Of negotiated settlements and international economic law

As reports of China, US and EU apparently reaching a settlement on the solar panels trade dispute trickled in, another dispute seems to be making an entry - EU initiating a suo moto anti-dumping and anti-subsidy enquiry into imports of telecommunication equipment from China. 

The EU statement is here:

""The European Commission has today taken a decision in principle to open an ex officio anti-dumping and an anti-subsidy investigation concerning imports of mobile telecommunications networks and their essential elements from China. This decision will not be activated for the time being to allow for negotiations towards an amicable solution with the Chinese authorities. I will revert to the College of Commissioners in due course."

Will this dispute go the negotiated settlement way too? Consultations and negotiations are an integral part of the international trade setting. However, this CATO piece was critical of a negotiated settlement. It highlights the multiplicity of stakeholders - consumers, industry invoked in downstream activities like installation as well as institutional users of these equipments, apart from the producers of these panels ofcourse.

I was just struck by the CATO piece of the usage of the term "un-trade agreement". Can negotiated settlements be contrary to principles of international law? In other words, can there be a settlement that violates the provisions of an Agreement? I am sure countries do it all the time - but strictly in legal terms, isn't it still a violation?

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?

Chinese solar panels - EU takes on China

News of the EU planning to initiate antidumping investigation against Chinese solar manufacturers is doing the rounds here, here and here. Considering the sensitivity of the issue, reports of a Chinese delegation rushing for negotiations is reported here.Renewable energy and subsidies provided to it has been a contentious area in international trade relations.

Brussels Blog of the FT reported on the impending trade war here. The EU is essentially contending that Chinese made solar panels are being "dumped" in the EU at a price much lower than what it is in China  causing harm to EU solar panel manufacturers.

Some thoughts on stakeholders, interests and realities of subsidies in the renewable sector:

1. The price of Chinese solar panels being less, benefits the EU consumer. It also enhances adoption of renewable energy technology and assists in climate mitigation efforts.

2. The antidumping investigation essentially seeks to protect the local EU industry.

3. Subsidies in the renewable energy sector are a common phenomenon across geographies. While the Chinese State might be supporting its manufacturers, EU and its member states too provide subsidies in various forms to its manufacturers. While the fact that this is a reality may not be relevant in an antidumping investigation, it surely useful in countering a high moral position taken by country that challenge subsidies.The recent investigation by China against state level subsidies in the U.S. is a trend in this direction.

4. Climate change activists claim that the proliferation of cheap, affordable technology has benefitted the adoption of clean energy technologies. Thus, the goals of an environmentally sustainable world and trade rules that frown upon subsidization of renewable energy seem to be incompatible. Of course, this discussion does not take place in an antidumping investigation.

The EU investigation and subsequent Chinese response at the WTO would have a bearing on how countries react to subsidies in the renewable energy sector. Till now no case in the dispute settlement mechanism deals with this issue. The Ontario Feed-in Tariff case is the first. Would a Chinese challenge to an EU finding of dumping be the next big renewable energy case at the WTO?