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Essay: Analysis of EU policies towards emerging countries EU China relations

23 July 202416 June 2012 by Essay Sauce

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The analysis of the EU policies towards the emerging countries: a case study of EU-China relations

1 Introduction

China grew to be a major power after its economic reform in 1978. It has become the third largest economy in nominal GDP and the world’s largest exporter as well as second largest importer of goods (World Bank, 2010). In addition, China’s political power increased considerably along with its economic growth. It now is the permanent member of the United Nations Security Council and some other major international organizations as well, such as WTO, G 20, APEC and shanghai Cooperation Organization. China’s rapid development both in economic and political generate great opportunities and challenges to the EU that requires the EU to carefully treat its relation with China with some proper policies.

The EU has long played a vital important role in each aspect of the world including the economic, political, environmental and many other areas. A half of the top 10 countries with highest nominal GDP are European countries, and the EU nominal GDP in total occupies almost 30 percent of the world. (IMF 2010) More over, the EU owns the world’s largest market, and enjoys the leading position in the new and advanced skills and technologies. The EU also exerts a deep influence on the world politics with great ability of impacting the places outside its borders and it is also the largest development aid provider in the word (Commission of the European Communities, 2006).

As the two main major powers of the world, the relation between EU and Chinas exerts great influence on the development of both sides and even the whole world. Being aware of the importance of the relation, this study is going to analyze the policies of the EU regarding to China in the aspects of economy and politics, especially the policies on economic sphere.

The paper is organized as follows. Section 2 gives an introduction on the EU’s economic policies towards China, and the analysis of the EU-China economic situation and issues as well. Additionally, there is an introduction of the WTO functions in the EU-China trade in the end of this section. Section 3 focuses on the political sphere of the EU-China relation and then the introduction of EU Arms Embargo against China. Finally, section 4 presents the conclusions drawn.

2 Economic policies

In 1978, the first ‘trade agreement’ was signed between China and the European Economic Community (EEC), and this was substituted in 1985 by the ‘EEC-China Trade and Economic Cooperation Agreement’. More over, due to the increasingly close of the relation, the EU and China agreed to set a ‘strategic partnership’ in 2003, which has substantially and effectively promoted the EU – China economic relations. In 2007, in order to deepen and broader this strategic partnership, EU and China started the negotiations on upgrading the 1985 agreements to a ‘Partnership and Cooperation Agreement (PCA)’ in the EU – China 9th Summit. This negotiations are considered to be one part of EU wider Global Europe trade policy stated in 2006, and is aiming to help the European companies to access and expand the foreign market through tackling the issues like tariff and non-tariff barrier to trade, subsidies, trade in services, intellectual property rights, public procurement, the restrictions on the assess to resources, such as energy, and so on. (European Commission, 2006) In addition, in 2008, a high Level Economic and Trade Dialogue between EU and China was set up to promote this ongoing negotiations on the Partnership and Cooperation Agreement.

China’s economic growth and increasing trade with EU benefits the both sides. According to European Commission (2009), the EU is the largest trader partner of China, taking over almost 20 percent of China’s external trade. China’s rapid economic growth, to a certain extent, should attribute to the trade and investment of European companies in China. What is more, China’s relatively low price and high quality goods substantially cut down the cost of the EU companies and consumers, which in turn improves the EU economy.

On the other hand, China is the EU’s second largest partner. Due to the fast increase of China’s middle class, China turns to be a large and potential market for the EU companies. As WTO (2009) shows, the exports from the EU to China increased much faster than any other countries, the total amount of export almost doubled between 2000 and 2005. Additionally, the EU’s exports of service in 2004 increased more than six times than that of 1994 during a ten-year period. Therefore, the openness and mutual cooperation benefits both the EU and China.

In the long term, the Europe needs to maintain the policy of providing China’s exports with an open and fair access and look for ways to confront the competitive challenges of China’s goods and services. At the same time, the EU should consolidate and develop its comparative advantages in high-value and high-tech design and production. And for China, as the EU requires, China needs to continue to open its markets, reduce the restriction on assessing to some sectors, and protect the intellectual property rights (IPR).

According to the Commission of The European Communities (2006), the EU will maintain its economic policies towards China as follows.

Firstly, the EU will keep its openness. It will implemented its WTO obligations to cooperate with China, and meantime, brings China to the WTO framework to urge China to further open its market, thereby creating opportunities for the EU companies.

Secondly, levelling the playing field. The EU will continue to require China to offer better protection of intellectual property rights and end the forced technology transfer for the EU. Further more, in the trade sphere, China should stop offering the hidden subsidies and remove the restrictions on the trade of raw materials.

Thirdly, the EU will assist the European companies to do business in China. It is argued that a European Centre needs to be established and the information, training and advice should be given to the European companies.

Fourthly, it will use dialogues to defend the EU interests in settling the trade issues with China. The current trade dialogues between EU and China should continue to be strengthened and extended. Additionally, the EU and China need to cooperate to exert the impact on the global standard setting and international trade rules making with a combined effort. 

Fifthly, the aim of the EU is to establish a stronger trade relationship with China, which is also one of the purposes of the new Partnership and Cooperation Agreement. As the commission notes that, China needs to implement its obligations under the WTO frame work for it has already benefited from the international trading system.

However, the above EU policies made should not be pushed by the EU unilaterally. It needs the cooperation of both the EU and China. According to the claims of the commission, these polices not only benefit the EU, but also meet China’s interests that will help China to maintain a stable and balanced economic growth and improve its position in the world trade.What is more, being strategic partners, the EU and China should do their endeavor to fulfill the mutual responsibilities, play a more active and responsible international roles in supporting and contributing to a strong and effective multilateral system (Commission of European Communities, 2006).

2.1 Economic Issues and Problem

With the rapid development of China’s economy, as noted above, the EU has become China’s largest trade partner and China is the EU’s second largest trade partner. In 2008, the EU imports from China amount to about 250 millions Euros, sharing 16 percent of its total imports. And the value of the EU’s goods and service exports to China only reaches 78.5 million Euros, sharing about 6 percent of its total exports. (EUROSTAT, 2009) This figure clearly shows a huge trade deficit of 243 million Euros that the EU are confront with in the trade with China.

According to the chart 1, the EU’s import from China increases rapidly from about 130 to 250 million Euros between 2004 and 2008 while the export to China rises relatively slowly, which results in a fast growth of the EU’s trade deficit. It can indict that the trade deficit in 2008 is twice as much as that of 2004.

However, the trade structure in the EU – China trade is largely imbalanced. Through the Chart 2 and Chart 4, they shows that most trade deficit of the EU attributes to the imports of goods from China while the EU even enjoy an increasingly surplus in the EU’s trade in commercial services. According to Chart 3, two categories of goods, machinery and textile & clothing, are the main contribution of the EU’s trade deficit, which generate two thirds of the total deficit.

As a result of this huge and increasing trade deficit, the EU-China trade is faced with a number of issues, such as the EU’s textile dispute and anti-dumping policy, which is going to be detailed analyzed in the following section.

Textile dispute

As introduced above, the huge import of textile and clothing of the EU from China is one of the major causes of the EU’s trade deficit. This trade deficit as well as the serious threats of China’s textile goods induced the textile dispute in 2005. This dispute is directly a result of the end of the Agreement on Textiles and Clothing (ATC) on 31 December 2004, whose abolishmentremoved the EU’s textile quota that has existed for 40 years. As a consequence of this, the China’s textile exports to the EU raised sharply, increased up to 80 percent more than that of 2004 (Cai, 2005). Therefore, this sharp increase induced lots of complains from more than a half of the EU 25 members in the first quarter of 2005 who urge to set immediate limits on the imports of China’s textile (001, 2005).

However, as a member of the World Trade Organization (WTO) since 2001, China enjoys a clause that all the protecting measures against China’s textile, such as quotas, should be ended before 2009. The EU can not use the traditional protecting measures to limit the imports of China’s textile any more, though some EU members still require the EU Commission to restrict the textile imports by the traditional ways.

Finally, as Jing (2008) notes, in order to resolve this dispute and avoid the negative influence on the EU-China partnership, a formal negotiation was held and the two sides concluded an agreement to set quotas on certain categories of China’s textile goods. This measure brought an effective and immediate effect on the textile import that engendered millions of China’s textile goods detained at EU ports. However, this agreement did not last long, which was substituted by the second agreement signed at the end of 2005 for a better solution of this dispute.

During the resolving of the textile dispute, the EU and China realized that it is better to negotiate and cooperate than unilateral action. Before the protecting clause ended in 2009, the EU and China established a joint monitoring system to control and guide the textile trade through an in-depth and broader cooperation. And finally this system is proved to work well after years’ practice.

Anti-dumping (AD) policy

Before analyzing the anti-dumping issues between the EU and China, I would like to introduce the anti-dumping (AD) measure. According to Li (2003), “Dumping is when an identical product is sold at a lower price in the foreign market than in the home market. The definition also includes unusual situations where the same product is sold at a higher price in the foreign market than in the home market (known as reverse dumping) and the situation where the price of the product is different in the various foreign markets.”

The dumping will greatly reduce the price of the imported goods that the consumers of the importing country can always benefit from. In addition, the importing country’s manufactures can also profit from dumping if the dumped production is one of their producing material. So according to this point of view, the dumping, to some extent, is advantaged for the consumers and manufactures of the importing country. However, as Li (2003) noted, the dumping would be harmful for the importing market and consumers as long as it turns to be predatory. For example, the predatory company use dump to lower the products’ price in the importing market and then defeat the domestic companies, thereby controlling the market and enjoying the market monopoly to gain huge profits.

Therefore, AD measure will be launched by the domestic government if they realize the dumping appears. The AD measures are used to protect the domestic industries from the impingement of dumping, though it will engender some negative impact on the interests of domestic consumers and some manufactures. So the anti-dumping measure should be launched carefully and prudently.

In terms of the EU AD policy, it is based on the Article VI of GATT in 1994 and then WTO Agreement which is an upgrade of the former. Despite of the WTO agreement can not make a judgment on whether an anti-dumping measure should be launched, it can give the domestic government the guidelines on how to deal with the dumping. There are two main conditions of launching anti-dumping measure, which are “(1) the existence of a disparity between the price of an imported good and a normal value, and (2) the emergence of or the mere potential emergence of an injury to a domestic industry. A normal value is defined as a comparable consumer price in an exporting country or, if this is not available, then either ‘the highest comparable price for the like product for export to any third country in the ordinary course of trade’ or ‘the cost of production of the product in the country of origin plus a reasonable addition for selling cost and profit”. (GATT, 1994)

What is more, according to the rules of the WTO (2006), it is only five years that an anti-dumping measure can be last, excepting that it can be proved that the domestic market will still be hurt after ending the measure.

The EU’s AD measure launched in 1997 on certain footwear with textile uppers imported from China is a good example of the EU’s AD policy. This measure was ended in 2002 for the longest time for an AD measure can be last is five years. The reason of the EU to launch such an AD measure is due to the investigation made by the European Community of the Footwear Industry who is delegated by the national footwear federations. This investigation indicates that the situation of the EU’s producers of the footwear was greatly negatively impacted by the substantial imports from China during the period before 1997 when China’s exports of footwear to the EU was not limited. In addition, the investigation shows a considerable decline of domestic products in market share, sales volume and turnover during the period of unlimited import of China’s products. Therefore, the EU Commission drew to a conclusion that the industries of footwear would be in danger and hurt by the unlimited imports of China’s products if without any measure. What is worse, the numbers of the domestic manufactures and jobs would considerably reduce due to the decline of the market share of domestic manufactures due to the above change (Andersson & Thuresson, 2008). As a result, this AD measure was implemented in 1997 and seemed to be effective in decreasing the imports of footwear from China between 1997 and 2002.

2.2 Functions of the WTO in the EU-China trade relation

China became an official member of the WTO in the December of 2001with the indispensible support of the EU. According to Algieri (2002), there are four main reasons that China wants to join the GATT/WTO. The first one is to expand the market for Chinese goods and increase exports. Because being a member of the WTO, China could benefit from the clause of the “most favoured nation (MFN)” to obtain equal trade advantages, which will greatly broader the market and increase the competitive advantages of Chinese products. The second one is that China, as a developing country status, can gain profit from some favourable trade conditions of the WTO for the developing countries. The third reason of China was to enhance its influence on the development of the GATT/WTO. The last reason is that China aims to improve its economic position in the world by entering into the WTO.

In terms of the EU countries, they showed a positive view on China’s efforts to entre into the WTO. Because it was meaningless to isolate China and refuse its policy and a rapid and stable growth of China’s economic would benefit the EU economy. In despite of the EU has already been confronted with the threats of China’s goods and an increasingly number of EU anti-dumping measure against China was launched, the EU insisted that the China’s entering into the WTO would substantially expand its Chinese market, and the overall opportunities would outweigh its challenges.

When China entered into the WTO and followed the clauses of the WTO to fulfil its obligations, the EU can be able to require China to obey the WTO rules to meet its interests, such as reduction of customs duties, providing more transparency in economic practice, performing its responsibility in the protection of intellectual right and the promising non-discrimination of the EU firms against other trading parts. (Algieri, 2002)

In addition, the WTO provides a platform of the trade negotiation and disputes solution for the EU and China. As the WTO members, they all agreed that , if they believe certain member infringed the WTO rules, they will adopt the multilateral system of settling disputes rather than taking action unilaterally which may cause losses to both sides.

3 POLITICAL POLICIES

The EC-China diplomatic relation was set up in 1975 when Sir Christopher Soames, the former European Commissioner, visited to China. Then after the first visit of Mr. Emilio Colombo, the former president of the European Parliament, and Mr. Roy Jenkins, the former President of the European Commission in 1979, the political relation between the EU and China largely improved. Just in the following year after the visits, the first meeting was held between the European Parliament and the National People’s Congress delegations. And two years later, the first EC-China scientific cooperation program was started. Then the European Commission set up its first representative office in Beijing in 1988. However, the EU-China political relation was negatively impacted by the Tiananmen Square Event in June 1989 which induced the sanctions of the European Council, as a result, the high-level bilateral meetings was stopped and the new cooperation projects were retarded.

But, in fact, this change did not brought a long and fundamental hurt to the EU-China political relations. Their relationship continued to develop during the 1990s ( Algieri, 2002). Except the arms embargo, the restrictions on the high-level bilateral meetings and the cooperation of scientific and technical were resumed in 1990. Henceforth, the EU-China political relationship continues to develop steadily. In 1993, an office of the European Commission was set up in Hong Kong. The year after, a new bilateral political dialogue was introduced. And in order to better improve their relations, in 2003, the EU and China announced to establish a strategic partnership.

3.1 Arms embargo issue

The Arms embargo issue is a result of the Tiananmen Square Events in 1989. This embargo was launched by the Western countries to against China. However, with the development of EU-China political relations, the EU, leading with Germany and France, claimed to held negotiations to lift the arms embargo issue in 2003. They have agreed that the arms embargo should be substituted by a new method of selling the European weapons to China. What is more, through the negotiations of the sides in 2004, it seemed that the arms embargo would be lifted soon. However, this trend turned to the opposite side in 2005 when the US, who is the main opponent of lifting the arms embargo, interrupted this negotiation. According to Alison (2005), the US threatened the EU by cutting off the American transfers of military technology to Europe to urge the EU to sustain the arms embargo against China. In addition, it made the arms embargo more difficult to be lifted after China launched an anti-secession law in 2005 that generated atense cross-strait relationship. The possibility of lifting the arms embargo was greatly reduced in 2005 when the European Parliament arranged a vote for this issue, the result was 431 votes agreed to maintain the arms embargo while 85 disagreed (Bernstein, 2005). Until now, though the arms embargo still can not seem to be lifted in the near future it is not a main problem that would hurt the EU-China relations.

4 CONCLUSIONS

The relationship between the EU and China will continue to develop steadily both in the economic and political areas, though many issues still remain. The core of the EU-China relation mainly focuses on the economic momentum. Having the second largest trade relation of the world, the EU confronts lots of opportunities and challenges in trading with China. This requires the EU to launch proper policies to deal with China, as their trade relation still facing some problem, such as the EU’s increasingly trade deficit. However, these issues should be resolved through bilateral negotiation and cooperation rather than unilaterally actions, only in this way, the interests of both sides will not be injured. In terms of the political relations, as the main powers in the world, the EU and China’s cooperation will play an effectively and important role in maintaining the peace and stability of the world.

In conclusion, the EU and China confront both shared and conflicting interests when dealing with international issues. so a closer and stronger partnership that enhances their cooperation will meet the interests of both sides.