China-EU relations

As China and US talk trade, the European Union watches and wonders if peace will be bad for business

  • Chinese analysts and government sources understand Brussels’ position on US-China trade war is a difficult one and that both sides may play against the middle
PUBLISHED : Friday, 14 December, 2018, 10:00pm
UPDATED : Friday, 14 December, 2018, 11:11pm

The European Union is keeping an eye on trade negotiations between China and the United States as it fears that when peace between the world’s largest two economies is restored, it will be at the EU’s cost, Chinese observers and a government source said.

After months of trade war, Beijing and Washington reached a 90-day ceasefire on December 1 to suspend further tariffs on each other’s products. Negotiations are under way to address US grievances over the trade imbalance, technology transfers and market barriers, and what it says are distorting industrial policies.

China has resumed purchases of US agricultural produce and is likely to restart oil imports from the US. It has also agreed to lower import tariffs on US cars from 40 per cent to 15 per cent for three months beginning January 1.

“The European Union is very concerned that a meaningful trade deal between China and the US, such as, for example, the massive purchase of US goods, would squeeze the bloc’s market share in China,” a government source said.

“But it stands firmly with the US on discontent over China’s economic activities and state-owned enterprise reform,” the source said. “Its position is subtle.”

The EU and its member states have voiced opposition to the US approach of higher tariffs to press China. It has its own trade disputes with the US, but it shares the US position on China’s market restrictions and state intervention in the economy.

The EU, like the US, has also tightened national security scrutiny of China’s technology investments.

China’s hopes of consumers rescuing the economy dashed

“The European Union worries about being marginalised. It does not want to be caught up in the US-China trade war. It is also worried that the deal to end the trade war would come at its cost. Meanwhile, it has high expectations that China could further open up its markets,” said Wang Yiwei, a professor with Renmin University’s Centre for European Studies.

Tsinghua University international relations professor Shi Zhiqin said there were debates in some EU countries like Germany on how to balance economic interest and national security in the face of China’s growing presence in the technology sector, such as Huawei, a leading company in 5G.

While the annual China-EU leadership summit in July boasted successes in partnerships and cooperation to defend and promote free trade, progress in implementing them had been slow, sources said.

China and the European Union began a second round of talks on reform of the World Trade Organisation in Brussels on Friday, when subsidies, a sticking point for China’s trading partners, were to be discussed.

Both sides joined the first round in October after a vice ministerial-level working group was set up.

“WTO reform will enter a crucial stage next year,” Wang said. “It’s also important to have a say on trade rules. China should play a role and take a lead in writing rules in new sectors such as digital trade and services trade.”

China and the EU have a common interest in defending trade based on WTO rules and in making it fairer, Wang said.

Dislike of Trump’s trade war won’t make China and Europe allies

The EU, US and Japan are also working on proposals to update WTO rules concerning subsidies and state-owned firms, proposals that the source said were aimed at China.

“The EU needs China’s support in preventing the US exit from the WTO, but China will not accept the joint proposal by the EU, US and Japan,” the source said.

Meanwhile, Beijing and Brussels are negotiating this week on an investment treaty formally known as the Comprehensive Agreement of Investment. The sides exchanged proposals on market access this summer, a key part of the treaty.

China has expressed hopes to speed up the talks, while the EU is more restrained in seeking what it regards as a better deal from China rather than one settled in haste.

“China’s strategy in handling its relationship with the EU is to seek common ground while putting differences aside,” the government source said. “We have to further open up, step up intellectual property protection and reduce state subsidies.”