EU Plans Trade Tool After China-Lithuania Dispute
The Lede: The EU agrees on establishing new trade measures to respond to economic coercion against member states after the recent tensions between China and Lithuania
What We Know:
- The European Union has agreed, after a year of negotiation among member states, to create a trade tool to punish countries that pressure individual countries in the 27-nation bloc. It would allow the EU to impose tariffs, restrict investment, and limit access to public contracts in response to instances deemed to constitute economic blackmail.
- The function would be held by the European Commission, the executive arm of the EU. In the event that other attempts at mediation fail, EU member states would report complaints to the European Commission, which would decide on the instance of coercion within four months. If a qualified majority of EU countries agree, a mediation phase would begin in which the EU Commission would engage in negotiations with the third country to lift objected measures. The failure of those negotiations would activate the powers to impose the new trade tools.
- This comes on the heels of alleged coercive measures leveled by China against Lithuania for its increased ties and support for Taiwan. The dispute has made its way to the World Trade Organization (WTO).
The Background: Lithuania has been one of Taiwan’s most outspoken allies in Europe. Beijing downgraded diplomatic relations and blocked almost all trade with Vilnius over its violation of the One China Policy after the establishment of the “Taiwanese Representative Office in Lithuania” in 2021. This has prompted discussions at the EU level on responses to such measures perceived as economic coercion against a member state. This has included legal action against China at the WTO over ‘discriminatory trade practices.’ The U.S. provided $600 million to Lithuania as an export credit agreement for lost trade with China.
Likely Outcomes:
- The new trade tools will likely be given to the European Commission, but it is unclear how often, willing, or to what degree the EU will ultimately implement these trade measures to respond to China or other countries. The results of the WTO arbitration remain to be seen. However, the adoption of these policies signals a firm step toward the ‘de-risking’ trend of Europe and other Western countries from Chinese economic ties. Still, a number of countries in Europe stand apart from this trend and have been improving ties with China. These divisions would also add to the roadblocks to actually implementing these measures.
- However, this kind of backing by the EU of the small Baltic state may embolden Lithuania and other countries to consider policies that they may have tabled to avoid tensions with China. Other European countries have also voiced criticisms toward China and advocated for solidarity with Taiwan. These elements may find more confidence if the EU or Western countries, in general, adopt more such policies, which may lead to a further divergence of China ties.
Quotables:
"This sends a strong signal that the EU rejects all forms of economic coercion. We'll be more assertive in defending our legitimate rights and interests." – Valdis Dombrovskis, EU economy commissioner
Good Reads:
EU Agrees Economic Weapon In Face Of China Trade Spat (Barron’s)
Why Lithuania and Czechia are pursuing closer ties with Taiwan (Emerging Europe)
Beijing warns Lithuania to back away from business ties, cooperation with Taiwan (SCMP)