Commission threatens Chinese firms with trade penalties

Press conference by Karel De Gucht, Member of the European Commission, on the proposal to strengthen the EU's trade defence instruments. (EC Audiovisual Services).

Press conference by Karel De Gucht, Member of the European Commission, on the proposal to strengthen the EU’s trade defence instruments. (EC Audiovisual Services).

European Union Trade Commissioner, Karel De Gucht, announced yesterday that, “The European Commission has today taken a decision in principle to open an ex officio anti-dumping and an anti-subsidy investigation concerning imports of mobile telecommunications networks and their essential elements from China”. Without naming individual firms this Commission decision is directly targeted against two international companies originating from China, the Huawei Technologies Co. giant and the smaller firm ZTE Corporation. The Commission opens this investigation on Chinese telecommunication equipment producers for allegedly using price dumping practices and receiving state subsidies.

Some weeks earlier the Commission had issued a note saying it will strengthen its legislation to protect its home market from international competition. This European Sting writer, Dennis Kefalakos, wrote on 12 April “the European Commission, announced yesterday its proposal for a new legislation targeted at strengthening the protection of home businesses and products from external competition. It’s a clear effort to help the Union’s economy overcome a deepening recession. The new legislations will be in force early in 2014, after being approved by the Parliament and the Council”.

Presently however the new step against those two companies may trigger strong retaliation measures from Beijing, or even worse a trade war. The Chinese administration has proved that from now on there will be swift reaction to such trade obstacles aimed against the country’s exports. The European Sting wrote on this occasion: “Is it possible that those people in the European Commission truly believe the new tools to protect the EU markets and producers will pass unanswered? Are they forgetting in Brussels, that Beijing just imposed extra duties on European and American products?”

South East Asia blues

Incidentally it’s not only the penalties and the non-tariff barriers on Chinese product imports often imposed by the European and the American authorities that have enraged Beijing. It is much more than that. It must have been much more embarrassing for the Chinese government to watch the West supporting, if not actively at least by omission, the new Japanese mega-policy to revitalise the rising sun country’s economy, through more borrowing and a much cheaper yen.

It was a revelation for independent economic analysts to see the latest gathering of the G7 group of countries some days ago (United States, Japan, Germany, France, Britain, Italy and Canada) to let Japan get away with its policies to flood the market with newly printed yen, destined at restarting its stagnating economy through a generous devaluation of the yen. This major development in South East Asia may change the economic status quo in the area, with clear western political and economic support to Japan against everybody else in this crucial area of the world. The main victims of the much cheaper yen would be the Chinese and the South Korean exports.

Seemingly the European Commission being in the centre of all that, tried to make its new step against the Chinese products a bit less embarrassing. The relevant announcement by De Gucht in the very second paragraph stressed that, “This decision will not be activated for the time being to allow for negotiations towards an amicable solution with the Chinese authorities”. The Commission explains also that “An ex officio trade defence action allows the European Commission to launch a trade defence investigation on its own initiative without an official complaint by the EU industry”.

Now in reality there is not the slightest complaint from the main European telecommunication equipment producers against the Chinese exporter. The reason is that as the Chinese firms operate in the European market and make plans for the future, in exactly the same way the EU companies are presently making plans for a strong expansion in the vast Chinese market. Those plans may be put in danger, if the Commission insists on punishing Huawei and ZTE. On top of that those two companies, and mainly the first one, play a key role in mobile telecommunication markets all over the European Union. Practically all major mobile network operators in Europe maintain close relations with Huawei and a possible imposition of penalties in this firm could lead to operational and technical problems in many mobile networks.

This leads us to conclude that the new step by the EU Commission looks like being politically rather than economically motivated. For this reason the Commission says that this ‘own initiative’ will have no immediate effect, obviously because it may also hurt some major European firms. Negotiations may close this issue amicably.

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