EU to shift trade laws to erase some hurdles

Original Publication Date: 
3 October, 2006

BRUSSELS The European Union is planning a broad shift in its trade policy that will no longer focus chiefly on foreign tariffs that drive up the price of EU products, but also seek to remove more subtle obstacles that block European businesses from getting a foothold overseas, particularly in China.

Two years into his term, the EU trade commissioner, Peter Mandelson, intends to announce Wednesday a new push for deals between individual nations or regions - rather than accords on a global level - to knock down more quickly trade barriers that certain countries use to block services and investments from foreigners, people with knowledge of the plans said Tuesday. At the same time, the European Commission will say it wants to restart World Trade Organization talks that fell apart in July.

Typically, trade deals seek to cut the tariffs blocking the free flow of goods.

The EU is deciding whether to forge ahead with a challenge at the WTO against what it considers unfair treatment of European carmakers by China. Meanwhile, a year ago, the EU blocked hundreds of shipments of Chinese- made bras and T-shirts at ports amid concerns that a glut was flooding into the bloc.

The tension between Europe and China is highlighted in a heated debate among EU nations over imposing long- term anti-dumping duties on Chinese products. The EU imposed one on Asian plastic bags last week, and the bloc's 25 member states are likely to decide on another, this time dealing with leather shoe exports from China and Vietnam, on Wednesday.

The shoe dispute, which has split the EU in half, exposes on one side the European fear of being crushed by China's manufacturing, and on the other, the appetite for profits from re- selling low-cost products.

But it is not just in manufacturing that the EU wants results. An EU official who has seen the plans cited numerous regulations in China, whose vast market and seemingly unlimited productive capacity has made it both the target and bugbear of its major trading partners.

This official complained about Chinese rules for setting up banks, which require an initial capitalization for foreigners that is 15 times higher than for the Chinese.

"It's an obvious disincentive," the official said on condition of anonymity because he was not authorized to disclose the policy.

"But it's not something seen in a tariff. This is a restrictive piece of legislation that discriminates against foreign companies."

This and other administrative barriers - and not merely from China - are the EU's new enemy.

"We need to be sure that we're getting a fair deal with EU services and investment when it's moving abroad," the official said.

"It's being stressed as a necessary conceptual shift. It makes it very clear that anyone involved in an FTA with the EU should expect that these be on the agenda," the official said, referring to a free-trade agreement.

Despite the commission's aim to pursue bilateral agreements, Mandelson is separately pushing for a revival of the so-called Doha round of World Trade Organization negotiations, which started in Qatar in 2001. The talks were aimed at reaching a global trade agreement that would lower barriers to international commerce while ensuring that poor countries gained in the process.

This July, in Geneva, the talks collapsed amid recriminations among the 149 member countries of the WTO.

With a multilateral deal in shreds, countries have begun to shop around for alternatives, fueling concerns that global commerce could degenerate into a confusing tangle of bilateral and regional arrangements.

In such a situation, poor countries that ought to have benefited from the Doha talks are likely to be shunted aside, having little to offer when negotiating on their own.

The EU, however, says it is not ready to give up on Doha yet. Last week, Mandelson traveled to Washington, where he held "quiet exploratory discussions" with a wide range of power brokers within the Bush administration and in the Congress. The EU trade chief has said that there may be a window between the congressional elections in November and next spring when a deal could be possible.

Many experts are far less sanguine.

"Doha's going nowhere, that's for sure," said Jean-Pierre Lehmann, professor of political economy at the IMD Business School in Lausanne, Switzerland. He characterized Mandelson's continued push for Doha as "rhetoric." "It's O.K. for people like me to say it's dead because I don't have political responsibility," he said.

Meanwhile, Lehmann said, Mendelson is being pushed to pursue bilateral deals. "There are pressures being brought," he said. "German businesses are looking around and saying, 'We want better access to India. Let's focus on getting something going there.'"