China Seeks Compensation for EU Enlargement

In a move that could set off a chain reaction, China became the first country in Asia to manifest its ongoing concern about the possible consequences of the EU’s planned enlargement by demanding compensation for any negative impact on its trade or other interests.

The senior Chinese official was also said to have met with the EU Council of Ministers Committee on Security Policy as part of the policy dialogue initiated by the two in previous EU-China Summit meetings. During his second working day, he held meetings with senior Belgian officials and diplomats, including the State Secretary for European Affairs Frédérique Ries, on bilateral issues ranging from proliferation to trade issues, according to informed diplomatic sources. On the second leg of his Europe visit, the Vice Minister travelled to Ireland where he was to consult with counterparts there in their capacity as the Presidency of the EU.

Neither the EU nor China mentioned the trade development in their briefings, websites or other information in Brussels or Beijing. Ironically the EU Commission delegation in Beijing was still extolling the benefits of enlargement on its website.

The only announcement of the action was contained in the widely-read Peoples Daily which included only a few paragraphs, but included some trade details. It mentioned that overall Chinese exports with the EU in 2003 had surpassed €70 billion but that with the 10 new EU countries this figure only amounted to €6 billion. This would indicate that the overall trade loss for China would be limited. Total trade between the EU and China in 2002 was said to have amounted to €115 billion, with China recording an overall surplus of €47 billion.

Nevertheless the announcement also coincided with related release of data from Beijing noting that for the second month in succession, China had registered a trade deficit, a major shift in its external trade relations. It was observed in relation to that information that it could represent an argument against the incessant American contention that China’s currency was artificially undervalued, leading to trade advantages against the US. It was also suggested that the shift in trade, especially with the US, had been the result of a special tax levied by China on exports to dampen the flow and the criticism.

For years and months, European officials have tended to dismiss the long-held anxieties of Asian and other countries about the possible diversion of trade, investment and other advantages they held in dealing with the EU prior to enlargement. EU officials and leaders also have answered any doubts with standard declarations that an enlarged EU trading bloc would result in more opportunities arising from a larger market. Clearly China has signalled it was not convinced and asked for credible details, a move that is bound to be emulated by other sceptics in Asia.

Reports from Beijing on the subject indicated that Chinese authorities were especially concerned about exports of products such as footwear, tableware and ceramics, which have entered into the applicant countries without quota restriction, but would be placed under EU quota restrictions when the group joins the EU in May. EU sources in China were also cited as indicating that the EU was contemplating increasing the quotas on such products and perhaps other industrial products such as steel and textiles.

Other countries ranging from India to Thailand have also expressed the belief that their trade to the EU would be adversely affected in some categories following enlargement and they are likely to follow suit. In a gesture to India, the EU also provided funding for an external consultant to conduct a study on the impact of enlargement for India.

Similar claims to be judged on a case-by-case basis on the calculated impact on specific product categories are permitted under international trading rules. Such cases were filed previously by EU trading partners in connection with past enlargements and have generally set off a lengthy series of negotiations and compensation offers by the EU . But the likelihood of a series of such claims, if judged to be warranted, could add significantly to the costs of the enlargement.

It was also expected that other major trading partners such as the US, Japan and Australia would also come forward to request compensation.