means converging regulations on both sides: a vague objective, with no deadlines set against it and, most notably, no countermeasures. The most audacious thing in it is the announcement that when all efforts at conciliation by dialogue have failed, the Commission will not hesitate to appeal to the WTO arbitration panel or to invoke trade defence instruments. The Chinese authorities and, more particularly, the millions of producers who fake European products and pirate brand names, have many tranquil years ahead of them to do just as they like.
We must acknowledge the fact that the Chinese central authorities are collaborating more and more with their European counterparts. For the protection of intellectual property and the respect of patents, China has made commitments, and is starting to act in some areas, at least on a regulatory level. This is understandable, because China is starting to outstrip all the other countries of the world in the number of patents submitted. But it is going very slowly and, in the meantime, at a local level, in practice and in trade, pirating continues, and is even becoming more intensified and spreading to new sectors. The policy of dialogue is obviously a good one, not to say indispensable, but it must be accompanied by concrete, swift and effective action. The use of the WTO mechanisms and trade defence instruments should be more than just a vague and distant threat, but a normal and immediate practice, before the damage becomes definitive and irreparable, and without being cowed by official Chinese protests against European "protectionism".
Taking account of the global context. I am aware that relations between the EU in China go far beyond the commercial dimension and that we must place them within a much greater political and economic context. I will try to do so tomorrow.
(F.R.)