The European Union wants to pressure China through a procedure at the World Trade Organization (WTO) to lift trade restrictions against Lithuania. European Trade Commissioner Valdis Dombrovskis announced on Thursday that he would start a case at the WTO against Beijing over “discriminatory trade practices against Lithuania”. What started as a diplomatic dispute over the recognition of Taiwan has turned into a trade dispute.
The dispute started last summer, when Lithuania allowed the diplomatic mission from the Asian island in Vilnius to be known as ‘Taiwanese Representation’. For China, that counts as a provocation. It considers Taiwan part of its own territory and demands that other countries refer to the area as ‘Taipei’. Both Beijing and Vilnius recalled their ambassadors in the months that followed.
In addition, from December, China began to block imports of Lithuanian products, including beer and breakfast cereals – although it still officially denies it. Subsequently, exporters from other EU countries, including Germany, also encountered trade restrictions when products they wanted to transport to China might contain Lithuanian parts.
Also read: EU wants to parry economic blackmail
As a result, the conflict with Lithuania developed into the kind of ‘economic blackmail’ that the European Union had to deal with more often in recent years. Former US President Donald Trump has also used the threat of tariffs or quotas in recent years to put pressure on the EU on certain political themes.
The EU, which operates internationally as a single trading bloc, has still not found a simple or decisive answer. Countermeasures must be adopted unanimously, so they often take a long time and lead to European divisions.
Not much impression
Even now, Brussels is therefore turning to the WTO first – in the knowledge that a case there could take years and probably not make much of an impression on China. “The EU is determined to act as one and act swiftly against measures that violate WTO rules and threaten the integrity of our internal market,” Dombrovskis said on Thursday. Evidence has been collected in the past period, after which a consultation period will first follow in which both parties try to reach a settlement. If that leads to nothing, the EU can ask the WTO for a judgment in which China may be fined.
Such a final judgment can take years. It explains why there are voices in Europe to develop new ways of combating economic harassment from trading partners. In early December, Dombrovskis presented a new ‘anti-coercive instrument’ to this effect, which should give the European Commission new powers to quickly retaliate with tariffs or other trade restrictions. But not everyone in Europe is equally in favor of giving the Commission this new power. EU countries such as Sweden, which rely heavily on free trade, are concerned about the reciprocal ‘taunting cycle’ that can trigger European muscle flexes and ultimately lead to greater damage. Dombrovskis nevertheless said during a press conference on Thursday that he expects the EU to make speed with the new ‘anti-coercion instrument’ next year.
The trade dispute comes at a time when relations between China and Europe are already under strain. While both sides signed an ambitious investment agreement in December 2020, relations deteriorated rapidly after the EU imposed sanctions on China for human rights violations. Ratification of the investment agreement has been a long way off since then. Dombrovskis also acknowledged on Thursday that progression is not to be expected quickly.