Monday, September 24, 2012

China-EU patch up?

Recent news indicated that a trade war between China and the EU was imminent. I had blogged about it here. Many issues like the EU ETS, antidumping measures against Chinese solar panels by the EU were apparent triggers.

However, the recent visit of the Chinese Premier to Brussels seem to have eased the tension. News reports here and here of joint statements by China and EU  to combat protectionism seem interesting:
"At the 15th summit between the world's largest trading bloc and China, the second largest economy,Premier Wen Jiabao played down disputes with Europe over Beijing's export policies and trade practices. 
"We both follow free and open economic and trade policies, reject trade protectionism and work to advance economic globalization," Wen told a business conference on the sidelines of the summit."
What is the reason for the see saw trade relations between the two trading power blocs? Have trade realities caught up with political rhetoric? Will this see a change in attitude of China towards the EU ETS and EU's challenge of "dumping" of Chinese solar products?

A report on EU- China trade relations by European Council on Foreign Relations titled "A Power Audit of EU-China relations" made interesting reading. The Report contends that the EU is disunited in its approach to China and the latter takes advantage of it. Providing an interesting classification of EU Member States consisting of Assertive Industrialists, Ideological Free-Traders, Accommodating Mercantilists and European Followers, their relationship with China is mixed.

"Assertive Industrialists  
The small group of Assertive Industrialists is made up of the Czech Republic, Germany and Poland. These are the only EU Member States willing to stand up to China vigorously on both political and economic issues. The balanced stance of this group could put it at the heart of a stronger EU approach towards Beijing (although Germany, the Member State with the strongest trade relationship with China, has doubts about the usefulness of an integrated European approach). The Assertive Industrialists do not agree that market forces should shape the nature of the EU-China relationship. They stand ready to pressure China with sector-specific demands, to support protective “anti-dumping” measures against unfairly subsidised Chinese goods, or to threaten other trade actions.

Ideological Free-Traders
The Ideological Free-Traders – Denmark, the Netherlands, Sweden and the UK – are mostly ready to pressure China on politics and mostly opposed to restricting its trade. Their aversion to any form of trade management makes it very difficult for the EU to develop an intelligent and coherent response to China’s carefully crafted, highly centralised, often aggressive trade policy. For these countries, free-trade ideology is an expression of economic interest: their economies and labour markets – oriented towards high technology and services, particularly finance – benefit, or expect to benefit, from Chinese growth rather than being threatened by cheap Chinese imports.

Accommodating Mercantilists
The Accommodating Mercantilists are the largest group, comprising Bulgaria, Cyprus, Finland, Greece, Hungary, Italy, Malta, Portugal, Romania, Slovakia, Slovenia and Spain. The assumption these countries share is that good political relations with China will lead to commercial benefit. These Member States feel that economic considerations must dominate the relationship with China; they see anti-dumping measures as a useful tool and oppose awarding China market economy status. They compensate for their readiness to resort to protectionist measures by shunning confrontation with China on political questions. As with the Ideological Free-Traders on trade, the Accommodating Mercantilists’ refusal to bring pressure to bear on Beijing on political issues weakens a key component of the EU’s China policy: these countries have often kept the EU from developing a more assertive stance on issues like Tibet or human rights. At the extremes, some effectively act as proxies for China in the EU. 
European Followers
The fourth group, the European Followers, is made up of those Member States who prefer to defer to the EU when managing their relationship with China. As such, Austria, Belgium, Estonia, Ireland, Latvia, Lithuania and Luxembourg are the most “European-spirited” of the four groups, but they are followers rather than leaders. Many of the European Followers do not consider their relationship with China to be central to their foreign policy. They rely on EU support to protect them from Chinese pressure on issues like Taiwan or Tibet. While their readiness to support EU policy is positive, their reluctance to participate more actively in the debate feeds the perception that China is not a key EU priority. "
Is the see saw relationship between the EU and China a result of one of these groups gaining ascendancy or asserting in the EU? Does China have different negotiating tactics against each of these camps? Do these camps exist at all? Can the world be divided into such camps of Aggressive Industrialists and Accommodating Mercantilists?

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