Oh boy, here we go again. EU trade commissioner Peter Mandelson, who would be the last person you would consider a "protectionist," has been tasked with delivering China a warning over [yawn] currency undervaluation, intellectual property rights abuses, and market access issues. Last year and through the first five months of this year, the EU has been China's largest trading partner, followed by the US and Japan. This factoid should be of no surprise as the yuan has lost value in recent times against the euro as the dollar slumps. It's like the deteriorating US-China trade relationship all over again. Likewise, Mandelson says that the EU is not averse to using the WTO to air its grievances. Unless things change markedly with the EU-China trade relationship, you can be sure that it will go down the same route as the US-China one. From the International Herald Tribune:Toughening his stance, the chief European trade negotiator said Monday that the European Union's burgeoning trade deficit with China was intolerable and warned that he could take retaliatory measures if Beijing failed to restrain low-cost exports.Coming on the eve of an annual meeting with China's trade minister, Bo Xilai, the comments underline growing impatience in Europe and the United States over the yawning trade gap and the lack of access to Beijing's vast market.
Peter Mandelson, the EU trade commissioner, said that relations with China were at a "crossroads" adding: "I am not yet satisfied that the Chinese have grasped the scale of the problem."
Despite the volume of Chinese imports into the bloc, the EU still exports less to China than it does to Switzerland.
Mandelson, who negotiates on trade on behalf of the 27 EU nations, said that faced with an unbalanced relationship, "many in Europe are simply running out of patience, and pressure is going to grow."
With growing evidence of barriers to European investors in China, particularly in the services sector, Mandelson warned the Chinese that they "have to recognize that their easy access to our market is going to be increasingly questioned."
Although he made no specific threat, Mandelson added: "I don't rule out the use of trade defense instruments or the use of WTO safeguard machinery." He was referring to the World Trade Organization.
The meeting Tuesday will discuss some of the thorniest problems between the two trading partners, ranging from breaches of European intellectual property rights in China, to Beijing's exports of steel and textiles.
Before the EU-China trade ministerial meeting, Mandelson produced a battery of statistics to support his tougher line, arguing that Europe's trade deficit with China was widening at a rate of €15 million, or $20 million, an hour and catching up with that of the United States.
Like the United States, whose manufacturers complain about the undervaluation of the yuan, the Chinese currency, the EU would like to see a realignment pegging the yuan to a basket of international currencies, including the euro.
In 2006, the EU's deficit with China was €128 billion and Mandelson said that this year it could rise to €170 billion. Such a deficit "is neither tolerable nor inevitable," Mandelson said...
Mandelson, who faces pressure from industry and several European capitals, including Paris, argued that the EU member states had to be convinced that the trade relationship with China was two-way and based on reciprocity.
Topping the list of difficulties to be discussed Tuesday is the question of intellectual property rights. The European Commission says that China was the source of 80 percent of counterfeit goods intercepted at EU borders in 2006. But the EU is also worried about obstacles to European companies in China.
A boom in domestic steel production in China has alarmed EU trade officials, who fear that any overcapacity might be dumped on the world market. They are also concerned about how textile exports could increase after voluntary quotas expire at the end of this year.
This month, groups representing 10 of the European industries most exposed to global competition wrote to the European Commission president, José Manuel Barroso, claiming that the handling of anti-dumping cases had been changed behind the backs of member states.
The industries are concerned that, while the commission instigated 36 anti-dumping measures last year, there has been none this year so far.
UPDATE: China has just reported a whopping increase of 73% for its trade surplus in May to $22.45B. Mandelson says this is "unsustainable" and urges further Chinese action to stem protectionist sentiment aimed at China. From the Financial Times:
China’s ballooning trade surplus was on Monday described as “unsustainable” by the European Union’s trade chief after figures showed it had risen by almost 75 per cent, year on year, in May.
Peter Mandelson, the trade commissioner, said he would demand action from Bo Xilai, China’s commerce minister, when they met on Monday after Beijing said the surplus had grown strongly in May to $22.45bn (£11.41bn, €16.82bn), a 73 per cent increase on the same period last year.
Echoing US officials, he said the figures would add weight to mounting protectionist pressures in the west.
The US Congress is considering legislation to force a speedier revaluation of China’s currency, while there are calls for new curbs on textiles and steel imports in Europe.
The Chinese Customs Bureau said exports rose in May by 28.7 per cent year on year, while imports were up by 19.1 per cent over the same period. In the five months to May, China’s trade surplus reached $85.76bn, 84 per cent higher than in the same period in 2006.
China’s business with the developed world is growing fastest with Europe, where bilateral trade grew by 29 per cent year on year in the five months to May. Mr Mandelson said it was increasing by €15m a second and would hit €170bn by the end of the year, with skewed government policies responsible for much of that growth.
Unnecessary customs regulations and protection of China’s domestic services market were unacceptable, he said. Only six of 20,000 telecommunications licences had gone to foreigners, for example.
Beijing has said for more than a year that it wants “more balanced” trade, but none of the numerous measures it has taken gradually over the past 12 months to discourage exports has had any substantial impact.
