Trade Commissioner Karel De Gucht could take action this week against two Chinese telecommunications companies over allegations they benefit from state subsidies, a move that could hobble negotiations and precipitate a trade war.
An internal EU report last year recommended that the EU take action against Huawei and ZTE as their increasing dominance of mobile networks challenged homegrown companies and made them a threat to EU security.
De Gucht could pursue the action in the face of opposition from a majority of member states, but is simultaneously involved in a high-stakes negotiation designed to wrap the telecoms subsidy case with an existing trade dispute on solar panels.
Last year, the EU executive launched its largest dumping and subsidies investigation ever, into an alleged €21-billion worth of solar components exported by China to Europe.
Little support for move at Dublin meeting
EURACTIV understands that the decision on whether to pursue the trade action on telecoms could come before the College of Commissioners this week, as De Gucht seeks political backing for a venture which has divided member states.
The trade commissioner raised the issue before trade ministers meeting in Dublin on 17 April, during which he received lukewarm support. EURACTIV has learned that France, Greece, Italy and Poland backed the proposed legal action.
“Our feeling is that there were twice as many [member states] against as in favour at the Dublin meeting,” said a diplomatic source, speaking on condition of anonymity.
A lawyer familiar with EU-China trade issues, who preferred not to be named, told EURACTIV that Cyprus, Malta, Portugal and Spain could be expected to join this Mediterranean alliance favouring action.
But EU diplomatic sources told EURACTIV that Germany, the Scandinavian countries and the United Kingdom remain opposed.
De Gucht can pursue action
Attempts to win Commission agreement on legal action also may not be easy. An EU source told EURACTIV that the position of President José Manuel Barroso remained far from clear, and that he and his cabinet had received numerous calls from senior government officials from those member states opposed to the measure.
De Gucht does not need to heed political support to launch such an action – the member states and Commission only have a consultative role – but strong resistance would make the task more challenging, since he would be pursuing an action in the face of opposition from some of Europe’s largest states.
De Gucht’s officials are simultaneously involved in behind-the-scenes negotiations in an attempt to wring concessions from the Chinese in relation both to the telecoms case and the existing trade subsidies on solar panels. This could result in a settlement of both cases simultaneously.
A decision to move ahead with the action would therefore represent a breakdown of that diplomacy with a new Chinese government.
Counter measures likely if action unleashed
“Chinese Trade Minister Gao Hucheng is only a few weeks into his new job, and this would represent quite a welcome package,” said Hosuk Lee-Makiyama, the director of the European Centre for International Political Economy (ECIPE), a think tank.
Lee-Makiyama argued that the EU-China relationship has deteriorated in the last two years, and if De Gucht does go ahead with the action against the telecoms equipment makers, then China is likely to retaliate.
“If you are in a glass house you shouldn’t start throwing stones around,” he said in relation to subsidies, highlighting agriculture, the industrial and financial sectors as areas where Europe was also propping up its own business, and where counter measures might be threatened.
“If there is a confrontation, then the Chinese will retaliate, notably against EU manufacturers trying to penetrate Chinese markets,” said Konstantinos Adamantopoulos, an international trade lawyer with Holman Fenwick Willan.
If De Gucht pursues the case it will represent the first ‘own initiatives’ action of this type. Normally such cases are brought in wake of complaints made by European industry against third parties, but in this case De Gucht began the investigation ex officio, at the initiative of the EU executive.
Last month, the Commission has proposed new rules, the so-called Trade defence instruments, to give Brussels more leverage and ease companies' fears of retaliation in cases involving powerful Asian economies, like China.
European telecoms companies have much to lose
Europe’s largest telecoms companies – including Ericsson, Nokia Siemens Networks and Alcatel Lucent – have not asked for the action to be pursued, and EURACTIV understands that Ericsson wrote recently to De Gucht asking him not to pursue the action.
The case is of key economic interest to both Europe and China since the high-tech industry involved is worth very high value infrastructure contracts.
De Gucht believes that European industry has not complained because of fears that individual companies could be frozen out of the lucrative Chinese markets. Nonetheless, that could equally be the result if he goes ahead.