The EU and China: Partnership and Responsibility in the Global Economy

- That “if there is a perception of a lack of equilibrium in China’s trading practice, a negative reaction will be inevitable.”

This is my first visit to China in my job as Europe’s Trade Commissioner. But it is not my first visit to China. I have taken a close interest in the remarkable development of this country and in the broader phenomenon of Asian economic growth for many years.

I thought it was important to come here early in my mandate, because I see no greater challenge for Europe than to understand the dramatic rise of China and to forge new ties of partnership with your country.

I believe China has a similar interest in partnership with Europe. The EU is also a remarkable and relatively new phenomenon: a continent of nations uniting together in the pursuit of prosperity, security and justice, both at home and abroad. Inside our borders the nation states of Europe have come together to create a single economic space, to build a body of shared law covering social, environmental and security policy, to adopt a single currency. Most recently we have enlarged and now include 10 new countries, many of them former satellites of the Soviet Union. The European Union is spreading wealth, democracy and stability across our continent. It is a dynamic force for change and for improving people’s lives.

On 9 December I spoke at the EU China Business Summit in The Hague of the need to review and lift our relationship with China to a higher and more intense level. I believe in this goal. Today I want to examine how we can move this forward.

China is the great change of our time. In 25 years, you have doubled per capita income, and then doubled it again and then doubled it again. You have lifted three hundred million people out of poverty. China has become an export power house. Your exports to Europe have increased by an average 20% per year since 1983. Only last week, the Washington-based Earth Policy Institute announced that China has replaced the United States as the world’s top consumer of four out of five basic commodities: grain, meat, coal and steel. Only in the consumption of oil does the US still surpass China. Further upmarket the number of personal computers sold in this country doubles every two years.

As the new China defines itself economically and politically, so must the rest of the world define how to situate itself towards China. For many the instinct is not to trust that which you know too little about.

With some I have registered a sense of alarm or even a hint of fear of China’s rise. I have seen it in Europe and heard it in meetings with leaders in other parts of the world. And this worries me.

The reaction I want to promote is more positive and interactive. We need to understand China better, to learn how to work with her, and to benefit from this country’s growth. We must establish the conditions for a more mature and confident partnership.

We need to build this partnership because we are facing the same uncertainties. If globalisation teaches us one lesson it is surely that we need to address its darker sides collectively. They include terrorism, proliferation of weapons of mass destruction, regional conflicts, poverty, migration and international crime, epidemics, the shortage of resources and the threat of climate change.

All these problems affect China and they affect Europe, although not always in the same way. And China, as it grows, will become a more significant factor in the future, both in contributing to some of these problems and I hope in leading efforts to solve them.

I genuinely believe that, whatever their concerns, the majority of people in Europe are convinced that a stronger, co-operative relationship with China is not only inevitable but also very much in our own interest.

In my own area of responsibility – trade – the Chinese market offers a huge opportunity for European companies. China is a voracious consumer of European goods, technology and services. China is also a competitor in many areas – but competition, provided it is fair competition, is a good thing.

We in Europe are conscious that we need to step up our own economic performance and flexibility if we are to compete successfully. The new European Commission, of which I am a Member, has set this as its central task. Our mission is to stimulate greater dynamism in the European economy to promote growth and jobs, and through this to ensure that we can compete in global markets so that Europe’s high standard of living and social protection is preserved.

But here is the caveat. If we are to build a stronger partnership, I believe Europeans need to have a clearer sense that China is assuming the responsibilities that accompany its new power within the global community. As we all learn in life, the greater our power the greater our responsibility.

Europeans are now looking to China to play a greater role in the international community in many areas. For example in supporting the peace-keeping operations of the United Nations and in joining the collective approach to meeting the challenges of climate change.

In my own area of work, trade, I too am calling on China to demonstrate responsibility and leadership. In trade policy the greatest single challenge before us is to bring to a successful conclusion the ongoing Doha Development Agenda negotiations. China has an overwhelming interest in strengthening a rules based trading system. Those rules are already working in China’s favour and they will continue to do so in the years ahead. In the Doha Round we need to deliver a better global environment for trade which will reinforce the WTO and its rules of opportunity across the globe.

I am aware that many in China feel that this country paid a high price in 2001 to get into the WTO. I have been told that those negotiations were long and tortuous. They lasted fourteen years. Many Ministers, including the formidable Madame Wu Yi who I look forward to meeting tomorrow, were not able to conclude them. And your former Prime Minister Zhu Rongji is known to have said that the hairs of all of China’s WTO negotiators had turned from black to white by the time the talks were over. So I have to recognise that it was not an easy task.

Having said this, I do wish to say today that your membership of the WTO was neither the end, nor the beginning of the end. It was the end of a beginning which has already brought you many advantages as foreign investment keeps pouring in and your economy continues to surge forward. So although I recognise the particular status of China as a “recently acceded” WTO Member, we are looking to you to contribute again.

To put the Doha Round back in motion we need to move urgently to construct a balanced package covering agriculture, trade in industrial goods, and trade in services. And alongside this we need to strengthen the rules governing intellectual property and the use of anti-dumping measures.

I am looking to China, as the greatest, most powerful and most rapidly advancing developing economy, to show leadership in the run up to our Ministerial meeting in Hong Kong in December this year. I shall be engaging in detailed discussions with Chinese negotiators in the months ahead, and in particular in preparing the mini Ministerial meeting to be held here in July. In political terms, my few months in the job have already suggested to me that the DDA will not succeed unless many developing countries are given the security that China will not take the lion’s share of the round’s benefits. In my view the only way to lay these concerns to rest may be for you to contribute more than may at first sight appear necessary or reasonable. I should add that this is often the price for leadership.

More immediately, China can demonstrate its commitment to the world trade system through its own behaviour within it. Take for example the textiles sector. Six weeks ago China reaped a remarkable down-payment from WTO membership, with the removal of textile quotas. This liberalisation is a major prize for you.

Already its effects are beginning to be felt by textile industries in Europe, and more importantly by textile industries in poorer developing countries around the world.

We have discussed this already at length. I have been encouraged by the readiness of China to consider introducing measures which may help to inhibit a dramatic surge of exports which could destabilise the new conditions under which world trade in textile products takes place.

But there is much concern that these measures will not be sufficient. Speaking for China’s major trading partner, I say to you openly as a friend, that it is important for China to measure the impact that your own success is having and will have on others in the world. I want others to welcome China’s success, to benefit from it. We can all benefit from liberalisation and we are not going back to the system of restrictions that existed for so many years. But I think that some moderation and caution in the rate of growth of Chinese textiles exports – pacing it over time – will help to ensure a harmonious adjustment to this new global trading environment.

Another key to avoiding negative reactions in Europe and elsewhere will be to ensure that access to China’s own booming market is open to others.

China has made remarkable progress in bringing its legislation on intellectual property up to date. But in many ways that is only the beginning. The real test is when you start to enforce intellectual property rights vigorously throughout the country. I wish to work with China urgently on this, to promote better enforcement. It is in your interest too, because you are fast becoming an innovation-based society and you want to attract more foreign technology. You cannot have the one without the other.

Other areas we need to work on together include liberalising the banking sector, strengthening accountancy standards and property rights more generally, and corporate governance. In some areas industrial policies continue to give undue privileges to domestic companies.

These are all key issues both for China and for her trading partners. Reform and opening will be progressive but it must happen. If there is a perception of a lack of equilibrium in China’s trading practices, a negative reaction will be inevitable. We in Europe have learnt that trade and development expand not only when we reduce tariffs and open borders, but when there is a convergence of rules and institutional frameworks governing economic activity. That is why we also want a deeper dialogue with China as you develop your regulatory system.

Of course China has other international responsibilities too, for example the gradual liberalisation of the exchange rate of the Yuan. I would welcome it if, as a first step, China’s currency can soon be linked to a broader set of currencies than the dollar, in order to reflect better its trading patterns. Further reform beyond this will be essential for the perception that fair trading conditions exist, although I am of course aware of the importance for China of preserving financial stability.

Another key area will be China’s impact on global markets for energy and natural resources. We need to create a framework that recognises interdependence and connects demand and supply.

And of course for Europeans the protection of human rights is a key concern. We should vigorously pursue our dialogue on this, in an atmosphere of mutual respect and confidence, and a desire always to improve our performance.

What emerges from all this, to my mind, is a rich agenda for Europe and China to work on in order to give substance to a new strategic partnership. This agenda spans both cooperation in international organisations and groups – like the WTO – and a bilateral agenda which we need to strengthen. We need a new initiative to galvanise this work.

As I said in The Hague, I believe we need a stronger contractual framework for our relationship, bringing together different areas of activity in a single over-arching agenda and vision. Our current bilateral agreement dates back 20 years. It belongs to the last century, not to this one. It does not allow us to address several vital economic issues between us, such as investment and government procurement, nor a broader agenda on areas such as readmission agreements, energy and science and technology. It does not recognize China’s phenomenal evolution.

A modern Europe and a modern China need a modern basis for their relationship – permitting broad, open and honest debate and negotiations. I accept that there has to be give and take on both sides. We in Europe are preparing to move forward to lift the arms embargo. But if and when we do, we shall find the step easier if we can point to clear evidence that China is taking account of our concerns in other areas of policy which in turn will allow us in Europe to feel confident about our next move.

The same goes for market economy status. I know this is of great political importance for China. And I understand why. I am hearing you.

But this is not exclusively a political issue. Recognition of market economy status has to be based on objective progress. We have set out what China in our opinion needs to do in order to meet those criteria. And I intend to submit more specific proposals in the very near future. Many of the requirements are in areas I have touched on today, affecting economic openness and governance.

I would like to be able to move forward on this. I am ready to discuss and exchange views on outstanding issues. We can work on this together.

But while the technical aspects are vital, I also believe that attitudes in Europe and elsewhere towards granting market economy status will be influenced by a broader perception of how China is developing, in its political, social and economic behaviour, both at home and abroad.

In a partnership between two entities as powerful and as complex as China and the EU, progress in one field will inevitably affect progress in others. It has to be a give-give relationship, based on a prudent understanding of the concerns and requirements of the other partner, as well as a healthy and natural respect on each side for the other’s interests.

That is the sort of mature and complex political relationship that I believe Europe and China need to develop. It will require much more intense contact and greater mutual knowledge and confidence in the years before us. The sooner we move ahead the better. I want to contribute and play my part in this.

Source: Europa Press Releases