Anti-coercion instrument, China, Latest news

Festering Chinese Lithuania blockade emboldens anti-coercion instrument proponents

A festering crisis over trade with Lithuania is helping proponents of the EU’s recently announced anti-coercion instrument make their case in Brussels.

Do not rock the boat.

Member states continue to be divided in foreign policy and regarding many things that have to do with China. Germany might be said to potentially be tougher on China under its new government, but for now not much has changed in its attitude towards the large Asian power.

Following a serious deterioration of bilateral relationships with Beijing, Lithuanian exports are being literally obliterated by Chinese trade authorities. The government in Vilnius feels so threatened that this week it pulled out its diplomats from Beijing for safety reasons. But getting itself on the radar in Brussels, Berlin, or Paris remains challenging.

There is even some irritation in some member states at Lithuania for having taken uncoordinated bold steps in its Taiwan policies by letting Taipei set up an office in Vilnuis under the name ‘Taiwan’ and not ‘Taipei’ and now causing ructions with Beijing that affect the rest of the bloc.

After many days of trying to put the matter on the agenda of a series of Council meetings this week amidst resistance of some big member states – and some say Berlin – Lithuania did manage to become a talking point at the summit on Thursday (17 December 2021).

Vilnius obtained one oral line from Council president Charles Michel at a press conference in the middle of the night shortly thereafter.

“The Lithuanian president exposed to his colleagues the tensions with China,” said Michel. “I want to reaffirm here solidarity with the member states, Lithuania in this case, who are subject to pressures from China.”

But the written ritual Council Conclusions released after the meeting were silent.

Commission in quest for solutions

The European Commission is now left scrambling to try to work out this matter with the technical tools it has at its disposal  whilst member state capitals stay largely quiet. The tools at hand are scant.

A lot of that work is being carried out by the European External Action Service and the office of Executive Vice President Valdis Dombrovksis.

For now the focus is trying to make its concerns known to China via traditional diplomatic channels, including at the World Trade Organization in Geneva.

“We are working to establish the exact facts and to see how we can remedy the situation. We are intense outreach to Chinese authorities, with Lithuania and with other member states,” said Valdis Dombrovskis at an event hosted by the think tank ECFR on Friday (17 December).

“The situation is becoming more complicated,” Dombrovskis added.

As other countries – notably Germany – realise that the matter affects its own companies ,interest in getting the matter resolved now might grow.

European companies that source inputs from Lithuania in their industrial exports to China are now being asked not to include Lithuanian content. This makes alarm levels rise in national governments – and in the European Commission, which sees this as a severe threat to the integrity of the EU’ single market.

Reuters reported just today that China was pressuring German car parts giant Continental to stop using components made in Lithuania.

Sources investigating the matter say the practice is wide-spread, systematic, and getting worse. But few companies are ready to admit this in public for fear of being shut out completely from the Chinese market.

The European Commission is also considering filing a complaint at the World Trade Organization for discrimination – but is still struggling to find enough evidence. The Chinese authorities deny any wrong-doing and dismiss the whole matter as an Lithuanian invention.

There aren’t many functional communication channels between Brussels and Beijing at present.

An EU-China summit planned for this month was postponed indefinitely. EU China relations had been at their lowest since the two sides slapped sanctions on each other in a row related to human rights in Xingjiang province. Beijing’s ambassador in Brussels has recently left his post and has yet to be replaced.

Anti-coercion instrument in limelight

For proponents of the new regulation tabled last week in Brussels, Lithuania is a textbook situation that justifies a new EU ‘anti-coercion’ instrument. Whether Lithuania would be helped by this is not certain as the new file is still in its infancy and will need approval by the member states and the European Parliament.

But the Lithuanian case is helping build the momentum for this new regulation which would give the European Commission sweeping powers to retaliate in terms of trade and investment in a situation such as this one: economic arm-twisting to force a country to renege on sovereign decisions.

Citing a recent Chinese blockade against Australia and the current Lithuanian case, French trade minister Franck Riester said: “We support the proposal of the Commission. The current toolbox is not sufficient to defend against such practices”.

Riester will steer the legislative process on the anti-coercion instrument in the first half of 2022 as part of the French presidency of the EU.

German business has come out all in favour of the new instrument.

Speaking at the same ECFR event, Wolfgang Niedermark, an executive board member of the mighty German industry association BDI said: “Five years ago we would have opposed it”. But, said Niedermark, “multilateral cooperation is broken”.

The BDI also supports the instrument’s intention of being potentially so massive that it acts as a deterrent. Responding to questions expressing concerns that the EU’s response might be disproportionate – and hence also in violation of niceties such as the WTO rule-book whilst damaging its own economy, Niedermark said: “We have to deal with people who are disproportionate. China is totally disproportionate. We have to be ready to pay our extra costs.”

If the recent entry of the China-sceptic Green party into the foreign ministry in Germany hasn’t (yet) done the trick of making Berlin somewhat more eager to rock the boat with Beijing, perhaps business lobbying might help do the trick and get the ears of the economic ministry and the German chancellor.

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