The Wall Street Journal
Opinion Europe – By Iana Dreyer
May 6, 2009

www.wsj.com

Brussels has to give a little to gain Beijing’s trust.

European Union policy makers will meet their Chinese counterparts on Thursday and Friday for the second round of the talks designed to help revive battered trade negotiations. But these talks, dubbed the "High Level Economic and Trade Dialogue Mechanism," won’t deliver much if China and the EU are not prepared to get real and put the emphasis on the key commercial concerns.

EU-China relations hit a low in late 2008, when French President Nicholas Sarkozy met the Dalai Lama and China cancelled the EU-China Summit in retaliation. Since then the diplomatic tones have become less shrill. Mutual trade has plummeted in the wake of the global economic downturn, hurting both trading blocs. There are signs that both sides wish to find a way back to the negotiation table. Yet the pace of patching up relations and setting a date and agenda for the new meeting this year has been slow.

That is due in part to rising protectionist pressures. Since late 2008, China has introduced import bans on EU food products such as Irish pork, some varieties of Belgian chocolate, Italian brandy, British condiments, Dutch eggs and Spanish dairy products. The EU re-introduced export subsidies for dairy products in January. China is also now the EU’s main antidumping target. In 2008, more than one third of the EU’s antidumping actions were directed at China. The only two new investigations launched in 2009 so far target China. These actions are more likely to lead to the introduction of high duties than actions on products from other countries, because Brussels has not granted China market economy status.

This week’s dialogue may not produce a framework to solve these problems. Key EU member states such as Germany, France or the United Kingdom have not been actively involved in the process. They often compete among each other for deals with China. Along with the EU’s fragmented services markets and investment regulations, this situation puts the EU is in a weak position vis-à-vis China.

This stands in stark contrast to how the United States deals with China through its "Strategic Economic Dialogue." The agenda for those bi-annual meetings is thoroughly prepared by a bilateral study group appointed to research and spell out mutual priorities. As a result, the U.S. and China have defused tensions over exchange rate policy, agreed to small yet significant openings in China’s financial sector, inked food safety agreements, made a deal on civil aviation and more. The U.S. and China are now discussing a bilateral investment treaty.

The EU and China sorely lack that kind of preparation and focus.

In fact, the EU’s approach to trade with China is self-defeating. Brussels demands just about everything from Beijing: open services, lower tariffs in some areas (such as cars), harmonized standards, an open and safe investment regime, better intellectual property rights enforcement, etc. Brussels also has ambitions in the areas of regulation of competition in China, and issues related to customs procedures. Yet it does not like to, or is not able to, reciprocate.

Internal EU divisions are partly to blame. China has a major comparative advantage in labor-intensive manufacturing. Some EU member states, in particular in Southern Europe, fear for their own manufacturing industries, which partly explains why the EU has retained protectionist trade policies in areas such as textiles and consumer electronics. China will continue balking at EU demands if Brussels makes no effort to seriously consider Chinese concerns.

It doesn’t have to be this way. Brussels has the capacity to tackle the immediate outstanding trade issues. From the EU’s perspective, these include Chinese tariffs on European automobiles, standards and certification procedures, and the opening of China’s lucrative yet underdeveloped services sector. From China’s side, that means addressing European tariffs, antidumping lawsuits and EU market access issues. All of these issues should be able to be addressed within the scope of this week’s talks.

This is not the agenda either side seems to envisage. China wants business deals and better conditions for investment in the EU. The Commission alone cannot deliver on this without the backing of its member states. Yet it is up to the EU to take the lead and start the give-and-take. If not, U.S. businesses will be the ones who get the deals.

Ms. Dreyer is a trade policy analyst at the European Centre for International Political Economy.

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