Although the EU is China’s biggest trading partner, accounting for 20.4% of Asian country’s exports and 11.7% of its imports, until recently negotiations and agreements between the two sides were based on old assumptions.
The EU assumed that China was still a weak, developing nation that could easily be swayed by European values on free-markets and economics. On the other side, China hoped that its strategy of constantly playing the widely-varying stances of individual member states off of each other would remain effective indefinitely.
As a result, the Benelux nations (Belgium, the Netherlands, and Luxembourg) have been stuck in a weak position vis-à-vis China – too small to forcefully negotiate with Beijing by themselves, yet the EU’s weakness prevented them from accomplishing much multilaterally.
Today, both assumptions are clearly obsolete. China is no longer easily swayed by anybody. On the European side, the Lisbon Treaty has ushered in a new leadership system. Although euro-skeptics have dismissed the new leaders as non-entities (Herman Van Rompuy, president of the European Council, was formerly prime minister of Belgium, while Catherine Ashton has been elevated from EU commissioner to Council vice president and high representative of the Union for foreign affairs and security policy), trade relations between the EU and China are likely to be altered significantly nonetheless. The EU is becoming a more concentrated negotiator, one that China will have much more difficulty dividing.
One voice
"Just a couple of years ago, Chinese authorities were paying less attention to the EU institutions … they preferred bilateral negotiations," said Bernard Dewit, chairman of the Brussels-based Belgian-Chinese Chamber of Commerce. "Now China is paying a lot more attention to the EU-level."
Fredrik Erixon, director of the European Centre for International Political Economy (ECIPE) and an expert on Sino-European relations, has also noted the shift."If you look at core trade policy issues, no EU country is bilaterally negotiating with China anymore," he said.
Dewit argues that Benelux stands to benefit disproportionately from the new approach – and there was evidence of this at the EU-China Trade Summit, held in late November in Nanjing.
When Premier Wen Jiabao called the EU’s position "brazen trade protectionism against China", it was Luxembourg Prime Minister Jean Claude Juncker who answered back, invoking EU concerns that Beijing’s artificially undervalued currency is eroding the competitive edge of European producers. "We think an orderly and gradual appreciation of the renminbi would be in the best interests of China and of the global economy," Juncker said.
The united response, given by a leader from the Union’s smallest country to the world’s largest, shows how the EU amplifies the Benelux voice.
Benelux power base
There is a difference, of course, between being handed the microphone and wresting control of trade policy. In the past, Benelux politicians were often thrust by default into European leadership roles simply as a compromise, and Van Rompuy’s accession (and Juncker’s speech) is more a continuation of this trend.
Even so, the trade policy winds are blowing in Benelux’s direction. "Trade policy is now a European Community item," explained Francois Godement, senior fellow at the European Council on Foreign Relations, a prominent think tank. "That doesn’t mean there are not consultations with member states. But final decisions are made by EU commissioners, so there wouldn’t be any formal vote … Unlike any political or security issues, a member country can no longer block issues in trade policy."
In this way, the creation of a more federalized trading bloc has at least given Benelux a place at the negotiation table. It is therefore harder for larger European countries to sign or stymie trade agreements at the trio’s expense.
Disparate interests
Within Benelux, however, each country has a slightly different position in terms of economic ties with China. Belgium and Luxembourg are centrists on trade; the Netherlands, on the other hand, is one of Europe’s strongest proponents of liberalization. International trade amounted to 125.4% of the Netherlands’ GDP in 2007. The country’s trade deficit with China was US$34.7 billion, making it the second largest destination for Chinese goods in Europe after Germany.
"The Netherlands is very much a pro-free trade actor and it has completely rationalized that its relationship with China is beneficial, even if the trade balance is not good. This is because they re-export goods to other countries in Europe," explained ECFR’s Godement.
At the same time, the Netherlands is the largest manufacturing nation in Benelux and its free-trade stance is occasionally tempered by disputes over alleged unfair competition from China. For example, Dutch electronics firm Philips was originally the principal agitator for EU-wide anti-dumping duties on Chinese energy-saving light bulbs. A 66% anti-dumping tariff on the products remained in place until 2006, when the company changed its stance due to pressure from environmental groups.
Benelux firms generally agree that on-the-ground lobbying is most effective when channeled through the stronger, single voice of the EU or the European Union Chamber of Commerce in China (EUCCC). This is especially true in Benelux’s most important industry within China: financial services.
"A united approach to negotiating with the Chinese has definitely been beneficial," said Orlando Wang, general manager for China at Dutch bank Rabobank. "We have a lot in common with other European banks: we all face the same entry barriers and regulatory hurdles."
When Chinese banks stopped lending to foreign banks in late 2008 due to fear of exposure to the financial crisis, it was the EUCCC that convinced the regulator to change its stance and permit lending decisions to be made based on individual banks’ creditworthiness. Wang believes that this would not have been possible without joint lobbying.
In addition, by acting as a meeting point, a joint EU lobbying presence allows individual banks to have a bigger say in influencing and commenting on Chinese financial policy. For example, when the Shanghai government announced its plan to turn the city into an international financial center, the EU Chamber organized a follow-up conference with the city’s municipal banking office.
"That was great for foreign banks because it allowed us to be able to influence the discussion on Chinese government policy," said Wang.
Competitive tendering
One area where the EU as yet has no control is the foreign direct investment policy of individual member countries in China. The likes of France, Germany and the UK routinely dispatch large delegations of national business leaders along with top political brass to negotiate favorable deals in China for their respective domestic companies. Smaller nations with less leverage lose out by comparison.
When King Albert II of Belgium visited China in 2005, accompanied by CEOs from leading Belgian firms, he was granted little more than a friendly meeting with Premier Wen Jiabao. Contrast that with the super-delegation assembled in the late 1990s by then-French President Jacques Chirac, which left China with US$1.5 billion in contracts for Airbus and a further US$2 billion in car production and power station deals.
"To some extent, there has been a competition between governments in Europe to get preferential and favorable conditions for accessing the Chinese market," Admitted Erixon of ECIPE.
This too, though, is about to change. Under the Common Commercial Policy (CCP) that appears in the Lisbon Treaty, the investment policy toward China will be unified. While there are still several opt-out clauses and the legality of existing investment agreements is unclear, EU commissioners look set to be responsible for negotiating most future agreements.
With the EU also updating its decades-old official trade and cooperation agreement with China – negotiations started in 2007 – there are likely to be plenty of opportunities for Benelux bureaucrats to play their usual outsized role.