China, EU Pledge to Consider Bilateral Trade Pact

3 April 2014

The EU and China agreed on Monday to consider the possibility of a bilateral trade pact, should their current negotiations for an investment deal prove fruitful. The announcement came as part of Chinese President Xi Jinping's high-profile visit to Brussels, which also saw the EU publicly support Beijing's bid for joining talks on a plurilateral deal in services trade.

The summit showed a marked change in tone from the bilateral trade tensions seen in recent years, which saw the two sides spar heatedly over topics ranging from support of their renewable energy sectors to trade in wine and telecommunications products.

The trip also marked Xi's first visit to Brussels since assuming his country's top leadership position a year ago, and also the first time a leader from the Asian economic powerhouse has visited the EU institutions since diplomatic relations were established in 1975.

EU, China: investment talks could open FTA door

The EU and China made headlines last year when they agreed to negotiate a sweeping bilateral investment pact, and have held two rounds of talks so far, with the latest one occurring the week before the high-level summit. (See Bridges Weekly, 24 October 2013)

The level of foreign investment between the two sides is famously low, particularly when compared to their trading relationship. According to European Commission data, China accounts for 2-3 percent of EU investments abroad, while Chinese investments in the 28-country bloc are even lower.

While the investment talks could in themselves yield substantial gains to both economies, trade observers have also noted the potential that such a pact might have in paving the way for a bilateral free trade agreement (FTA) in the long-term.

Trade flows between the two sides already surpass over €1 billion daily, making the EU China's biggest trading partner. China, meanwhile, is Europe's second-largest trading partner after the US.

However, until this week's meeting, European officials had been reticent to openly back an EU-China bilateral deal, particularly given the long history of trade irritants on both sides. In the statement issued at the end of Xi's meeting with European Council President Herman Van Rompuy and Commission President José Manuel Barroso, the two sides agreed to consider the trade pact option - so long as the investment talks proceed smoothly.

"Negotiating and concluding such a comprehensive EU-China investment agreement... will convey both sides' joint commitment towards stronger cooperation as well as their willingness to envisage broader ambitions including, once the conditions are right, towards a deep and comprehensive FTA, as a longer term perspective," the EU-China joint statement said.

In a speech at the College of Europe the following day, the Chinese President openly called for a trade pact, saying that the two trading partners should aim to increase their integration to become "twin engines" for global economic growth.

"We must uphold open markets, speed up negotiations on investment agreements, actively explore the possibility of a free trade area, and strive to achieve the ambitious goal of bringing two-way trade to a trillion US dollars by 2020," Xi said.

The push by Xi for an EU-China deal - which could have a market of 2 billion consumers - comes at a time when so-called mega-regional trade pacts have become increasingly commonplace. China is not currently involved in either the 12-country Trans-Pacific Partnership talks, nor the US-EU Transatlantic Trade and Investment Partnership, and many analysts have questioned whether such initiatives are an effort by advanced economies to partly counter Beijing's growing economic weight.

EU backs China entry into TiSA talks

In another victory for China, Brussels also declared on Monday that it will be backing Beijing's bid to join the Trade in Services Agreement (TiSA), a plurilateral negotiation among a subset of the WTO's membership that aims to liberalise services trade.

China declared its interest in the services talks late last year, despite having earlier been sceptical of such plurilateral initiatives. However, some current TiSA participants have reportedly questioned whether China indeed shares their level of ambition, particularly given the Asian economy's role in last year's breakdown of a separate set of negotiations on expanding the WTO Information Technology Agreement.

Beijing will ultimately need the backing of the entire TiSA group in order to join, and sources say that its entry will now largely depend on whether the US is convinced of China's goals.

"China has reassured the EU that it shares the objectives of the TiSA negotiations and that it would respect the results of the negotiation achieved by other participants if it joins," EU Trade Commissioner Karel De Gucht said on Monday in explaining the decision.

The TiSA talks, while attracting 23 participants so far, have been controversial in certain quarters, with some WTO members worried that these types of efforts could distract from the global trade body's attempt to re-energise the Doha Round negotiations, which have long been stalled.

TiSA supporters, meanwhile, have said that the plurilateral deal could give multilateral talks new momentum, particularly given the WTO's goal this year of preparing a work programme to resolve the outstanding issues of the Doha Round.

The EU has also noted that having China on board could make it easier to multilateralise the deal in the long run, which is a stated aim of TiSA participants.

Change in tone?

This week's events show a significant improvement in tone from a year ago, when the two sides found themselves openly at loggerheads over myriad trade issues.

Tensions had flared in 2012 when the European Commission began investigating allegedly unfair subsidisation and dumping of Chinese-made solar panels onto the EU market. After reporting evidence of dumping, Brussels confirmed in 2013 that it was prepared to impose hefty duties to "level the playing field" for EU producers, unless the two sides reached a settlement first.

Shortly after these investigations were launched, Beijing began its own anti-dumping and anti-subsidy investigations into EU exports of wine and polysilicon - the latter of which is a key component in solar panel manufacturing - in what some observers deemed was a tit-for-tat style response.

While the two sides reached a deal last July on the Commission's solar investigations- just days before the anti-dumping duties were set to triple from their preliminary amounts - China's investigations into European exports of wine and polysilicon had been left outstanding. (See Bridges Weekly, 5 September 2013)

In the weeks ahead of Monday's summit, the two sides were able to confirm that they had reached settlements in both of these remaining cases. The EU has also confirmed that it will not move forward on a proposed investigation into imports of Chinese mobile telecommunications networks, which are valued at over €1 billion per year. (See Bridges Weekly, 23 May 2013)

ICTSD reporting, "EU commissioner attacks China's telecoms subsidies," FINANCIAL TIMES, 27 March 2014.

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