EU Faces Uphill Battle in China Trade Disputes

BRUSSELS?The European Union, in its own polite way, has tried to get tough with China in recent years. Led by EU trade chief Karel De Gucht, officials in Brussels have pushed several proposals that would penalize what they see as unfair treatment of Europe by China's brand of "state-administered" capitalism.

But glaring weaknesses in that strategy have been revealed in a dispute over cheap Chinese solar panels that threatened to mushroom into a full-scale trade war between China and the EU. In the end, the European Commission, the EU's executive arm, watered down a plan to impose steep tariffs to counteract the "dumping" of these solar panels in European markets, after a lobbying campaign from China that blitzed EU capitals.

The fundamental problem facing the commission and Mr. De Gucht is that many of the bloc's member states don't appear to have the stomach for a fight with China. Germany, the EU's largest economy, has enjoyed the fruits of an increasingly tight relationship with Beijing over the past five years. Unwilling to jeopardize that relationship for the sake of a few solar-panel producers, Berlin opposed the commission's tariff plan?even though many of those producers were German.

"The commission fought an uphill battle over the last two months," said Fran?ois Godement, an Asia expert at the European Council on Foreign Relations.

Commission officials have pressured China to cut the large subsidies that they contend the government hands out to an array of industries, including solar-panel producers, giving them an unfair advantage on world markets. Mr. De Gucht has proposed increasing trade penalties that the commission imposes to counteract subsidies?a measure largely aimed at China.

Mr. De Gucht has also proposed a system of "reciprocity" in government contracting: If a company is based in a country that prevents European companies from winning government contracts, European governments would be able to block that company from winning its government contracts. Officials say China is a big culprit here.

Yet both proposals face opposition from some member states.

The solar-panel episode highlights what has become an uneasy three-way relationship between Brussels, Berlin and Beijing. The EU treaty gives the commission the power to investigate trade complaints, impose tariffs and negotiate trade agreements. But many of these decisions must be approved by member states, giving China an opening to negotiate with?and some say?squeeze national governments.

"I don't think we should ignore that Germany was under pressure," Mr. Godement said.

New Chinese Premier Li Keqiang made Berlin his only stop on his first trip to the EU in May. The trip came at a crucial time in the dispute over solar panels. The day after he arrived in Berlin, national governments were due to tell the commission whether they supported its plan to impose tariffs of up to 68% on Chinese solar panels.

The commission had received indications from Germany that it would abstain from voting on the plan, an EU official said, giving leverage to the commission for what were sure to be contentious talks with the Chinese.

Yet following meetings between Mr. Li, German Chancellor Angela Merkel and other German ministers, the government decided to oppose the commission's tariff plan. EU officials feel that dealt a blow to Europe's negotiating position with the Chinese.

A dispute over cheap Chinese solar panels had threatened to mushroom into a full-scale trade war between China and the EU. Above, a solar power plant in Aksu, China.

Michael Geisler, a spokesman at the German Permanent Representation in Brussels, said German officials hadn't formally communicated the government's position to the commission until after the meeting with Mr. Li. Germany opposed the tariffs because it felt that moving ahead with them "would lead to a hardening of positions on the Chinese side," Mr. Geisler said.

China took several moves seen by many as a way to pressure European governments to oppose the tariffs. It started an antidumping probe into French wine exported to China. It placed tariffs on European exports of polysilicon, a raw material used to make solar panels; that step hit German industrial giant Wacker AG hardest.

And Chinese officials floated the threat that they would investigate dumping of luxury cars by European auto makers in China, a measure that could close off one of the most promising new markets for German auto giants Daimler AG, BMW AG and Volkswagen AG.

The events of the past few weeks bode ill for the commission's next big trade dispute with China: a potential investigation into unfair trade in the supply of telephone network equipment by Huawei Technologies Co. and ZTE Corp. Mr. De Gucht may find it difficult to rally member states for another fight with China, after their refusal to back him on solar panels.

Write to Matthew Dalton at Matthew.Dalton@dowjones.com

Source: http://online.wsj.com/article/SB10001424127887323681904578642041672361224.html?mod=rss_about_china

UFC 151 empire state building Hurricane hunger games Joey Kovar Expendables 2 Pussy Riot