Mandelson wields his carrot and stick

The European Commission has turned its attention to how it can make the best of trade with China. On more than one occasion recently, Peter Mandelson, the EU Trade Commissioner, has addressed the broader direction of the relationship between China and Europe.

In one speech at a conference in Brussels in July, Mandelson posed the question of whether it was possible to achieve a grand bargain between the EU and China. In exchange for a Chinese pledge "to work to meet its WTO obligations and ? commit to playing by the rules", Europe will bite the bullet and "accept the Chinese challenge to adapt and compete".

Admittedly, the broaching of this broad question comes at a time when bilateral trade disputes have lost some of their headline-grabbing intensity.

Mandelson’s term in office had hardly begun before he was forced to face the problem of Chinese textile exports, which went on to dominate much of last year. Chinese exports to Europe remain a difficult issue, and EU anti-dumping actions continue to arise.

In one major case, the imposition of an anti-dumping duty on imports of leather shoes, the process is making its way toward a final decision. Meanwhile, from the Chinese side, there are regular calls for issues like Market Economy Status to be put on the table for negotiation.

Slow news day

Yet, at present there are no specific disputes consistently making the news. During a trip to China in June, Mandelson was much keener than before to push for Chinese action on a number of issues of concern to the EU, notably on the protection of intellectual property.

This is increasingly seen as important not just for those European companies that happen to have operations in China, but also in the wider context of the future of the European economy.

The high-technology and service industries upon which the development of Europe rests rely on the creation of intellectual property and its protection. This is particularly important in relation to China, where the EU has already lost the game for low-cost manufactured goods, and where protection of intellectual property is undoubtedly weak.

Evidence of the importance attached to intellectual property in Europe is not just visible in Mandelson’s urging China to action; at their summit in June, the EU and the US launched a joint strategy for protection of intellectual property in third countries, which will be initially focused on China and Russia.

While the EU would undoubtedly be reluctant to be portrayed as ganging up on China, the strategy demonstrates how seriously the issue is being taken in Brussels as well as in Washington.
Intellectual property is an important issue, but, as his "grand bargain" soundbite indicates, it is not the only one which Mandelson has raised.

He has also pushed China to make progress in implementing the obligations attached to its acceptance into the WTO, and more generally removing barriers to European exports and investment in China.

Furthermore, bilateral concerns may be the focus of the EU-China relationship, but it must also be seen in the wider context of international trade negotiations under the WTO Doha Development Round, where Europe plays a leading role. According to Mandelson, China must also assume its proper role in this process, and not stand on the sidelines.

The EU and China are on the point of negotiating a new framework agreement which would provide the basis for the bilateral trade and investment relationship and replace the 1985 Trade and Cooperation Agreement which has governed economic ties until now.

Seizing the initiative

Whatever the new agreement contains, it seems that for the moment, the Commission has decided to push more forcefully on a broad range of concerns. It is unlikely that this will be confrontational, since that is not the EU’s way of doing things. Nevertheless, Mandelson appears to be offering both carrots and sticks.

The biggest carrot is that by fulfilling its WTO obligations, protecting intellectual property, and opening itself up more to European exports and investment, China itself will benefit.

One of the sticks waved by Mandelson was the threat that failure to meet its responsibilities will result in a protectionist backlash in Europe. The Commission does not have to take into consideration the kind of kindergarten political posturing that the US Administration has to in dealing with Congress, where anti-China protectionist sentiment is normally the default option. Still, it is somewhat disingenuous of Mandelson to suggest that protectionism in Europe would only arise as a result of "unfair" Chinese trade practices.

Protectionist policies long predate the recent increase in imports from China, indeed they are part of the political DNA of many parts of Europe.

Despite appearances in the outside world, Mandelson and the Commission represent a more open view of international trade than is common in many member states. Indeed, the Commission’s commitment to market principles is often seen as a form of betrayal in some parts of Europe.

Any grand bargain or even a more limited framework on which the relationship with China is founded will have to be sold to Europeans as much as to Chinese.