EU, China Officials Weigh Areas of Trade, Investment Cooperation

7 June 2018

The past week has been a pivotal one for EU-China trade ties, as high-level officials met in Brussels to review areas of cooperation and shared concern, including on trade and investment, while discussing global trade tensions and bilateral irritants. 

The discussions were held in the context of the EU-China Strategic Dialogue, an event which occurs regularly and whose origin dates back over a decade. It also comes within weeks of a bilateral leaders’ summit. 

This year’s iteration of the strategic dialogue, however, comes at a time of heightened trade tensions on an international scale, which have manifested in unilateral trade measures from major economies like the US, along with measures that affected trading partners have pledged to take in response.

Geopolitical situation

Among the most high-profile challenges that both sides raised last week was the need to shore up the multilateral trading system and tamp down protectionist pressures, particularly in light of the current trade context.

One of the main issues that has affected both sides significantly are the US’ global tariffs on imported steel and aluminium, which Washington has argued are justified on national security grounds, following an investigation under a specific domestic trade law that allows for such probes.

Many of Washington’s top trading partners have warned that using national security justifications for such unilateral trade measures not only sets a risky precedent in terms of its systemic implications, but also could have damaging economic ramifications. (See Bridges Weekly, 9 May 2018)

China and the EU have each filed WTO requests for consultations on these measures, known as Section 232 measures for the provision of US trade law that describes them. Both have also asked to join the dispute settlement consultations that India requested with the US last month (DS547). The EU’s own WTO complaint was filed less than a week ago, after the US confirmed that it would not be granting Brussels an exemption from the duties.

Only a handful of countries have been granted exemptions from the Section 232 tariffs, either in exchange for agreeing to voluntary export quotas or a combination of a quota and a tariff. While the EU, Canada, and Mexico had been given more time to negotiate with the US, deals to avert the duties ultimately proved elusive. (See Bridges Weekly, 31 May 2018, and related story, this edition)

The burgeoning global tensions over the duties has prompted calls from high-level officials for a de-escalation, and warnings that a proliferation of unilateral measures, particularly among major players, could have painful effects for the international economy. EU and Chinese officials in Brussels repeated those calls last Friday.

“The European Union is not at war with anyone. We do not want to be, for us this is out of [the] question,” said Federica Mogherini, EU High Representative for Foreign Affairs and Security Policy, who also serves as a European Commission Vice President.

“The European Union is a peace project, including on trade,” she told reporters in response to questions over whether the current situation amounts to a “trade war,” while adding that the European bloc must still make sure to “defend its interests.”

“At present, unilateralism and protectionism are on the rise with each passing day. As two stabilising forces in the international landscape, China and the EU should strengthen strategic communication, promote strategic mutual trust, deepen strategic cooperation, jointly maintain the purposes and principles of the Charter of the United Nations (UN), and safeguard the multilateralism process and the global free trade system,” said a formal statement from China’s Foreign Affairs Ministry regarding the discussions.

Both Mogherini and her Chinese counterpart Wang Yi, State Council and Minister of Foreign Affairs, also reviewed some of the issues that have caused friction between Brussels and Beijing in the past, with the EU official referring specifically to industrial overcapacity.

Investment treaty talks

One of the agenda items last week was the status of bilateral talks between the EU and China for a stand-alone investment deal, which kicked off in late 2013.

“Our negotiations on a Comprehensive Agreement on Investment are ongoing, and the European Union is committed to achieving an outcome that is balanced and ambitious. And I believe we were extremely positive, both of us on the perspective of continuing this work,” said Mogherini.

The EU and China have held 16 negotiating rounds to date, covering topics such as national treatment, expropriation, transparency, and sustainable development, according to an EU Commission summary of the most recent negotiating round.

Along with facilitating foreign direct investment from both sides, another key objective of this deal would be to move from having individual investment agreements between EU member states and China to having a deal that would apply across the European bloc.  When the talks were getting ready to kick off nearly five years ago, some officials suggested that, should these negotiations lead to an eventual accord, it could serve as a starting point for someday negotiating an EU-China free trade agreement. (See Bridges Weekly, 19 September 2013)

EU-China WTO case on technology transfers

While the Brussels discussions focused heavily on opportunities for cooperation, the two sides have also experienced trade frictions, both in the past and at present, which Mogherini alluded to in her remarks to reporters.

Indeed, the meeting between top EU and Chinese officials came in parallel to Brussels submitting a WTO complaint on various Chinese laws which the EU says have a detrimental effect on the bloc’s companies that do business with the Asian economy.

“Technological innovation and know-how is the bedrock of our knowledge-based economy,” said EU Trade Commissioner Cecilia Malmström on 1 June. “We cannot let any country force our companies to surrender this hard-earned knowledge at the border.”

Some of the five-page complaint deals with alleged conditions and mandatory contract terms for importing foreign technologies. The EU claims that foreign intellectual property right holders face limitations when it comes to “freely negotiat[ing] market-based contractual terms in licensing and other technology-related contracts concerning the import of technology to China.”

This is not in line with the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), the EU says. The TRIPS Agreement lays out the rights of patent holders, along with setting out rules on trade secrets, as well as WTO member obligations to provide effective protection for intellectual property rights.

Alleging that technology transfers among domestic companies do not face the same transaction conditions, the EU blamed China for violating the non-discrimination obligations under the TRIPS Agreement.

In the complaint, the EU also faulted China for its application and administration of related Chinese laws “with a view of inducing the transfer of foreign technology to China.”  This is not “a uniform, impartial and reasonable manner” for China to “apply and administrate” all its laws, as required under the General Agreement on Tariffs and Trade (GATT) and as promised by China when joining the global trade club, said the EU.

European Commission officials note that while their complaint has some features in common with a separate US dispute (DS542) that Washington filed as part of its “Section 301” actions dealing with allegedly unfair Chinese commercial practices, the EU version covers some additional areas. (See Bridges Weekly, 22 March 2018)

China’s Ministry of Commerce issued a response to the complaint on 3 June, with the person leading the agency’s Treaty and Law Division defending the government’s efforts at protecting intellectual property rights.

“The Chinese government has always attached great importance to the protection of intellectual property rights and adopted many strong measures to protect the legitimate rights and interests of domestic and foreign intellectual property rights holders,” said the statement, according to an informal translation.

The official also noted an existing “working group” between the EU and China on the subject, highlighting the importance of bilateral cooperation and dialogue, while adding that Beijing will also respond to the complaint in line with WTO dispute settlement rules.

A report from the European Union Intellectual Property Office (EUIPO) released this week estimated that counterfeit goods cost the EU €60 billion in 13 economic sectors, leading to some 434,000 lost jobs. The report notes that many of these, though not all, originate in China or Hong Kong and then repackaged in transit countries.

ICTSD reporting.

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