Position Paper. Committed to free and sustainable trade. FTA Position Paper on EU-China Trade Relations

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1 Position Paper Committed to free and sustainable trade FTA Position Paper on EU-China Trade Relations 13 February 2012

2 EU-China Trade Relations, 13 February Executive summary The economic links between the EU and China become ever more dense and dynamic for the mutual benefit of both entities. This position paper aims at supporting fruitful debates between political leaders e.g. at the upcoming EU-China annual summit on 14 February 2012 and at submitting the values of the FTA in the current discussion within the European Parliament about the future of bilateral trade relations. In order to keep pace with the increasing importance of bilateral commerce both entities have to create an even more business friendly environment by further opening markets and abolishing trade barriers. The FTA has identified two main obstacles which jeopardise progress in establishing closer trade relations. The first challenge refers to the distorted perception of China in Europe. Despite the high relevance of Chinese imports for the smooth operation of the Single Market, the Asian country is wrongly perceived as a menace to the economic prosperity of the EU. The second challenge stems from the market situation in China itself where European retailers still face important impediments. Chinese authorities have to continue implementing reforms to ensure a transparent and predictable legal framework and a level playing field for European retailers. For the sake of mutual growth both players have to cooperate more effectively together and refrain from any protectionist measure. The FTA encourages the EU and China to implement the recommendations produced in this paper.

3 EU-China Trade Relations, 13 February FTA POSITION PAPER ON EU-CHINA TRADE RELATIONS 1. Introduction Two interdependent trade blocs The EU is China s largest trading partner and China is the EU s second largest trading partner and might soon replace the USA as the first economic partner. The EU s imports from China have tripled since 2001 and the Asian country has been Europe s biggest source of manufactured goods for several years. China is the most important supplier of the European importers and retailers comprising FTA membership, and the importance of China as sourcing country is growing every year. This flow of competitively priced goods from China benefits Europeans, by restraining inflation and providing affordable goods to European consumers. European retailers are also progressively penetrating the Chinese market, owing to rising incomes and population density. The FTA attaches utmost importance to the trade relations with China and believes that China and the EU have a common interest in a stable and internationally agreed framework for trade and investments. Therefore, the FTA welcomes two recent EU initiatives to continue improving trade relations with China. Firstly, the European Commission is exploring the scope for deeper cooperation on investment which could lead to the launch of negotiations for an investment agreement. Secondly, Marielle de Sarnez from the International Trade Committee of the European Parliament is analysing the status of EU-China commercial relationship in her report EU and China: Unbalanced Trade?. Below, the FTA highlights different aspects which are at the core of the bilateral trade framework. Specific attention is given to undesirable trade policy choices in both the EU and China and to the most important challenges faced by European retailers when doing business with and within China. This paper concludes with recommendations for increasing the mutual benefit in bilateral exchange in goods and services. 2. Obstacles and shortcomings More efforts needed The overall aim of the FTA regarding China is to reduce and eliminate trade obstacles in both directions. Two main issues have to be addressed in this context. One key priority is to increase awareness of the advantages European companies and consumers derive from goods brought in from China. Trade with China should not be seen as a threat but an important opportunity for the European economies. The second major challenge refers to trade barriers on the Chinese side. Despite considerable efforts undertaken by Chinese authorities to further open the domestic market and abolish barriers to trade and investment a lot remains to be done. Many more business opportunities would be created should China s business climate improve, a level playing field developed across the board and intellectual property rights strengthened. (a) Acknowledge the importance of Chinese imports for the Single Market Trade is a double-edged sword and has both an external and internal face. Many European companies have production facilities in China to benefit from lower costs. Others source third-party products from China at prices significantly lower than in Europe.

4 EU-China Trade Relations, 13 February In this way, consumers have now access to a larger variety of products than ever before and can take advantage of affordable merchandise of high quality. In other words, the purchase of imports from China has become an integral and natural part of our consumer behaviour. Despite this evolution, European policy makers tend to underestimate or even overlook the added-value of a liberal trade regime with China. It is therefore one of the main objectives of the FTA to raise awareness of the crucial role of Chinese imports for the internal market. The EU institutions should recognise more actively the benefits of the current trade exchange and pursue a policy of openness in bilateral commerce. The Single market must remain open and protectionist temptations must be resisted, especially against the background of the current economic and financial crises strongly affecting the EU. The use of trade defence instruments is legitimate to defend European producers against unfairly subsidised or traded imports. However, the use of such instruments has to be clearly framed and should not be dictated by narrow and short term goals or by calls to protect out-dated European industries from competition. Hence, recent calls to have an increased recourse to such measures should be rejected. An excessive and unjustified application of trade defence instruments will only provoke countermeasures by China and diminish the prospects of growth in bilateral trade. This is even more true as recent trade statistics indicate that European exports to China are augmenting at a higher pace than imports from China to the EU. 1 This trend demonstrates that the EU is already on the right track and that China is more and more open for exports from Europe. (b) Facilitate business activities with and in China Obtain full market access for services and goods In 2011 retail sales in China amounted to 1,500 Billion euro and the country is expected to become the third largest global consumer market by Although ownership restrictions and geographic limitations for foreign investment have been removed in 2004 in nearly all retails sectors, two major market access obstacles remain: LICENSING PROCEDURE: Experience has shown that foreign retail companies face stricter licensing processes than domestic players, adding costs and wasting time for foreign investors. Provincial commerce authorities, being in charge of granting business permits, tend to favour domestic over foreign retailers. In short, the licensing procedure lacks transparency and often remains inconsistent, slow and cost intensive RESTRICTED GOODS: Certain products like tobacco or pharmaceuticals can only be put for sale by foreign retailers under very restrictive conditions making it de facto impossible to offer such goods Reach a level playing field for European retailers While European retailers have made major investments over nearly two decades to enter the Chinese market and to secure market shares, only 5 percent of China s retail enterprises are foreign-invested. Unfortunately, European retailers operating in China still 1 Public statement by Markus Ederer, EU ambassador to China, on 6 February 2012; See also (e.g. first statistics on page 3)

5 EU-China Trade Relations, 13 February face unjustified restrictions and behind-the-border barriers which appear to have increased in recent years. The following examples give an overview of these difficulties: CUSTOMS: European retailers have experienced difficulties with Chinese customs. Companies were requested to provide additional documents and certificates that delayed custom clearance and for which no legal justification exists HARMONISATION: European retailers report that customs practices may be different from one part of China to another as practices are not properly harmonised STANDARDS: Technical criteria, not aligned to international standards, also discourage exporting to China. The implementation of existing international standards should be further encouraged PROTECTIONISM: The Buy Chinese policy, limiting the access of foreign companies to public procurement, contradicts the Chinese government s stance to treat foreign goods fairly with regards to stimulus spending and their calls to other governments to stick to the principle of free trade REAL ESTATE: In many cities local authorities are inclined to grant prime real estate spaces to domestic retailers, clearly disadvantaging foreign players Achieve a high level of Intellectual Property Rights (IPR) European retailers recognise the efforts to align China s laws and procedures to international standards and for raising awareness on the consequences of piracy. Nevertheless, the scale of the problem is still very significant and IPR infringement has a serious impact on European companies. European single-brand companies and retailers with own-brands are strongly affected and become frequent and common targets of counterfeiting. Heavy economic losses are the direct consequence. Moreover, counterfeiting is a crime and European retailers are exposed to legal actions for selling counterfeited goods involuntarily. Hence, further support should be provided in order to assist China in enforcing relevant laws and regulation. 3. What next? Ways forward to improve bilateral trade relations How should the EU respond to the challenges originating from China? Basically, the European Union should regard China s advancement as a positive challenge and make use of the advantages of the existing potential instead of cutting off its markets and taking protective measures. Shape a favourable trade environment In order to create a business environment that is healthy for both the EU and China the FTA would like to make the following recommendations: PERCEPTION: The FTA encourages the EU to more proactively acknowledge the vital role of imported products from third countries and to put more emphasis on the added-value of Chinese imports for the European economy in official publications and political declarations INVESTMENT AGREEMENT: Considering the lack of progress on the Partnership and Cooperation Agreement, the FTA calls on the EU and China to negotiate an ambitious investment agreement

6 EU-China Trade Relations, 13 February INCREASED COOPERATION: The FTA encourages a more intensive cooperation between authorities from both entities. EU and China have a common interest in streamlining their cooperation and work together towards harmonising customs practices, improving IPR protection, non-discriminatory company law and ensuring a transparent legal environment MARKET ECONOMY STATUS: The FTA incites the European Commission to make further efforts for supporting China s transition before market economy status is granted to China in 2016 under the terms of China s accession to the World Trade Organisation in 2001 DOHA ROUND: The FTA calls upon the EU and China to work closer together towards a successful conclusion of the Doha Round for the sake of global economy and for boosting relations between these two major trading blocs EUROPEAN PARLIAMENT: The FTA welcomes the proactive stance of the European Parliament and especially the INTA Committee to effectively contribute in addressing obstacles to closer trade exchange Conclusion In view of China s outstanding importance as an economic partner for Europe it is necessary to attach specific importance to the relations between the EU and China. China s upswing creates numerous chances as well as risks for the European producing and trading companies. It is our core objective to promote economic opportunities and to limit the risks. We will achieve this goal by keeping in mind the long term interests of the EU and the advantages of stable and open bilateral economic relations on the basis of mutual benefit. For further information about the position paper, please contact: Pierre Gröning pierre.groening@fta-intl.org Direct tel: About the FTA The Foreign Trade Association (FTA) is the association of European and international commerce that specialises in foreign trade issues and represents over 800 members. It is committed to achieving the goal of free and sustainable trade. For more than 30 years it has supported its members, consisting of retailers, importers, brand companies and trade associations by providing expertise and up-to-date information and by campaigning on their behalf against protectionist measures in the European and international arena. Please visit our website for more information:

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