Brussels pushes to open talks for EU-China investment accord

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The European Commission intends to open negotiations with China to reach an investment agreement that could lead to a broader trade deal if the two partners can overcome anti-dumping disputes.

“An EU-China investment agreement will help deepen our ties and sends the signal that we are firmly committed to building a strong partnership,” EU Trade Commissioner Karel De Gucht said yesterday (23 May), asking member states to be given a mandate to negotiate the accord.

The agreement would secure access to investment markets for both sides and improve the treatment of investors and their assets – including key technologies and intellectual property rights.

"The intention to negotiate a BIT has been jointly announced, but the truth remains that China is little interested as it is primarily an EU interest, but brings very little value to China," Hosuk Lee-Makiyama, director of the European Centre for International Political Economy (ECIPE).

In 2011, European companies invested €17.5 billion in China, with flows the other way just €2.8 billion. Only 1.4% of total foreign direct investment into the EU comes from China.

Even though bilateral trade in goods reached €428.3 billion in 2011, trade in service remains 10 times lower at €42.6 billion. Services remain an area full of potential if China were to open its market more, the Commission said.

Europe’s trade deficit with China is mainly touching sectors like telecommunication equipment; shoes and textiles; iron; and steel.

“This step on both sides confirms the willingness and commitment to a solid and expanding mutually beneficial trade and investment relation,” the Commission said in a press release.

Looming tensions

The announcement came as Brussels and Beijing are at odds after the European Commission agreed to impose punitive import duties on solar panels from China in a move to guard against what it sees as dumping of cheap goods in Europe.

EU commissioners backed De Gucht's proposal to levy the provisional duties by 6 June and make Chinese solar exports less attractive, two EU officials said.

The investigation into accusations of dumping is the biggest the Commission has launched, but Brussels is trying to tread a careful path, knowing it needs China, the EU's second largest trading partner, to help the bloc pull out from recession.

According to Lee-Makiyama, the situation on telecom and solar panel cases have now blown into full diplomatic war. "China is extremely indignant over recent remarks and actions by De Gucht, and it would be naive to assume any developments on any European interest before he leaves office," he said.

German Economy Minister Philipp Rösler said earlier this week that the European Commission made a "grave mistake" by agreeing to impose punitive import duties on solar panels from China and urged the Commission to work to prevent the eruption of a trade conflict.

Chinese solar panel makers have said yesterday (23 May) they are seeking separate trade settlements with the EU to avoid tariffs in their biggest market.

WTO Director-General Pascal Lamy, speaking in Brussels last week, blamed Europe, the United States and Japan for not having been active in the WTO to strengthen anti-subsidies rules.

“Europe protects its own markets on par with similar economies on this planet, whether US or Japan,” he said.

Lamy explained that China’s degree of openness is halfway between India, Brazil, Indonesia on one side and Europe, the United States and Japan on the other, because China joined the multilateral trading system very late and had to pay a much higher price to benefit from this anti-protectionist trade policy than other founding members of the GATT.

Background

Foreign direct investment has a crucial role in establishing businesses, creating jobs at home and abroad, as well as in setting up global supply chain.

Negotiations on investment at the EU level are ongoing with Canada, Singapore, India, Japan, Malaysia, the Mercosur countries, Morocco, Thailand and Vietnam within the context of the negotiations for free trade agreements.

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