China, EU Settle Wine Dispute
China achieved an important milestone in its trade relations with the west last week when it settled 2 disputes with the European Union through negotiations, a less familiar tactic that produced a similar breakthrough deal last year. Both sides should be commended for this new approach, which not only avoids damaging trade wars but also helps to build a friendlier trade relationship based on mutual trust.
But there is still much work to do. Several similar disputes still remain to be settled in Europe, and a more confrontational approach still predominates in China’s trade relationship with its other major trading partner, the US. What’s more, politics almost certainly played at least some role in these latest 2 settlements – a practice that also needs to be retired.
Disputes have been a staple of China’s trade relations with the west since it joined the World Trade Organization in 2001. Such conflicts aren’t unexpected or unusual, and largely reflect the process of the 2 sides becoming familiar with each other’s business practices. Accordingly, they often voice concern when they feel their home industries are being harmed by unfair actions from abroad.
Until last year, nearly all the disputes resulted in heated rounds of accusations and counter claims, often ending with punitive tariffs imposed by one side, and retaliatory measures from the other. The same pattern was emerging over the last 2 years in the fast-rising solar panel sector, where Chinese companies had quickly risen to control more than half of the global market.
Accusing Beijing of unfair subsidies that encouraged the Chinese sector’s rapid growth, first the US and then Europe levied punitive anti-dumping tariffs against Chinese solar panel makers. China responded with its own similar investigations of US and European polysilicon, the main ingredient used to make solar cells, and also launched an anti-dumping investigation into European wines.
The situation was spinning out of control, threatening to seriously damage an industry that is critical to the world’s future energy security, when a group of EU leaders led by German Chancellor Angela Merkel finally intervened last year. The group of leaders ordered the EU’s trade regulator to seek a negotiated settlement to the solar panel confrontation, resulting in a landmark deal that ended the dispute.
That deal saw the direct participation of Chinese panel makers, who agreed to raise their prices to minimum levels agreed to by both sides. Such a move didn’t really address the broader issue of state subsidies, and had many similar effects to the levying of punitive tariffs. The key difference was the bilateral nature of the agreement and its more constructive approach, contrasting with the old unilateral, confrontational tactic.
The latest positive development came in the middle of last week, when China and the EU settled the case involving European polysilicon exported to China. (previous post) Like the earlier solar panel settlement, that deal saw European producers agree to a charge a minimum price for their product. A day later, China and the EU also settled the wine dispute, again through negotiations that included participation by wine makers from both sides. (English article) Under that deal, the European wine makers agreed to help develop China’s industry by providing technical assistance, and Chinese wine makers agreed to promote European wines more strongly.
This new spirit of cooperation marks a maturation of China’s trade relationship with the west, even though politics almost certainly played a role.
While observers welcomed both settlements last week, many were quick to note they came as Chinese President Xi Jinping prepared to make a landmark trip to Europe, including the first visit by a Chinese head of state to EU headquarters in Brussels. Western countries also sometimes mix politics with their China trade relations, especially in election years when Chinese companies become easy targets for politicians looking to curry favor with voters.
Despite the recent change of tone in Europe, the US and China still use the old confrontational approach. That saw the US impose anti-dumping tariffs on Chinese solar panels last year, and China respond with similar tariffs on US polysilicon. Chinese and western leaders should seize on the recent series of EU settlements to seek more similar solutions in current and future trade disputes, including one involving Chinese telecoms equipment. That could help to build a new spirit of trust and cooperation that would ultimately benefit everyone not only economically but also in broader bilateral relations.
Bottom line: China and the west should seize on a series of new negotiated settlements of trade disputes to launch a new era of similar settlements and retire earlier confrontational tactics.
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