REPORT on Prospects for trade relations between the EU and China

5.9.2005 - (2005/2015(INI))

Committee on International Trade
Rapporteur: Caroline Lucas


Procedure : 2005/2015(INI)
Document stages in plenary
Document selected :  
A6-0262/2005
Texts tabled :
A6-0262/2005
Texts adopted :

MOTION FOR A EUROPEAN PARLIAMENT RESOLUTION

on Prospects for trade relations between the EU and China

(2005/2015(INI))

The European Parliament,

–    having regard to the 7th EU-China summit held in The Hague on 8 December 2004,

–    having regard to its resolution of 18 December 2003 on arms sales to China[1],

–    having regard to the Commission policy paper on a maturing partnership - shared interests and challenges in EU-China relations (COM(2003)0533),

–    having regard to its resolution of 18 December 2002 on the human rights situation of Tibetans[2],

–    having regard to its resolution of 11 April 2002 on the Commission communication to the Council and the European Parliament on a EU Strategy towards China: Implementation of the 1998 Communication and future steps for a more effective EU policy (COM(2001) 265)[3], which takes into account the Report from the Commission to the Council and the European Parliament on the Implementation of the Communication, 'Building a Comprehensive Partnership with China' (COM(2000)0552),

–    having regard to the decision taken by the Fourth Ministerial Conference of the World Trade Organisation (WTO) at Doha, Qatar on 9-14 November 2001 on the admission of China and Chinese Taipei to the WTO,

–    having regard to its resolution of 25 October 2001 on the proposal for a Council decision establishing the Community position within the Ministerial Conference set up by the Agreement establishing the World Trade Organisation on the accession of the People's Republic of China to the World Trade Organisation (COM(2001)0517)4,

–    having regard to its resolution of 20 January 2000 on the human rights situation in China5,

–    having regard to Rule 45 of its Rules of Procedure,

–    having regard to the report of the Committee on International Trade and the opinion of the Committee on Foreign Affairs (A6-0262/2005),

A.  whereas the rapid development of China over the past 20 years has had a significant impact on EU-China trade and economic relations, and whereas, overall, China is now the EU's 2nd largest trading partner after the U.S.; whereas in 2004 the EU had a deficit, vis-à-vis China, of EUR 78.5bn, its largest deficit with any trading partner, and one which reflects, among other things, the effect of market access obstacles in China,

B.   whereas China became a member of the WTO in 2001, reducing its average tariff and non-tariff barriers following its WTO commitments, leading to a growth of European investment projects in China; whereas, in some cases, however, the protection of Chinese domestic industries persists,

C.  whereas by joining the WTO and opening itself up to international commerce, the most populous state on Earth has become a key player in world trade; whereas the impact of the production of a nation of 1.3 billion people can only increase; and whereas other countries with large populations (such as India, Brazil, Indonesia and many others) are bound to change the current ranking of exporting nations,

D.  whereas the premise for trade between the EU and China is a strategic partnership with mutual market access on the basis of WTO rules and fair competition,

E.   whereas China does not adequately apply WTO rules and whereas in particular it circumvents the ban on state export aid, infringes the laws on the protection of intellectual property, refuses to allow mutual access to its market in the case of goods and services from EU countries, and uses state intervention deliberately in order to depress the value of its currency,

F.   whereas many of the rulings in the more than 9 000 piracy trials held in the past year are not being effectively enforced,

G.  whereas China does not at present meet the conditions for the granting of market economy status,

H.  whereas Taiwan played an important role in the economic rise of China,

I.    whereas China's fantastic economic development and integration into the global economy is essentially positive and increases prosperity throughout the world,

J.    whereas owing to its continental size, the number of its inhabitants and its dynamic economic growth in recent years, China is an economic superpower able to influence the course of the world economy and one with which all the other economic areas are bound to have to compete,

K.  whereas Chinese expansion will bring enormous beneficial possibilities but also raises legitimate concerns for European industry, with an ensuing need for political management of those relations at European level,

L.   whereas trade relations between the European Union and China are at the heart of the debate on globalisation, and illustrate all the expectations and contradictions connected with it,

M.  whereas the EU needs to find a response to the increasing public disquiet about the impact of globalisation which will be further fuelled by China’s increasing dominance of world markets,

N.  whereas China has tripled its expenditure on research and development in the past five years and Europe must rise to this challenge in order to continue to benefit from world trade in future,

O.  whereas the problems of the European textile industry were foreseeable, since the investments made by Chinese industry in this sector are well known, and this will not be an isolated case since similar situations exist in the production of other goods, such as footwear, and also in the bicycle industry, the car industry and the iron and steel industry, among others,

P.   whereas the EU cannot remain complacent in the face of the challenges posed by China’s growing economic strength and must develop a coherent long-term strategic response which up until now has been sadly lacking,

Q.  whereas the impact of China’s rapid growth on its own natural resources and its environment and on the world market for resources is extremely high, and whereas EU companies are facing difficulties because of growing world market prices for resources due to the high demand from China,

R.   whereas in 2000 China ranked 97th in the world in terms of per capita emissions of greenhouse gases, but also as the second largest overall emitter in the world and has become the world's second-largest consumer of energy and raw materials; whereas projections for 2025 predict record high growth of Chinese emissions so China must play a very significant role in relieving the burden on the world environment,

S.   whereas the gradual advent of a fairer and safer world requires there to be greater solidarity not only between the peoples of the developed nations and those of the less developed nations, but also within the various nations,

T.   whereas it is politically and economically in the interests of the EU to support China's development into a free and open State where the rule of law prevails and its full adoption of democracy and the market economy,

U.  whereas the economic development of China also gives the country greater responsibility in the Asian region,

V.  whereas it is the duty of the European Union, as the world's leading economic power, not only to nurture its trade relations with all its partners but also to uphold the universal values of humanity, democracy and the rule of law; whereas in this respect China, despite its recent economic success, is far from affording all its citizens the whole compass of democratic and human rights,

WTO

1.   Welcomes China’s timely implementation of some of its WTO obligations, but calls for further dialogue to enable China to rapidly address the many outstanding areas of concern to EU industry, particularly in the fields of Intellectual Property Rights (IPR) enforcement, national treatment, transparency and environmental, social and health standards;

2.   Calls on the Commission, in the light of the numerous instances of inadequate implementation or application by China of its WTO obligations, to offer European companies its support in this connection, providing them with effective backing;

3.   Takes the view that the EU must seek to establish trade links with China in a spirit of cooperation and complementarity, while ensuring that the two parties can maintain and develop harmoniously their industrial, agricultural and service sectors in order to guarantee the best possible living standards for all their inhabitants;

4.   Urges China to abide by the spirit as well as the letter of Article 18 of its Accession Protocol so that the Transitional Review Mechanism (TRM) can be a more effective tool to resolve outstanding areas of concern;

5.   Calls on the Commission to assess carefully whether to award China the status of a market economy country, and only to grant this status once China has fulfilled the relevant criteria;

6.   Takes the view that the pirating and counterfeiting of European products and brands by Chinese industries is a serious violation of international trade rules; calls on the Commission to take the appropriate measures to protect the intellectual property of European companies including supporting the Chinese authorities in the fight which they are starting to wage against piracy, monitoring the problem and, if necessary, bringing it before the WTO;

7.   Calls on the Member States to develop effective market controls in order to protect European consumers as well as possible against products which do not comply with the CE standard;

8.   Calls on China to guarantee the same conditions for all trading partners and not to put up bureaucratic barriers to trade, and to take appropriate account of reservations expressed by the EU and by industry, including in the areas of corruption, legal certainty, taxes, credit, etc;

9.   Calls on China, as a WTO member, to comply with international standards in the area of statistics;

10. Calls on the Commission to study what impact China's liberalisation of trade and membership of the WTO has had on growth in China and on social progress in the country;

11. Calls on China, in accordance with its importance in terms of world trade, to exploit to a greater extent in the context of the DDA (Doha Development Agenda) its role as a link to third world countries, and to help bring about a successful outcome in the next Doha Round in Hong Kong;

12. Calls on China to open up its markets to foreign goods and services, and to carry out appropriate reforms of its market and its economic system;

13. Calls on China, when awarding public contracts, to use a transparent and fair procedure which gives foreign companies an equal chance to participate;

14. Calls on China to improve links between its transport networks and international networks, in order to facilitate the free movement of persons and goods;

15. Calls on the Commission and China to develop effective measures in order, in future, to put an end to the repeated infringements in relation to the correct levying of protective tariffs;

International competitive effects

16. Welcomes the Memorandum of Understanding of June 10th 2005 between the Commission and the Chinese Government on the limitation of Chinese textile exports and calls on the Commission to monitor both compliance with this agreement and the situation with regard to other textile, clothing and footwear sectors in Europe, while also taking account of the long-term interests of European importers and retailers; calls on China to make transparent the calculation system being used to limit exports; urges the Commission to be prepared to adopt emergency measures if it is clear that the EU industry faces serious material injury; further urges the Commission and China to find solutions for the developing countries which are most vulnerable to Chinese exports, enabling them to protect parts of their markets, in order to find a solution for some of the poorest people;

17. Is extremely concerned that the way in which the Memorandum of Understanding has been implemented in practice has caused serious disruption to some European retailers; notes that the Commission is involved in new discussions with the Chinese authorities so as to address this issue and avoid further disruption to the supply of certain textile and clothing products to the European market; calls on the Commission to ensure that any revised agreement takes appropriate account of the interests not only of European consumers and firms but also of textile producers in developing countries that have been adversely affected by the expiry of the Agreement on Textiles and Clothing;

18. Calls on the Commission to study the long-term survival prospects of production of textiles and clothing in the EU, bearing in mind the scope for imports from China and other countries;

19. Urges the Commission to meet the growing unease of developing countries at the effects on their markets of Chinese textile exports by urgently conducting a country-by-country assessment of the full impact of the quota phase-out;

20. Calls on the Council and the Commission to recognise that the challenges currently being experienced by the textile, clothing and footwear sectors, and which will soon be experienced by other sectors such as the bicycle, automobile, machinery and iron and steel industries, are systemic in nature, and that a longer-term strategy for EU industry must urgently be developed in order for the EU's international trade policy to take into account and address in advance the challenges, such as the current imbalances it is experiencing with China, posed not just to EU and developing country jobs, but also to existing assumptions about the winners and losers from globalisation;

21. Notes that the increase in the volume of Chinese textile exports to the European Union has been accompanied by a sharp decrease in the value of those products of as much as 60% of their purchase value, without European consumers having benefited notably from this; calls on the Commission to investigate whether there have been any agreements between importers and/or large distributors and to ensure transparency in the price formation process;

22. Recognises that liberalisation affects men and women differently, and that the threat of the garment industry collapsing in many poor countries after the abolition of quotas risks severely weakening the position of women in these countries;

23. Calls on the Commission to prepare a long-term development forecast for global industry and a strategy for EU industrial development for the purpose of identifying possible development trends in EU industries in the future to ensure a competitive response to all global challenges;

24. Calls on the Commission to create a closer comprehensive partnership which would be beneficial to China and the EU, to extend this cooperation to more areas and to work towards actively overcoming negative factors between the two parties;

25. Calls for trade relations between the EU and China to contribute to a balanced and sustainable economic, social and environmental development but also to regional development, since unbalanced development would entail great dangers for internal and external security;

26. Calls on the Commission and Council to make a thorough study of the opportunities for European businesses and industry arising from economic developments in China;

27. Calls on the Commission to promote business cooperation, raise awareness and facilitate contacts in order to promote greater regulatory convergence (common standards, conformity assessment, technical regulation, improved accounting practices, improved dispute settlement mechanism, etc.);

28. Calls on the Commission to undertake more extensive research on an ongoing basis to better understand the full scope of the off-shoring issue;

29. Calls on the Commission to state to what extent the current low sale and import prices for Chinese products are bringing improvements in prosperity to consumers in Europe, and what medium and long-term trends the Commission expects to see in this connection;

30. Notes that manufactured products represent practically 75% of world trade in goods and services, while the manufacturing sector only accounts for around 20% of world GDP; points out that relocations essentially concern manufactured products with no great added value and that these industrial changes primarily affect the most vulnerable and least qualified workers, and hence those least able to adapt; calls therefore for strong social solidarity to be shown with those workers, not least in the form of greater investment in their training and retraining, in order to redirect them towards jobs in sectors in which Europe is still a world leader;

31. Asks the Commission to investigate precisely which sectors are currently benefiting, or will benefit in future, from China's tremendous economic growth, how many jobs in these sectors have been safeguarded or created, what strategies the Commission has for identifying and promoting other such sectors, in order that on balance overall the effect on European economies in terms of employment and prosperity is a positive one, and what EU Member States will retain in the high-tech sector that cannot be done by lower-wage competitors, and in particular by China;

32. Asks the Commission to investigate the introduction of a European labelling scheme that would indicate country of origin;

33. Calls upon the Council and the Commission to make use of the EU countries' political and economic influence in order to bring about a change in China's attitude towards compliance with international trade rules and towards transparency in the allocation of state aid to businesses, with a view to preventing any circumvention of the ban on state export aid and to removing administrative and government hurdles which stand in the way of imports from the EU Member States and third countries;

34. Recognises, however, that alongside the evident concerns expressed, China represents a market of great potential for European investors, and that only a fraction of it has been exploited to date; calls on the Commission therefore to pinpoint the most effective means to assist European industry to seek out and seize all the opportunities offered by that large and expanding market;

35. Notes that China's current account surplus has fallen from 3.1% of GDP in 2003 to 1.1% of GDP in 2004, owing not least to a rapid increase in imports to China; notes that China is now the European Union's second leading trading partner and that the outlook for European exports to this large market remains promising; takes the view that China will also reach limits to its growth, since the necessary measures taken to restrain population growth will result in an inversion of the age pyramid by 2015 at the latest;

36.  Calls on the Commission and the Member States to examine their current and future development aid programmes, and in particular the Generalised System of Preferences, for China in order to ascertain whether assistance for China is balanced by financial advantages for Europe or European companies;

37. Stresses that the rapid rise of China is due partly to the intense economic ties between China and Taiwan, which are reflected in the presence of 1 million Taiwanese in China working in more than 60 000 Taiwanese businesses and the many Taiwanese investments in China;

38. Expresses its concerns about the operation of the Chinese non-ferrous metals sector which leads to a structural distortion of the international market for recycling non-ferrous metals; calls on the Commission to investigate the situation and, if appropriate, to pursue WTO remedies so as to ensure that EU firms have access to scrap under fair conditions;

39. Supports the Council and the Commission in their efforts to achieve flexibility and establish a true value for China's currency in relation to the international financial market, following the introduction of the euro;

40. Calls on China to further gradually decontrol its currency's exchange rate, and in the meantime to replace the fixed link to the dollar as soon as possible with a link to a basket of currencies including the euro; further calls on China to liberalise its financial markets;

41. Calls on the Commission, jointly with China, to explore ways of opening up Chinese markets more to foreign companies and enabling, and encouraging, foreign companies to set up business without compulsory involvement of Chinese partners;

42. Welcomes the fact the Commission is preparing a New Framework Agreement with China and calls for the EU to strengthen its representation in China;

Social and Environmental Impacts

43. Notes that China has managed to extricate from poverty over 300 million of its citizens in 20 years, but expresses its concern that around one quarter of the rural population in China still live in extreme poverty, and that Chinese income inequalities are among the fastest growing in the world; calls on the Commission to support China in further developing a cohesion policy and to take this issue into account in trade relations with China;

44. Recognises that, despite improved economic prospects for many Chinese, this has not alleviated the need for a more even geographical spread of economic development to reduce the threat of even higher unemployment and social displacement in the future;

45. Calls upon China to incorporate into its laws the International Agreement on civil and political rights and the International Agreement on social, economic and cultural rights as one means - amongst others - of establishing minimum social and environmental standards;

46. Is deeply concerned at the lack of workers’ rights in China, the very low level of wages and the increasing number of industrial accidents due to inadequate health and safety rules, and urges China to ratify key ILO Conventions, particularly Convention 87 on Freedom of Association and Right to Organise, and 98 on Collective Bargaining, and to abolish the State monopoly on the formation of trade unions provided for in China's legislation; calls on China to take steps to effectively combat all forms of present-day slavery, child labour and exploitation and above all exploitation of women at work, so as to ensure that workers' fundamental rights are respected and so as to put an end to social dumping;

47. Notes the steady rise in the number of industrial disputes since 1998; to address this urges China to authorise the establishment of independent trade unions for example through the creation of a strong legal status, the gradual introduction of free collective bargaining, the opportunity for democratically elected trade union officials to receive independent training and the setting up of an exchange programme between European and Chinese trade union officials to enable China to benefit from Europe's many years of experience in the area of employee participation; urges China to institute a social protection system appropriate to people’s needs and geared towards the unemployed, whose numbers are set to swell following China's economic transition;

48. Acknowledges China's increasing competitiveness in today's international economic climate but calls on China to take effective and swift action against the use of child labour and forced labour; asks the Commission to offer the Chinese its support in this connection;

49. Calls on the Commission and Council to be vigilant with regard to a possible restriction of the free organisation of trade unions in Hong Kong; draws attention to the positive role which the free organisation of trade unions in Hong Kong could play in improving labour rights in China;

50. Calls on the Commission and Council, in their dialogue with China, to stress the importance of releasing labour activists;

51. Calls on the Commission to explore suitable ways of increasing mutual understanding and appreciation of respective characteristic cultural features and of improving awareness and acceptance of the European legal and economic system;

52. Looks to Western, particularly European, businesses operating in China to give full recognition to trade union rights and behave in an exemplary manner towards workers and the environment;

53. Is seriously concerned about the high levels of pollution caused by China's industries and the growing consumption of natural resources such as timber from unsustainable sources and welcomes recent signs that China is taking serious measures to protect the environment; emphasises that trade and environment are an essential component of the WTO agreement, and urges the Chinese government to play a full and positive role in promoting sustainable development, both inside China and globally; notes that because of China's size, its large-scale adoption of sustainable technologies and practices could have a positive global impact, lowering costs and spurring other nations to follow, and urges the Chinese authorities to make full use of this potential for China to play a leadership role in environmental matters;

54. Expresses its concern that the enormous economic growth in China leads not only to environmental pollution but also to scarcity of resources and rising commodity prices on the world market; calls upon China to accept responsibility for incorporating environmental standards into manufacturing and waste management and for helping to repair damage to the environment; calls on the Commission to start identifying solutions to the problem of how to guarantee in future affordable, stable raw material and energy supplies to people and companies in Europe;

55. Urges, in addition, the Council and the Commission to use all appropriate bilateral channels, as well as multilateral institutions and agreements to which both the EU and China are parties, to further press the case for high standards of social welfare and environmental protection as an essential component of international solidarity;

56. Recognises the key role of China in finding an effective solution to global warming and urges the Chinese Government to continue its constructive engagement in international negotiations to avoid dangerous climate change; stresses the importance of continuing efforts to reduce fossil fuel use;

57. Calls on the Council and the Commission to ensure, through the EU-China Energy and Environment Programme and other channels, that collaboration on renewable energy/energy efficiency issues will be a priority for future EU-China co-operation, and to encourage China’s development of sustainable technologies and industries, particularly to enable cooperation in developing new technologies that will make a sustainable future possible; calls on China, when building new coal‑fired power stations, to use the latest, most efficient and most environmentally‑friendly technologies, and as soon as possible to use so-called clean coal technologies in the construction of such power stations; further calls on China to improve safety standards in its coal mines; calls on the Commission to offer the cooperation of European mining technology manufacturers; calls on China, in the event of the possible building of new nuclear power stations, to make use of European experience and safety technology and to cooperate closely with European manufacturers and authorities such as the International Atomic Energy Authority;

58. Calls on the Commission to investigate the most effective way of negotiating the introduction of minimum social and environmental standards into trade agreements and ensuring their effective enforcement;

59. Welcomes the Commission's initiative to tackle imports of illegal timber and wood products from countries including China by its proposed Action Plan on Forest Law Enforcement, Governance and Trade (FLEGT); is concerned, however, that the negotiation of partnership agreements with countries on a voluntary basis would not address the problem sufficiently;

60. Notes that most of the wood imported into the EU from China comes in the form of processed products, some of which are derived from wood which China has sourced illegally;

61. Calls on the Commission and Council to put pressure on the Chinese authorities to take appropriate far-reaching measures to stop the import of illegal timber and wood products, and to encourage China to play a full role in regional and international processes, such as East Asia FLEG, aimed at curbing trade in illegally-sourced timber;

Existing projects, governance

62. Welcomes the Commission's well-developed programme of cooperation with China on environmental matters, through its funding of assistance projects, and calls on it to ensure that the programme is continued and expanded; welcomes the general willingness of the Chinese Government to cooperate on environmental protection;

63. Recognises that many of China's environmental problems stem not from lack of laws but from lack of law enforcement, and therefore calls on the Commission to make capacity building at the local level an important focus of cooperation projects;

64. Encourages an increase in programmes like the Executive Training Programme to increase trade participation between China and the EU;

65. Calls on the Commission to implement the pledge which it made to the European Parliament on 8 March 2005 and to offer to send European customs officers to China to provide support and training;

Education

66. Calls on the Commission to agree with the Chinese Government to stimulate mutual learning and student exchange; further urges the Commission to create more Chinese Language schools throughout the EU with the possibility of scholarships or funds for EU students interested in learning Chinese;

Political Dialogue

67. Looks to the EU, in parallel with the development of trade relations, to carry on a more intensive political dialogue, ranging from human rights matters to regional and global security issues;

68. Regrets that China's rapid economic development has not been accompanied by progress in political and civil rights for the population and that the official human rights dialogue in which the EU and China have engaged since 1997 in parallel to their growing trade and economic relations has not been successful; therefore stresses the need for a different approach including the establishment of a clear and effective policy of human rights conditionality with regard to the EU's general trading policy with China;

69. Reiterates its concern about the human rights situation in China; notes that the situation has seen some progress over the past fifteen years; stresses that more needs to be done and considers that the human rights dialogue between China and the EU should be consistently improved;

Arms embargo

70. Reminds Member States that the EU Code of Conduct on Arms Exports quotes respect for human rights in the country of final destination of such exports as a criterion and that it lays particular emphasis on the fact that export licences shall not be issued if there is a risk that the exported good might be used for internal repression or hostile military action against neighbouring countries, for example, in China's case, Taiwan;

o

o        o

71. Instructs its President to forward this resolution to the Council and Commission, and the governments and parliaments of the Member States and of China.

  • [1]  OJ C 91 E, 15.4.2004, p. 679.
  • [2]  OJ C 31 E, 5.2.2004, p. 264.
  • [3]  OJ C 127 E 29.05.2003, p. 652.
    4 OJ 112 E, 9.5.2002, p. 313.
    5 OJ 304, 24.10.2000, p. 209.

Explanatory Statement

Introduction

This report focuses on the threats and opportunities posed by China’s growth as a major trading power, and on measures the EU can take in response. It analyses the impact of China’s WTO accession, explores China’s compliance with its WTO obligations, and identifies areas of continuing concern to EU industry and to those concerned with issues of equality in China.

Trade cannot be viewed in isolation, however, and the report examines some of the social and environmental costs of China's rapid growth, both within China, and globally.

The report also addresses the wider question of the challenge China poses, not just to the international trading system, but to international trade theory itself, and makes the case for a new framework for understanding the impacts of globalisation.

EU-China Trade relations

China and the EU, two of the world’s largest markets, have deepened their commercial ties during recent decades. Two-way trade has increased more than forty-fold since reforms began in China in 1978, and was worth €175 billion in 2004. In 2003, China and the EU became each others’ 2nd largest trading partners and whereas the EU enjoyed a trade surplus with China at the beginning of the 1980s, EU-China trade relations are now marked by a large and growing EU deficit with China – reaching €78 billion in 2004 (see Annex I, trade statistics).

The 2004 European Competitiveness Report[1] highlights the challenge to the EU from a China competing on the basis of labour abundance, as well as in goods embodying both skills and technology. China is proving to be a sought-after base for the establishment of offshore centres for the manufacture of a broad range of products and services. So far, the effects have been felt most in the new Member States and candidate countries, since they tend to compete as nearshore production centres in the same sectors. However, as this report will demonstrate, these impacts are likely to spread to the EU-15.

During the visit of the Chinese Premier Wen Jiabao to the European Commission in May 2004, a high level Trade policy Dialogue was set up to address issues in rapidly-growing bilateral trade relations as well as on WTO issues. There are currently around 20 sectoral policy Dialogues which address many of the non-tariff barriers that still remain. Moreover, during the last EU-China summit in December 2004, the two parties set the objective to actively explore the feasibility of concluding a new framework agreement.

China's integration into the world economy will also be determined by its relations with its Asian neighbours. In particular, the prospect of India and China finding complementarity would not only boost "power house" Asia, but would have global geopolitical consequences, challenging the EU's role as a second global power. India’s expertise in software, and China’s in hardware mean that, together, they could prove a powerful force. Bilateral trade between them could top $15 billion for the first time in 2005, compared to just $300 million a decade ago. A virtual ‘Chindia’, a loose economic link-up, is already beginning to take shape.

Growth and Poverty in China

Given China’s impressive growth rate, it is easy to forget that vast areas of poverty remain. China has quadrupled its income in the space of 25 years, lifted over 270 million people out of poverty, and dramatically improved health and education indicators. But rapid growth and structural change have also created new challenges: employment insecurity, environmental pressures, and persistent poverty, while Chinese income inequalities are among the fastest growing in the world. Using the World Bank’s “$1 a day” indicator for absolute poverty, around one quarter of the rural population – more than 100 million people – are still in extreme poverty. It is important that EU policy makers do not forget that their trade policies can have a direct bearing on poverty reduction in China.

China and the WTO

The accession of China to the WTO in 2001 was an historic event. When negotiations started in the mid-1980s, China accounted for less than 1% of world trade. Today it is the world’s fourth-largest exporter.

The terms of China’s accession are far-reaching, and its market-opening commitments extensive. For example, having lowered the weighted average tariff from 40% to 13% between 1992-2001, China is now required to implement a further cut to 6.8% by the end of the accession period - cuts that are far deeper than anything contemplated by the EU or US. On services, a World Bank assessment suggests that China’s commitments on the liberalization of this sector are the most radical ever undertaken in the WTO. Even so, far more radical commitments are being demanded, including by the EU, covering financial services, banking, and wider capital markets. Accession provisions on anti-dumping and safeguard measures also place China at a disadvantage.

The implications of WTO accession for agriculture raise the most serious concerns. In spite of rapid industrialisation, agriculture still accounts for 16% of GDP and around half of all employment. Currently, China has around 238 million farm households, the vast majority operating on small plots. However, many of them – particularly producers of major commodities such as wheat, maize, cotton, sugar and soybean - could suffer income declines as lower import prices are transmitted through domestic markets.

There is a broad consensus among trading partners over the general improvement in trading conditions since China's accession to the WTO, particularly on trade-related laws and market access. A multi-country study published in June 2004[2] observes that a large variety of non-tariff barriers affecting access for EU goods have been progressively removed and the country has also significantly opened foreign investment in services.

Nonetheless, the study also identified specific "burdensome" procedures, including pre-import registration procedures. It noted that some of these problems are more likely the result of lack of resources, training and appropriate harmonisation of customs rules than of intentional barriers to trade. However, serious concerns remain.

For many EU businesses, the principal point of frustration is China's lack of enforcement of intellectual property rights (IPRs), particularly now that China is a substantial market for branded goods as well as for the recording industry. China was required to implement the TRIPS Agreement in full from the date of accession. Although the situation has improved since 2001, many still believe the authorities have not sufficiently tackled counterfeiting. For the recording industry piracy accounts for 85% of all units sold. Those responsible rarely face criminal sanctions.

From a Chinese perspective, however, the TRIPS Agreement poses other threats, particularly in the field of pharmaceuticals. Groups working on public health inequalities in China are rightly concerned that, since prices of patented drugs are typically much higher than for generic versions, any price inflation will hurt the poorest hardest.

Other areas of concern noted by European industry include problems in the construction industry, banking, and the automobile sector. The economic viability of some European industries also risks being undermined by China’s policy on raw materials, including the drop of Chinese exports of cokes.

As far as the Doha Round is concerned, China has important role to play. At Cancun, China worked closely with others in the G-20 to challenge the dominance of the WTO’s traditional leaders – the EU and the US. China's membership of the G-20 may be more an expression of solidarity with developing countries' interests than with its intrinsic trade interests, but nonetheless this alliance looks set to remain influential at the WTO.

Textiles and Clothing

Of all the sectors of Chinese growth, the area that poses greatest immediate challenges to the EU is textiles and clothing. On 1 January 2005, all remaining quotas under the WTO Agreement on Textiles and Clothing (ATC) disappeared. As a result, the World Bank and WTO predict China's share of world trade and textiles and clothing will rise from 17% in 2003 to over 50% by 2010. China is the EU's largest supplier of textiles and clothing products, representing 18% of all T & C imports (quota and non-quota) in 2003. However, it accounted for 43% of the liberalised, quota-free segment, and its quota-free imports under the third stage of the ATC almost doubled over the 2001-03 period.

Some argue that China's imports have mostly grown at the expense of imports from third countries, which have seen their share of the EU market decrease. However, the EU's T & C industry is also already experiencing significant pressure. According to the European Apparel and Textile Organisation, which has called for the introduction of quantitative restrictions, exports to the EU 15 of pullovers and jerseys have grown in the first two months of this year by 893%, trousers by 201% and tights and pantyhose by 1,940%, and the sector risks losing 1000 jobs per day, and 1,000,000 jobs before the end of 2006.

Although the European Commission has begun to try to address this problem, there is growing frustration that it is not acting more quickly to introduce safeguards. On 24 April, Commissioner Mandelson finally announced he was launching investigations into nine categories of textile exports, where import volumes from China have risen above the 'alert levels'. China's own instrument for limiting its producers' impact - an export tax on garments - has been set so low that manufacturers say it has almost no effect.

But if the impact in the EU will be severe, in many least developed, and small developing countries, it will be devastating. Since the 1980s, largely as a result of the quota system of the MFA, many have built a huge dependency on the sector. In 2000, it accounted for 95% of all Bangladesh's industrial goods exports, in Laos 93%, Cambodia 83%, Pakistan 73%, Sri Lanka 71%, and Nepal 61%. The sector employs over 1.8 million workers in Bangladesh, 1.4 million in Pakistan, and 250,000 in Sri Lanka. Little wonder, then, that several dozen countries made an 11th-hour appeal to the WTO to save their textile industries – it fell, however, on deaf ears.

It seems clear that China's deflationary pressures will further drive down wages, pushing global suppliers to reduce their workers rights and conditions in a bid to remain competitive – first in the textiles sector, but increasingly in other sectors as well. With regard to T & C, the negative effects are already beginning to be felt: in the Philippines, the government has ruled that its minimum wage law would no longer apply to the clothing industry, while the Bangladeshi government recently announced that it would increase authorised overtime hours and reduce the restrictions on women's night work.

The Commission's response has been to urge European manufacturers to produce higher-value garments rather than competing with China on basics. Yet China's rapid ability to climb the value-added ladder across most sectors shows what unhelpful counsel this is, not just for the EU, but also for countries like Bangladesh. China is also fast developing competitive advantage not only in footwear, machine components, and automobiles, but also in higher tech goods. This is a systemic challenge, not a one-off sectoral one.

Shaking up Trade Theory

Harvard economist Richard B. Freeman has observed, "what is stunning about China is that for the first time we have a huge, poor country that can compete both with very low wages and in high tech. Combine the two, and America has a problem."[3] . This report argues that the EU has a problem, too.

Proponents of globalisation argue that, although some EU jobs are lost, either to imports or because factories move to cheap labour countries like China or India, on balance everyone benefits. The bulk of this work is labour-intensive and lower skilled and can be done more efficiently by countries that have an abundance of less-educated workers. In return, those countries buy more of our higher-valued goods made by skilled workers - for which we have a comparative advantage. In theory, the lost jobs and lower wages in the EU and US are more than offset, leading to more robust exports and lower prices on imported goods.

But this long-held consensus is now beginning to crack. With both China and India now graduating more college students than the US every year, economists are increasingly uncertain about just where the EU and US have comparative advantage any more - or whether the standard framework for understanding globalisation still applies in the face of so-called white-collar off shoring.

With a recent article from Nobel laureate Paul A. Samuelson in the Journal of Economic Perspectives, this debate gained new prominence, as he concluded “comparative advantage cannot be counted on to create…net gains greater than the net losses from trade”.

The China Price

‘“The China Price”. They are the three scariest words in US industry. In general it means 30% to 50% less than what you can possibly make something for in the US. In the worst cases, it means below your cost of materials.” So the December 6 2004 issue of Business Week opens its special report on China.

Extrapolating to the EU, there are good reasons for European manufacturers to worry even though they have weathered decades of competition from Japan and Korea. China is different in a number of ways:

· Speed: Earlier rivals usually took years to build up a presence. Chinese competition often seizes share rapidly with unbeatable prices, leaving little time for domestic companies to adjust

· Breadth: Other Asian nations shed labour-intensive work as they industrialised, but China is gaining share in low-tech at the same time as advancing into higher-value areas such as digital electronics

· Competition: Japan and Korea are limited players in many industries. But in China, dozens of manufacturers battle for share in the domestic markets for appliances, cell phones, cars, keeping everyone more competitive

· Alliances: Unlike Japan or Korea, China welcomes foreign investment in key industries. Foreign ventures account for 60% of exports and a big share of local sales

· Size: China is both an export power and is itself becoming the world’s biggest market for cars, appliances, cell phones and more, giving China unparalleled economies of scale.

Clearly, the traditional assumption that the US and EU will keep leading in knowledge-intensive industries while developing nations focus on lower-skill sectors is open to serious debate. China is emerging as the most competitive manufacturing platform ever. Chief among its formidable assets is its cheap labour, from $120/month production workers to $2000/month chip designers. Even in sophisticated electronics industries, where direct labour is less than 10% of costs, China’s low wages are reflected in the entire supply chain, from components and office workers to cargo handlers.

China is also propelled by an enormous domestic market that brings economies of scale, strong local competition that keeps prices low, an army of engineers that is growing by 350,000 annually, young workers and managers willing to put in 12-hour days and work weekends, an unparalleled component and material base in electronics and light industry, and an entrepreneurial zeal to do whatever it takes to please big retailers.

These are enormous challenges that need to be taken far more seriously, both by the EU and by all China’s trading partners. The Commission’s response to date has been both tardy and complacent, resting on the assumption that diversifying into higher skilled, more specialised work will protect European jobs. In reality, however, advantages from these kind of micro-level specialities could be fleeting: there is no reason why China couldn’t develop advantage in those areas, too. Instead, the Commission should urgently investigate the extent to which “the China price” is already affecting EU industries, examine the level of existing off-shoring, and identify sectors that could be under threat in the future.

At the same time, new ideas are emerging about how to respond in the longer term, including the concept of maximizing power at the local and national level, and of protecting and rebuilding local and national economies rather than gearing them to ruthlessly out-compete each other internationally. Given the size of the Chinese domestic market, it would be a new world order that China would still thrive in – but no longer at the expense of so many others.

Social Impacts

There is much debate over whether China’s competitiveness is built on unfair trade practices, in particular its failure to respect minimum social and environmental standards. This certainly seems to be at least partially the case. For example, although China has very strict laws about the obligations of employers to protect their workers in dangerous environments, more than 100,000 people a year are estimated to die in work related accidents.

The mining industry is most hazard-prone, with over 5000 Chinese miners are killed each year. Working under appalling safety conditions, they are sacrificed to fuel the factories that make China’ cheap goods for export. Existing mine safety regulations must be rigorously implemented; mine owners and managers who knowingly put their workers’ lives at risk must be prosecuted, and the government must ratify the ILO Convention on Safety and Health in Mines.

More fundamentally, China’s miners – along with all its other workers – should be permitted to establish their own independent trade unions, so they can negotiate on working conditions, wages, health and safety, and other issues of vital concern to workers around the country. Until that happens, the mass worker protests in many sectors of Chinese industry against excessive working hours, low pay, and frequent wage arrears look likely to continue – and, in the trade arena, the accusations from China’s trading partners of social dumping will increase. China must ratify and comply with two key ILO Conventions: No.87 on Freedom of Association (1948), and No. 98 on the Right to Organise and Collective Bargaining (1949).

Environmental Impacts

China’s rapid economic growth is increasing pressures on its own resources as well as those of other nations. It is already the world’s second largest consumer of oil and water, and trails only the US in emissions of carbon dioxide. Food and timber imports are also growing rapidly, placing pressures on fragile landscapes as distant as the Brazilian Amazon. It has been estimated that China imports more than 100m cubic metres of wood a year, between a quarter and a third of which is illegally felled in eastern Russia, the Brazilian rainforests, Burma and Africa. One in four logs is processed into furniture and other products for export to wealthy nations, including those of the EU.

Since the mid-1990s, China’s oil consumption has soared, with imports going from zero to over 3 million barrels per day in just a decade, making China the world’s third largest oil importer. But it is coal which provides 70% of China’s energy, leading to major air pollution problems, and contributing further to climate change. Local air pollution from power plants and industrial facilities has reached crisis proportions in most urban areas, and the World Health Organisation has concluded that six of the world’s ten most polluted cities are in China.

The solution lies not just in more rigorous legislation, but in stricter enforcement of existing laws. A ‘leapfrog’ strategy, where China adopts sustainable technologies and avoids the most polluting processes of western industrialization, must be strongly supported. Because of China’s size, such a move could have a global impact, lowering costs and spurring other nations to follow. For example, energy efficiency is already being widely promoted and, as a result, China has quickly leap-frogged over Europe and the US to become the world’s number one producer and consumer of compact fluorescent light bulbs.

China has also become the world leader in two important renewable energy technologies: small hydropower and solar water heating. China is installing solar collectors on thousands of apartment buildings, and had a remarkable 75% of the world market for the devices in 2003. In June 2004, China announced an ambitious new commitment to generate 10% of its power using renewable energy by 2010. Support for commitments of this kind should become a priority for future EU-China relations.

OPINION of the Committee on Foreign Affairs (25.7.2005)

for the Committee on International Trade

on Prospects for trade relations between the EU and China
(2005/2015(INI))

Draftsman: Bastiaan Belder

SUGGESTIONS

The Committee on Foreign Affairs calls on the Committee on International Trade, as the committee responsible, to incorporate the following suggestions in its motion for a resolution:

1.  Recognises that the rapid development of the People's Republic of China (PRC) over the past 20 years has had a significant impact on EU-China trade and economic relations, and that, overall, China is now the EU's 2nd largest trading partner after the U.S.; notes, too, that in 2004 the EU had a deficit, vis-à-vis China, of EUR 78.5bn, its largest deficit with any trading partner, and one which reflects, among other things, the effect of market access obstacles in China;

2.  Looks to the EU, in parallel with the development of trade relations, to carry on a more intensive political dialogue, ranging from human rights matters to regional and global security issues;

3.  Stresses that the rapid growth of the Chinese economy should be accompanied by commensurate political and social reform, particularly in the sphere of human and citizens' rights and also including aspects covering, for example, labour and union rights, safety at work, property expropriation and freedom of expression and of the media; raises concerns about the unequal distribution of wealth within the country and points to the risk of social turbulence; notes that if the above reforms do not take place, economic development will also be jeopardised, but points out that these reforms must also include the assertion of the economic and social rights of all levels of society;

4.  Calls for trade relations between the EU and China to contribute to a balanced and sustainable economic, social and environmental development but also to regional development, since unbalanced development would entail great dangers for internal and external security;

5.  Looks to Western, particularly European, businesses operating in China to give full recognition to trade union rights and behave in an exemplary manner towards workers and the environment;

6.  Shares concerns expressed by the lead committee in its report, particularly as regards international competition and social and environmental impacts; however, given its own particular competences, intends to concentrate the main focus of this opinion on the question of the arms embargo and the protection of human rights in the PRC;  

7.  Regrets that increased trade and economic relations with China have brought about no substantial progress in the field of democracy, human rights and the rule of law, which are basic components of the political dialogue between China and the EU; takes the view, in this respect, that the development of trade relations with China must go hand in hand with the development of a genuine, fruitful and effective political dialogue;

8.  Draws attention to the fact that the arms embargo was imposed on the PRC by the EU and the US (and others) as a direct result of the Chinese authorities' brutal suppression of the democratic demonstrations in Tiananmen Square in June 1989; deems it inappropriate for the EU to lift the embargo at this point;  

9.  Continues to be seriously concerned about those still imprisoned for their role in the demonstrations at Tiananmen Square in June 1989 and the lack of information provided by the Chinese authorities on their fate and that of others who have not been heard of since, and calls on the Chinese authorities to account for all these people, releasing those detained or subjecting them to a fair trial;  

10. Calls on the authorities of the PRC to delay ratification of the UN Covenant on Civil and Political Rights no further and to fully respect the human rights of all citizens and, in particular, the rights of minorities;  

11. Is deeply disturbed by the persistent infringement of the right to freedom of speech, of association and of religion, and in particular by the repression of numerous communities such as the Catholic Church and the Falun Gong group;  

12. Takes note of the White Paper entitled "China's Progress in Human Rights in 2004" issued by the Information Office of China's State Council but remains concerned about the lack of discernible progress on human rights in general in the PRC; condemns all the more strongly the recent increase in efforts by the Chinese authorities to stifle domestic debate, including the cancellation of academic conferences on politics and the detaining of prominent journalists; condemns the violation of human and community rights by kidnapping, enslaving and possibly manipulating the young Tibetan, Gendhun Choekyi Nyima, ordained Panchen Lama, the successor, by the highest religious authority, as well as the persecution of those practising the Falun Gong movement's rites;  

13. Is aware that a number of countries have lifted or are proposing to lift the arms embargo on China but that certain others are categorically against lifting it at this time and under present circumstances, and supports the latter in their stance;  

14. Calls on the Commission and the Council to state to what extent in the past few years, in spite of the current embargo, arms have been supplied to China by the USA and the countries of the European Union;  

15. Calls on the Member States of the European Union to declare the Code of Conduct on Arms Exports legally binding in those countries where this has not yet happened;  

16. Understands the desire of the PRC to enhance its international legitimacy by having the EU embargo lifted but stresses to the PRC that its introduction of the Anti-Secession Law is particularly unhelpful;

17. Stresses, in addition, that lifting the arms embargo could seriously undermine regional stability;

18. Acknowledges the fact that the EU Council has been pressing China on human rights and stressing to the Chinese side that the EU expects a significant move from China in this sphere; has therefore been baffled by the Council's apparent willingness to consider lifting the embargo while so much still remains unresolved, (the revised EU Code of Conduct on Exports of Military Equipment adopted by the Council on 25 April 2005 notwithstanding), and particularly in the light of China's recently adopted Anti-Secession Law; believes that the lifting of the arms embargo at this time would not encourage China to make those significant moves and emphasises the lack of credibility such a position would lend to the EU's rather two-faced approach to human rights in the world;  

19. Stresses that the short-term economic gains of lifting the embargo must be weighed up against the fact that it would send out totally mixed signals about the EU's seriousness in tackling human rights and strategic security concerns in the region, and therefore reiterates its long-held position that the arms embargo on China should not be lifted at this time and that the existing national limitations on such arms sales should not be weakened;

20. Expresses concern at the depth of cooperation with China on the Galileo programme and calls for further safeguards to be introduced to ensure that China or other partners cannot transfer sensitive technologies used in the programme to military applications;  

21. Regrets that China's rapid economic development has not been accompanied by progress in political and civil rights for the population and that the official human rights dialogue in which the EU and China have engaged since 1997 in parallel to their growing trade and economic relations has not been successful; therefore stresses the need for a different approach including the establishment of a clear and effective policy of human rights conditionality with regard to the EU's general trading policy with China;

22. Draws the attention of the Council and the Commission to the fact that it is urgent to improve the proceedings leading towards a new framework agreement with China, which will update the existing Trade and Economic Cooperation Agreement in line with the dynamism of today's partnership; in this framework, taking account of the historical landmark of the 30th anniversary of the establishment of diplomatic relations between the EU and China, urges the country to speed up developments in the area of human rights and freedom of expression and of religion, as well as on early ratification by China of the International Convention on Civil and Political Rights (ICCPR) which will contribute to a better global understanding and increased peace and stability in the country.

PROCEDURE

Title

Prospects for trade relations between the EU and China

Procedure number

2005/2015(INI)

Committee responsible

INTA

Committee asked for its opinion
  Date announced in plenary

AFET
10.3.2005

Enhanced cooperation

No

Drafts(wo)man
  Date appointed

Bastiaan Belder
30.3.2005

Discussed in committee

21.6.2005

12.7.2005

 

 

 

Date suggestions adopted

13.7.2005

Result of final vote

for:

against:

abstentions:

62

0

1

Members present for the final vote

Vittorio Emanuele Agnoletto, Angelika Beer, Panagiotis Beglitis, Bastiaan Belder, André Brie, Elmar Brok, Philip Claeys, Véronique De Keyser, Giorgos Dimitrakopoulos, Camiel Eurlings, Anna Elzbieta Fotyga, Alfred Gomolka, Klaus Hänsch, Richard Howitt, Anna Ibrisagic, Georgios Karatzaferis, Ioannis Kasoulides, Bogdan Klich, Joost Lagendijk, Vytautas Landsbergis, Edward McMillan-Scott, Cecilia Malmström, Francisco José Millán Mon, Pasqualina Napoletano, Annemie Neyts-Uyttebroeck, Baroness Nicholson of Winterbourne, Raimon Obiols i Germà, Vural Öger, Justas Vincas Paleckis, Alojz Peterle, Tobias Pflüger, João de Deus Pinheiro, Mirosław Mariusz Piotrowski, Michel Rocard, José Ignacio Salafranca Sánchez-Neyra, Jacek Emil Saryusz-Wolski, György Schöpflin, Marek Maciej Siwiec, István Szent-Iványi, Konrad Szymański, Antonio Tajani, Charles Tannock, Paavo Väyrynen, Inese Vaidere, Geoffrey Van Orden, Karl von Wogau, Luis Yañez-Barnuevo García

Substitutes present for the final vote

Philip Bushill-Matthews, Proinsias De Rossa, Árpád Duka-Zólyomi, Michael Gahler, Milan Horáček, Sajjad Karim, Jo Leinen, Erik Meijer, Janusz Onyszkiewicz, Doris Pack, Aloyzas Sakalas, Marcello Vernola

Substitutes under Rule 178(2) present for the final vote

Sylwester Chruszcz, Neena Gill, Jean Lambert, Tadeusz Zwiefka

PROCEDURE

Title

Prospects for trade relations between the EU and China

Procedure number

2005/2015(INI)

Basis in Rules of Procedure

Rule 45

Committee responsible
  Date authorisation announced in plenary

INTA

10.3.2005

Committee(s) asked for opinion(s)
  Date announced in plenary

AFET

10.3.2005

 

 

 

 

Not delivering opinion(s)
  Date of decision

 

 

 

 

 

Enhanced cooperation
  Date announced in plenary

 

 

 

 

 

Motion(s) for resolution(s) included in report

 

 

 

Rapporteur(s)
  Date appointed

Caroline Lucas

3.2.2005

 

Previous rapporteur(s)

 

 

Discussed in committee

23.5.2005

13.6.2005

12.7.2005

 

 

Date adopted

30.8.2005

Result of final vote

for:

against:

abstentions:

25

2

1

Members present for the final vote

Kader Arif, Enrique Barón Crespo, Daniel Caspary, Françoise Castex, Nigel Farage, Christofer Fjellner, Glyn Ford, Béla Glattfelder, Jacky Henin, Sajjad Karim, Caroline Lucas, Erika Mann, Helmuth Markov, David Martin, Javier Moreno Sánchez, Georgios Papastamkos, Godelieve Quisthoudt-Rowohl, Tokia Saïfi, Peter Šťastný, Johan Van Hecke, Zbigniew Zaleski

Substitutes present for the final vote

Panagiotis Beglitis, Bastiaan Belder, Albert Deß, Pierre Jonckheer, Zuzana Roithová, Antolín Sánchez Presedo, Ivo Strejček

Substitutes under Rule 178(2) present for the final vote

 

Date tabled – A6

5.9.2005

A6-0262/2005