Relations between the two giants are improving, a valid alternative to the G2 with the US.
A large wave does not always signal the crest of a deluge and is sometimes actually a sign of further flooding. Trade between China and the European Union is experiencing a very high tide, and few experts predict that it has reached its limit. In the decade leading up to 2014, Chinese exports to Europe doubled, last year beating the previous record volume of €300 billion. China and the 28 member states of the EU trade goods and services that total well over €1 billion daily.
And yet this mountain of trade conceals a horizon of even larger issues. Many factors are indicative of the general trend, from the gradual recovery of global trade to the growing level of economic interdependence between the two colossi. But perhaps the greatest determinant in the process is directly related to what many might consider to be a legal technicality – yet one whose consequences will soon be felt.
The inundation of Chinese goods that has poured across Europe came on the heels of Beijing’s accession to the World Trade Organization (WTO) in December of 2001. Membership in the WTO entails gradually decreasing tariffs imposed on products imported from other member nations in order to facilitate commercial trade. Thanks to lower production costs and increasing quality, the trade barriers that were lowered upon China’s entry caused Chinese goods to cascade across the Old Continent on a massive scale. In recent years, however, Europe has been able to erect an emergency ‘dam’ to contend with an onslaught of illegally sold products. The guiding principle is that while trade must flow as freely as possible, the violation of certain laws can be an impediment to trade more generally.
Vis-à-vis illegal export practices Europe has filed numerous complaints against Beijing, accusing the Chinese of what is known as dumping, i.e., selling their products in Europe at prices lower than their value on the domestic market, or even below the cost of production, in order to outperform the European competition. Prices can be kept artificially low because Chinese producers enjoy illegal subsidies from their government. Europe has been able to defend itself against illegal Chinese subsidies by reintroducing rather high excise tariffs on certain Chinese products, the prices of which subsequently increase when sold on the European market. One highly publicised case involved solar panels, though many other Chinese products also bump up against the security dams that Europe has erected.
The problem for Europe is that as of 2017, this emergency stopgap may no longer be available. In joining the WTO, China’s agreement included a provision that set a date for the dismantling of such trade defence instruments 15 years after its accession or, more specifically, in December 2016. Nevertheless, as is the case with many legal texts, the language of the provision is vague. The United States claims that the emergency barriers can be maintained even beyond 2017. The Chinese reject this assertion outright and are already preparing for an even more globalised world.
At the moment, Europe seems to be siding with China according to initial legal opinions issued by the European Commission, which oversees trade issues pertaining to all 28 EU member states. If the opinion of these legal experts were to be followed by a political green light, the wave of Chinese products in Europe would only be the tip of the proverbial iceberg. Concerns over what could be a sea change in China-EU relations are legitimate. Years ago, Europe opened its market to non-EU companies – for example, airlines based in United Arab Emirates – that are heavily subsidised by public monies, a practice that is not permitted for European companies. However, given the size of its economy, the largest in the world according to many parameters, applying the same principle to China would have huge repercussions. It comes as no surprise that many of the EU industries most directly affected by Chinese competition, from steel to textiles, are complaining the loudest.
Focusing only on the risks, however, obscures the enormous advantages that Europe gains from closer relations with Beijing. In the last decade, the doubling of Chinese imports in Europe was partially compensated by a tripling of EU exports to China. Europe’s trade deficit with respect to Beijing is still high but is destined to decline with the progressive enrichment of the Chinese middle class, the growing appetite for European luxury goods and the increasing appreciation of the Chinese yuan against the euro.
Furthermore, many European multinationals have been able to counter global competition by relocating production to China (contributing significantly to Chinese exports), a move that has benefited a research sector which remains firmly planted on the Old Continent.
There is a price to be paid for standing up to China as witnessed during the solar panel dispute when Beijing threatened to retaliate by imposing punitive tariffs of its own on imported European wines and automobiles. Yet at the moment, cosying up to the Chinese appears to provide greater advantages, especially if the Chinese follow through on their intention to invest more heavily in Europe. They have already acquired European groups such as Pirelli, to name just one of the more recent and notable examples. Pouring even more of their enormous liquid assets into European infrastructures – such as telecommunications and energy networks – could be a tremendous boost to the EU’s plans for relaunching investment in the continent with the expectation of returning the economy to stable growth levels that will lead to the creation of millions of jobs.
Enthusiasm is prevailing in both Beijing and Brussels. The unknown factor is Washington, which does not appear to look favourably upon the alliance between its main trade partner and its strategically most dangerous competitor.
@fraguarascio
Relations between the two giants are improving, a valid alternative to the G2 with the US.
