Going to dark side! Fears EU will hold member states hostage with new trade weapon

China is the 'world's biggest imperial power' says Nile Gardiner

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The EU Commission proposed last December a new trade defence measure designed to combat non-European Union countries wielding undue pressure on any of the bloc’s members, but the plan already faces scepticism within Brussels.

The new measure could for example be deployed in the form of trade or investment restrictions on China over the pressure it is exerting on Lithuania after it allowed Taiwan to open a de facto embassy there, according to diplomats familiar with the proposal.

But free trading EU states such as Sweden and the Czech Republic fear the measure could be used as a huge protectionist tool.

The EU’s former trade commissioner, the Swedish liberal Cecilia Malmström, told Politico the EU should be careful building its trade defence arsenal.

She said: “If you add all the tools that we see now … looking at them one by one, you feel that they could be useful, but if you add them and abuse them or use them rather frivolously, they can really lead to something we don’t want.”

A trade diplomat also told Politico: “We understand the current gap in the regulation. But will this instrument make things better or worse?”

And Holger Hestermeyer, a trade law expert at King’s College London added: “The EU needs instruments to react, but the instrument creates a risk of being used and overused.

“The system is slowly returning to a more brutal state of nature and that’s not in anyone’s interest.”

Free traders also fear that the new measure could undermine the EU’s standing in the World Trade Organisation as currently under WTO rules dispute between states must be resolved via the Organisation’s dispute mechanism.

China downgraded diplomatic relations with Lithuania and officials in Vilnius say Beijing has also imposed blocks on its exports and pressured companies in third countries not to do business with the small Baltic state.

Beijing denies any wrongdoing.

Lat month, the EU launched a challenge at the WTO accusing China of discriminatory trade practices against Lithuania that it says threaten the integrity of the EU’s single market.

China, which said the dispute was political rather than economic and labelled Lithuania’s actions an attempt to “hijack” EU-Beijing relations, regards the self-governed island of Taiwan as its own territory.

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The European Commission, which oversees EU trade policy, said in a statement that China’s actions were harming exporters in Lithuania and elsewhere in the 27-nation bloc.

The curbs include a refusal to clear Lithuanian goods through Chinese customs, rejection of import applications from Lithuania and pressure on EU firms to remove Lithuanian content from supply chains when exporting to China, the Commission said.

It said China’s customs statistics showed a 91 percent drop in trade from Lithuania to China in December as compared to the same month in 2020, with the most affected sectors being pharmaceuticals, lasers, electronics and food.

The EU executive said those actions appeared illegal under WTO rules and that attempts to resolve them bilaterally had failed.

“The EU is determined to act as one and act fast against measures…which threaten the integrity of our single market,” EU Trade Commissioner Valdis Dombrovskis said. Diplomatic efforts were also being pursued, he added.

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China’s foreign ministry said Beijing acted in accordance with WTO rules.

WTO challenges start with a formal 60-day period of consultations between the parties. If they do not resolve the dispute, the EU can request that a WTO panel rule on the matter.

The WTO typically take years to resolve disputes.

Dombrovskis told reporters the EU was trying to find an amicable solution during the consultation period.

The Lithuanian Foreign Ministry said it had produced “strong evidence of systematic violations of international trade rules” by China for the WTO challenge.

“Lithuania hopes China will agree to participate in the consultations with the EU and that they will be successful not only in resolving existing trade disruptions but also in ensuring long-term sustainable solutions”, the ministry said in a statement.

Britain will join the United States and Australia in backing the European Union trade case.

The United States, Australia and Taiwan have already signalled they intend to join the consultations.

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