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Mandelson urges China to give European businesses a “fair deal”

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Published 10 July 2006
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China intellectual property rights WTO
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China will have to start playing by WTO rules and opening up its markets to European businesses if it wants the EU to stop raising protectionist barriers, according to EU Trade Commissioner Peter Mandelson.

  • Competitiveness: Europe’s comparative advantage is not only being threatened by imports of low-cost labour-intensive manufactured goods, as was the case during the crisis caused by the opening of textile import quotas to Chinese producers in summer 2005 (see EurActiv 24 August 2005). Indeed, the study shows that the gap between Chinese and European technologies is closing rapidly and that the EU must act now in order to maintain its comparative advantage in the high-tech, high-value production. 
  • Trade frictions: A series of trade irritants between the EU and China have been dominating the headlines, be it on textiles, footwear or plastic bags. On 30 March 2006, the Commission, for the first time, asked for consultations (the first step in the World Trade Organisation’s dispute settlement procedure) with China regarding spare auto parts. Nevertheless, such frictions are inevitable in such a large economic relationship and, as Vice-Minister Yu Guangzhou, of China’s Ministry of Commerce, pointed out, they represent only 2% of trade between the two giants. 
  • Market Access: China represents a huge potential market for European companies. Currently, the number of real consumers for EU goods and services is estimated at only 75 million, but this figure is expected to rise to 700 million in 2015. However, European businesses are having great difficulties in accessing this market due to discriminatory measures applied against foreign companies (such as the obligation to transfer technologies as a precondition to public procurement contracts, or high capital requirements for foreign banks) and a lack of legal transparency (with complicated and lengthy procedures to get business licences). 
  • Intellectual Property Rights: The lack of enforcement of IP rights in China is a cross-sectoral problem which causes huge losses for sectors as varied as agro-chemicals, textiles, automotive and pharmaceuticals. The EU automotive industry estimates that IPR represents its biggest trade barrier, costing it around 10% of its turnover each year. The Commission is looking for more effective measures to speed up Chinese enforcement. 
  • Labour standards: China’s low costs reflect the bad conditions and low wages that Chinese workers often have to accept. However, things are set to improve as China’s economy grows and international pressure increases for China to respect the rules set by the United Nations and the International Labour Organisation. 

Positions: 

European Trade Commissioner Peter Mandelson sees China as “the single greatest challenge to European trade policy”; a “source of anxiety” but also a mine of opportunities. He stressed that Europe’s problems in accessing China’s market had nothing to do with a lack of entrepreneurialism but with the fact that European businesses are not getting a fair deal in China. He warned that “protectionist voices will be raised and if - if - the public perception is that China is closed to our trade while benefiting from our openness, then they will be impossible to silence”. 

Vice-Minister Yu Guangzhou, of China’s Ministry of Commerce commented on how great people present at the conference looked, wearing EU-made designer suits and Chinese-made shirts and ties. He said this just goes to show how the EU and China are complementary. Economic exchanges with China represent many more opportunities than threats to the EU and have already led to the creation of 1,5 million jobs in the EU, he said. 

Serge Janssens de Varebeke, President of the EU Chamber of Commerce in China, noted that recent surveys show that 92% of businesses are optimistic about doing business in China. Nevertheless, he said that an “increasing atmosphere of economic nationalism” was tangible in China. 

Joerg Wuttke, General Manager and chief representative of BASF in China, stressed that the EU is not “trying to de-industrialise Europe just for the sake of it”, but that businesses have no choice but to enter into the world’s fastest growing economy and biggest market. 

According to John Monks, General Secretary of the European Trade Union Confederation, Europe should not react to China’s rise by looking inward. Instead, we need to do more on investing in research and learning, areas where China is investing massively. 

Michel Bricourt, Chairman of the UNICE China Network, said action was needed both at EU-level and in the WTO. At home, the EU must pursue hard but necessary reforms. In the WTO, the EU must push for further market access for industrial goods and services from emerging developing countries like China if it wants the support of the business community (see Euractiv 30 June 2006). 

Next steps: 
  • September 2006: Presentation of the results of a study on challenges and opportunities in EU-China relations. 
  • 12 September 2006: EU-China Business Summit in Helsinki 
  • Autumn 2006:  Presentation of a Communication from the Commission on a strategy for EU trade and economic relations with China. 
External Links
Background: 

China’s economy is currently growing at a pace of 10% a year, compared to Europe’s 2% annual GDP growth rate. It has become the world’s third largest exporter and EU’s second largest trading partner, just after the US, with a trade volume of 210 billion euro. 

The EU is equally important to China, as its number one trading partner and first source of technological transfer. 

This booming relationship creates huge business opportunities for European companies in China and considerable advantages for European importers and consumers, who can gain access to cheap Chinese goods. 

Nevertheless, the challenges for EU entrepreneurs are also large. The competitive pressure from low-cost labour-intensive imports from China is accelerating a painful adjustment process in Europe. 

Speaking at a conference on EU-China Trade and Investment relations on 7 July 2006, Trade Commissioner Peter Mandelson said Europe and China could strike a "grand bargain" if they agreed to accommodate each other's commercial interests. “Too often Europe's businesses meet a Chinese wall rather than an open door,” he said. He suggested that if China could “commit to play by the rules” then Europeans could tone down accusations of cheap imports and unfair competition. 

Preliminary results of a study preparing a Communication from the Commission on a strategy for EU trade and economic relations with China were presented during the conference. 

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