The EU plans a long-overdue strategic review on its often fractious trade ties with China.
Speaking at Friday's EU-China Conference in Brussels, Peter Mandelson, the EU trade commissioner, argued that Europe needs to adapt to China's dramatic rise -- and China needs to meet its WTO obligations and recognise its massive new weight in the global economy.
Mandelson, has come in for a lot of flack for his handling of the China trade issue. He does not want to make too many concessions to "protectionist populism" that he believes will damage Europe in the long time.
But on several occasions he has been forced to change his tune, most recently in the dispute over leather shoes, where he now says there is "clear evidence" that shoes from China and Vietnam were being sold in the EU below cost.
Today, the problem category is leather shoes, but what about tomorrow? Mandelson wants to move the debate on from its current focus on duties and dumping. He says:
20 years ago Europe's trade relations with China were, literally, negligible. Today we are China's largest trading partner and our bilateral trade is worth about €200bn a year. Europe invests hugely in China. It buys in China. It sells to China. Increasingly, it produces in China."
Commonsense dictates that Europe needs to build bridges with China rather than throwing up more protectionist barriers. But why does Europe have such trouble getting along with China?
The answer is pretty obvious if you work for one of the hundreds of European businesses that have found themselves competing with China in labour-intensive low-cost production.
The latest is Braun, the German domestic appliances firm, whose plans to close a Spanish factory and shift production to China -- or possibly Eastern Europe -- ran into stiff opposition this week.
According to Europa Press, police had to be called to liberate lawyers representing Braun, who were temporarily held hostage in the Barcelona factory by protesting workers. Their trade union has called for a boycott of products made by Proctor & Gamble, the US owner of Braun.
These and other "victims" of globalisation frequently argue that China has an unfair advantage as its own market is not as open as that of the EU. They may have case, according to Mandelson:
For every four containers loaded at Shenzen for Europe, three still come back empty. This has nothing to do with a lack of European entrepreneurialism. But if those containers stay empty because the rights of European businesses are not being properly protected in China, or because they do not have proper access to the Chinese market, then we will have a big problem."
China is a growing market for the things the EU produces best -- from smelly French cheeses to hi-tech machine tools -- and 50m Chinese already have a standard of living equivalent to that of the European middle class. The opportunities are huge.
But too often Europe's businesses engaging with the Asian giant meet a Chinese wall rather than an open door. Mandelson mentioned the problem facing European construction companies, who complain that capital requirements and rules limiting them to joint ventures are barring them from effective competition in China - at the same time as Chinese construction companies are expanding rapidly overseas. China is now the sixth largest engineering contractor in the world.
Of course, a lot of the issues that Mandelson mentions are well known by those who have to tackle them hands-on, but perhaps not for the EU business community at large. The EU's strategic review will thus seek to collate different experiences and draw conclusions. Hopefully, it will also produce concrete action -- and soon.
We cannot simply be offering jam tomorrow for EU business in China, while the bread and butter of our own markets is on the table for Chinese exporters today.
Interesting to see how the conference was written up by the world's media.
The International Herald Tribute mentioned the ongoing dispute on Chinese shoe tariffs and found a Chinese official who denied EU claims that China unfairly subsidised shoemakers. The Independent warned of another trade dispute in the making, this time over plastic bags.
Meanwhile, China's Xinhua agency said the EU just needed to learn to get along with China. No mention of thorny issues like human rights or anti-dumping measures.
Mandelson's full speech is on the EU website here and is definitely worth reading.
On the shoe issue for example, you only have to look at the "evidence" the Trade Commission has come up with. They say that some Chinese and Vietnamese shoe manufacturers' books are unaudited (as are hundreds of thousands of European companies'), and that shoe makers have been given cheap land and tax concessions.
Well, every foreign hi-tech company that sets up manufacturing in China is granted cheap land, and just about every foreign company in China and Vietnam gets huge concessions on its corporate profit tax. And it's totally misleading to think that shoe companies are all state owned. In Vietnam, less than 2.5 percent of all companies belong to the state.
It looks to me like Mandelson had already decided that he was going to slap anti-dumping duties on Chinese and Vietnamese shoes and he just sent people out there to dig up whatever evidence, however implausible, to bolster his case.
What they came up with was pretty threadbare. It's roughly the equivalent of a Chinese delegation going to the UK and deciding that since it is free to use British motorways, but Chinese expressways charge tolls, British cheesemakers are receiving state subsidies on the cost of roadbuilding, and so should be subject to anti-dumping duties.
And the same goes for textile quotas. In the first half of last year, when Mandelson was cooking up a scare about a flood of textile imports from China, he strangely omitted to mention the massive statistical distortion resulting from the fact that the quota regime had been forcing Chinese companies to finish their goods in third countries in order to circumvent the quotas.
In the first 8 months of last year, instead of growing by hundreds of percent, the EU's textile imports grew by just 2 percent in volume terms. In the first 7 months, China's garment exports grew by just 3.97 percent in volume terms. So much for Mandelson's hysterics.
I see Mandelson as a Tartuffian character, piously free-trade on the outside, but scratch the surface and you find an ardent defender of narrow Mainland European vested interests and a fanner of the flames of "protectionist populism".
And as for the Chinese throwing up obstacles to European companies entering China, you only need to look at the consistently huge rate of growth in Chinese imports. I can tell you, as a British company operating successfully in China, the biggest obstacle we've faced so far is nothing to do with China. It's European protectionism.
The media have been very gentle with Mr Mandelson so far, but with the world now facing a nastily protectionist future, I wonder if posterity will be so kind.
I like the cheesemakers example, which neatly illustrates my belief that anti-dumping measures will always come across as being politically motivated and unfair, no matter how "objective" you make them.
I think we'd both agree the EC has done a very poor job of handing the China trade issue. If the EU wants to engage more with China and redress the trade balance, then it has to encourage EU businesses to export products and services that China needs -- and cannot source from its domestic industry. There are plenty of examples, but I was particularly intrigued to see your business sells textiles into China -- coals to Newcastle?
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