Jon Van Housen and Mariella Radaelli :
Europe is steering clear of direct involvement in the escalating US-China trade war as it urges negotiation and adjudication by the World Trade Organization. Yet, it has also long complained that China benefits from unfair trade practices. Like several US presidents before Donald Trump, Europe has long voiced concerns about intellectual property violations, forced technology transfers, closed markets and the security of business secrets.
In their hearts, European business leaders might agree with Trump’s complaints. But as with previous US leaders, they view engagement rather than confrontation as the most effective way to bring China into compliance with global business standards.
The approach they use might be best characterised by the quote “keep your friends close and your opponents closer”, meaning stay engaged and watchful. Tellingly, that strategy has been variously attributed to Sun-tzu, Niccolò Machiavelli or even Michael Corleone in $$$The Godfather II$$$$ film. In the murky world of East-West relations, even who said what is open to dispute.
More than 40 years ago, when China started opening up its market it made multinationals salivate. More than a billion potential consumers that ‘need’ almost everything. Confusing as it was, they jumped in.
Volkswagen has been one of the most successful companies at navigating the choppy waters. In 1984 it formed a joint venture with the Shanghai municipal government to produce cars. VW brought the technology, capital and experts while ceding 50 per cent ownership to the government. It sounds like a bad deal, fraught with difficulties, but it eventually paid dividends. Today, Shanghai VW makes and sells more than two million cars a year in China at a time when its home market Europe is saturated.
Almost all European and most US auto companies now produce vehicles in China under similar arrangements. Large European automation, chemical and electrical companies also have massive operations in the country.
But four decades since the initial opening up, many say unfair business practices remain. Once given a pass due to its status as a developing country, China should now offer a more level playing field, according to business leaders. They stress it should live up to agreements hammered out at the WTO that promise protection for intellectual property and proprietary technologies.
“If the main players don’t stick to the rulebook, the whole system might collapse,” said Cecilia Malmstrom, the EU Commissioner for Trade. “Technological innovation keeps our companies competitive in the global market and supports hundreds of thousands of jobs across Europe.”
“We cannot let any country force our companies to surrender this hard-earned knowledge at its border,” Malmstrom said. “This is against international regulations that we have all agreed upon in the WTO.”
Mats Harborn, president of the EU Chamber of Commerce in China, says that 2018 must be the year when Beijing delivers on its promises to further open its economy. “We believe that time is running out for China to continue its reform process,” he says. And long-standing relationships do not inoculate European companies from difficulties. In 1879, German industrial giant Siemens first established a company in Shanghai to sell its telegraph equipment, telephones and water metres to China. A Siemens engineer, John Rabe, is considered a hero in China for his efforts to protect civilians during the Japanese army invasion of Nanking in WWII.
Now fast-forward almost 140 year s to the spring of 2017: A 65-year-old Dutch national was apprehended at Amsterdam’s Schiphol Airport attempting to flee to China after selling technical details from Siemens’ energy division to a Chinese competitor. The EU filed legal proceedings against China at the WTO last summer over intellectual property policies saying Beijing forces European companies to grant ownership or usage rights to local partners.
EU-China relations have also been strained by Chinese steel overcapacity and low-priced exports that undercut rival manufacturers in Europe, as well as China’s barriers to foreign investment and its aggressive overseas acquisitions. A growing trade deficit is also of concern. In 2017, the EU had a ?176 billion trade deficit with China, according to figures from Eurostat, a year when 20 per cent of EU imports came from China, the largest share of any country, while only 11 per cent of EU exports were to China. At a trade summit in Beijing last summer, European Commission President Jean-Claude Juncker cast aside excuses saying, “If China wishes to open up it can do so – it knows how to open up.”
(Jon Van Housen and Mariella Radaelli are editors at the Luminosity Italia news agency in Milan).
