From Bra Wars to Lightbulb Wars

♠ Posted by Emmanuel in , at 11/08/2007 03:06:00 PM
If you feel like a "How many EU trade officials does it take to change a lightbulb?" joke is coming (insert your own punch line), rest assured that this is quite a serious matter about EU-China trade relations. EU Trade Commissioner Peter Mandelson has said the EU will no longer act like Mr. Nice Guy to what he presumably views as China's Mr. Nasty. Relations between Mandelson and his counterpart Bo Xilai are becoming more strained. Also, eurozone steelmakers have complained about Chinese steel to the EU, though there is an internal rift between EU steelmakers and EU steel users. Remember the infamous bra wars? Well, what we have now are the lightbulb wars.

This current case is similar to the steel case as there too is an internal rift over lightbulbs with two large European firms at loggerheads. Germany's Osram wants to have duties on lightbulbs from China kept in place as more of its production is in Europe. OTOH, Holland's Philips is keen on having these duties removed as--you guessed it--more of its production is sourced from China. It will be interesting to see how this matter is resolved. My point though is that China can probably take advantage of these internal rifts in a "divide-and-conquer" sense to stall measures against it. From the International Herald Tribune:

The tension over EU imports of cheap, energy-saving bulbs reached its peak this fall when the European Commission, fearing job losses in Europe, postponed plans to remove tariffs on Chinese-made products.

The debate that preceded this action illustrated just how much globalization has transformed international trade and the question that confronts Europeans and others: Does China represent a threat or an opportunity? As much as it pitted European interests against Chinese ones, the dispute also saw two European companies - and two sets of European concerns - clashing with each other.

The company lobbying hardest for an end to duties of as much as 66 percent on Chinese imports was Philips Electronics of the Netherlands, which manufactures many of its light bulbs in China and stands to gain €15 million to €20 million, or $20 million to $29 million, a year if trade barriers are removed. Its rival Osram, a German company that manufactures far fewer light bulbs in China, would benefit far more if duties stayed in place.

As the lobbying and bickering intensified, Osram even challenged Philips's right to be considered a European producer of light bulbs because it outsourced so much of its production.

If the quality of Europe's trade and other relations with China were measured in air miles, the ties might be in excellent shape. EU commissioners who have visited Beijing this year include Günter Verheugen, the commission's vice president, and his colleagues in charge of regional affairs (Danuta Hübner), competition (Neelie Kroes), consumer affairs (Meglena Kuneva), foreign affairs (Benita Ferrero-Waldner) and, of course, the trade commissioner, Peter Mandelson.

Of these, Mandelson is the most regular visitor to Beijing, underscoring the importance of economic ties. On his regular visits, Mandelson has cultivated ties with Bo Xilai, his counterpart. The son of Bo Yibo, one of Chairman Mao's comrades on the Long March, China's trade minister has an intriguing link to Mandelson's home country, Britain; Bo's son is being educated at Harrow, one of England's most elite, and expensive, private schools.

Most [not all--see introduction] meetings between the two men have been cordial, judging from their subsequent public appearances. Compared with the more assertive stance of the United States, the EU's approach has been to tread softly when it comes to trade with China.

But the temperature is rising as the vast imbalance in trade between China and Europe grows relentlessly and European governments increase pressure on Mandelson to get tougher.

In a recent internal commission document, Mandelson conceded that conciliatory tactics toward Beijing had failed to secure concessions for Europe. He went on to propose aligning policy more closely with that of the United States and called for greater use of trade law to hit back at Beijing.

"To some extent, the Chinese juggernaut is out of control," Mandelson wrote in his four-page letter to José Manuel Barroso, president of the European Commission.

Suggesting that China had "failed to respond to a policy of cooperation and dialogue," Mandelson concluded that it was less desirable or necessary than in the past "to distinguish European policy from American policy." The inclination toward protectionism that ran through the letter might be unsurprising from a French or German commissioner. But Mandelson has been one of the Commission's most ardent economic liberals, and regularly argues that resisting the forces of globalization is futile.

As Beijing casts a growing shadow, public opinion in Europe is shifting.

According to a Pew Global Attitudes Project study published in June, the number of those with a favorable image of China declined between 2005 and 2007 by 18 percent in Spain, 16 percent in Britain, 12 percent in Germany and 11 percent in France.

The rise of China - a fact that has been accepted for some time in the United States - has begun to penetrate the European consciousness. With it comes a realization that EU political and foreign policy initiatives - be they related to human rights in Myanmar or to the global battle against climate change - need to take into account what the Chinese are thinking and doing.

According to the European Commission, the EU trade deficit with China grew by one fifth last year and is rising by €15 million an hour, faster than the growth of the U.S. trade deficit with China.

Beijing is now Europe's largest source of manufactured imports, but the 27-nation bloc, with a population of about 470 million people, exports less to China than it does to Switzerland. Nontariff barriers and regulatory discrimination cost European companies trying to invest in China an estimated €20 billion a year, according to the European Commission.

Finance ministers from the 13 countries that use the euro have also gone on record this fall with rare criticism of Beijing's failure to allow the yuan to appreciate against western currencies. There is also growing impatience in Europe with state subsidies given to Chinese exporters, Beijing's failure to crack down on the abuse of intellectual property rights and limited access for EU companies to China's domestic market.

Meanwhile suspect Chinese goods, from toys to toothpaste, are turning up in Europe. Of all the products withdrawn from the European market because of consumer faults, about half come from China.

All this has led Mandelson to conclude that Europe should be more willing to use the dispute settlement procedures of the World Trade Organization to enforce a level playing field - it has begun just one case since 2001 while the United States has begun six - and deploy, as he said in his letter to Barroso, "rigorous use of anti-dumping and other means of trade defense."

Mandelson is drawing up plans to refine European trade defense instruments and he faces tough decisions on whether to start anti-dumping or anti-subsidy cases against China, or action based on laws protecting intellectual property rights.

One of the most difficult issues will be over steel. Mandelson has been asked by European steel makers to defend them against less expensive Chinese imports.

Here again, light is shed on Europe's uncertainty over whether China represents a threat or an opportunity: Asian imports have grown so much that Orgalime, the lobby group for Europe's engineering industry, estimates that only 250,000 European jobs depend on steel making, while about seven million paychecks rely on imported steel.