Creating Business and Dialogue

EUOBSERVER / BRUSSELS - A European Commission annual report on customs detentions has shown that the vast majority of fake goods entering the 27-member union continue to originate from China, although last's year global economic downturn saw a decline in numbers.

In 2009, EU customs officials took action in 43,500 different cases where they suspected counterfeited goods were being brought into the EU, a fall on 49,000 cases in 2008, according to Thursday's report (22 July).

Officials were quick to attribute the decline, the first in a decade, to the general fall in world trade last year however, rather than reduced product piracy levels, with 64 percent of the IPR infringing articles originating from China.

Of the main categories of detained products, cigarettes accounted for 19 percent, other tobacco products 16 percent, labelled goods 13 and medicines 10 percent.

Despite the dominance of fake goods from China, a majority of counterfeit foods and beverages originated from Turkey, while a majority of fake medicine entering the EU could be traced back to the United Arab Emirates.

The report comes as the EU commissioner responsible for customs, Algirdas Semeta, prepares to discuss the issue at an international conference in Shanghai this September.

Brussels also intends to come forward with a legislative proposal by the end of the year to clarify and simplify the bloc's customs procedures, with the current legislation on IPR enforcement dating back to 2003.

De Gucht

In a separate but related event on Thursday, EU trade commissioner Karel de Gucht told journalists that European firms were becoming increasingly worried about doing business in China due to a lack of intellectual property protection.

Mr De Gucht told reporters at an EU trade event at the Shanghai World Expo that many of the concerns originated from Beijing's policy of 'indigenous innovation'.

By forcing foreign companies to register as Chinese companies before being allowed to participate in the country's public procurement market, the policy brought overseas intellectual property "into the open", explained the Belgian politician.

The comments come just days after two leading German industrialists voiced similar concerns directly to Chinese Premier Wen Jiabao at a roundtable discussion also attended by German Chancellor Angela Merkel.

EUOBSERVER / BRUSSELS - Two of Germany's leading industrialists publicly attacked China's business environment during a meeting with the country's premier, Wen Jiabao, over the weekend (17 July).

Jurgen Hambrecht, chairman of giant chemical company BASF, and Peter Loscher, chief executive of industrial conglomerate Siemens, added their voices to a growing clamour of criticism against Chinese rules that are seen as disadvantaging foreign firms.

Mr Hambrecht said foreign companies are frequently forced to transfer business and technological "know-how" to Chinese companies in exchange for market access.

"That does not exactly correspond to our views of a partnership," he told Mr Wen at the roundtable discussion in the northwestern Chinese city of Xian, according to German journalists who attended the meeting.

The strong statements are particularly noteworthy due to their public nature and delivery during a meeting also attended by German Chancellor Angela Merkel, in China as part of a four-day state visit.

Mr Loscher voiced widespread complaints about draft Chinese public procurement rules which are intended to support "indigenous innovation," a policy foreign companies fear could shut them out of lucrative government contracts.

The Siemens boss also called on China to remove investment restrictions in certain sectors, reported German daily Handelsblatt. At present, foreign companies can be required to form joint ventures with Chinese companies when setting up shop in China, as exemplified by the Shanghai Volkswagen Automotive company.

Mr Wen reportedly responded to the criticism by telling Mr Hambrecht to calm down, insisting that China remained committed to opening its economy. "Currently there is an allegation that China's investment environment is worsening. I think it is untrue," Mr Wen said.

But the comments from two of Europe's leading industrialists come on top of a recent survey by the EU's chamber of commerce in China which showed that foreign executives hold an increasingly gloomy outlook regarding China's regulatory setup.

The increasing fears of discrimination led the EU chamber's president Jacques de Boisseson to suggest firms may even consider pulling out of China altogether.

"Nobody should take for granted that European companies will continue investing whatever the business environment," said Mr De Boisseson.

Ministers from three of Europe's largest countries have called on the EU to make a unilateral move towards cutting carbon emissions by 30 percent by 2020, rather than the current target of 20 percent.

The move, which marks a dramatic u-turn on previous positions, is vital to prevent Europe losing out in the race to develop low-carbon technologies, British energy minister Chris Huhne, German environment minister Norbert Roettgen and French ecology Minister Jean-Louis Borloo said in an opinion piece in the Financial Times on Thursday (15 July).

"If we stick to a 20 percent cut, Europe is likely to lose the race to compete in the low-carbon world to countries such as China, Japan or the US," wrote the three ministers.

While Europe currently enjoys a leading position in the low-carbon goods and services sector, recent research shows China has leapt ahead in green technology investment, attracting $40.3 billion of asset finance for clean energy in the past year, roughly $10 billion more than the EU.

The call for a unilateral jump to a 30 percent cut on 1990 levels is likely to anger European businesses however, with a European Commission paper in May on the subject attracting harsh criticism.

Brussels argued that the economic recession would make the greater cut significantly cheaper than previously thought, but fierce lobbying from businesses and certain EU states resulted in the document's language being watered down.

While making the case for the larger cut, EU climate commissioner Connie Hedegaard said present "conditions are not right" due to Europe's economic difficulties.

In their opinion piece on Thursday however, the three ministers say there is a compelling economic argument for the 30 percent cut, with failure to move now likely to lead to greater costs in the future.

"The current target of a 20 percent reduction now seems insufficient to drive the low-carbon transition," they said. "The recession by itself has cut emissions in the EU's traded sector by 11 per cent from pre-crisis levels."

The greater reduction "is a policy for jobs and growth, energy security and climate risk," they add.

Previously in UN climate talks, the EU has declared its willingness to make the jump to 30 percent only if other other countries around the world take similar steps, a development that did not materialise in Copenhagen last December.

Germany has been among the strongest opponents to a unilateral EU move, stressing that the jump should only be made in the context of a wider international agreement.

France has also shown resistance in the past, with the debate now likely to be thrown wide open again ahead of international talks on global warming in December in Cancun, Mexico.

EUOBSERVER / BRUSSELS - European finance ministers have defended stress tests currently being carried out on 91 of the region's banks, amid EU calls for governments to be ready with aid when the results are published on 23 July.

With some analysts predicting that between 10-20 banks could require millions of euros in recapitalisations, EU economy commissioner Olli Rehn said on Monday evening (12 July) that national capitals must "prepare for any possible pockets of vulnerability" by getting their "backstops" in place.

Adding to tensions, a number of market participants have raised a series of doubts over the thoroughness of the tests that are designed to assess banks' abilities to withstand future financial shocks such as a national debt restructuring.

News, however, that China last week bought roughly €400 million in Spanish bonds will provide considerable cheer to EU finance ministers meeting in Brussels on Monday and Tuesday, with the return of Asian investors after a two-month pause seen as an important vote of confidence in the eurozone's economy.

Speaking to journalists on the sidelines of Monday's meetings, German finance minister Wolfgang Schaeuble denied the tests had been devised so that banks would easily sail through.

"First it was said that they were too tough, that they would lead all the banks towards bankruptcy. The next day it was said that they were too weak and that the exercises is useless," Mr Schaeuble told reporters.

"In general, the truth lies somewhere in the middle."

Germany's state-owned regional Landesbanken have been identified as some of Europe's weakest, with a study by PricewaterhouseCoopers also showing a number of British banks and Spain's regional lenders as being considerably exposed to non-performing loans.

Time for the €440 billion emergency mechanism?

One question is where European governments would find the necessary money, if called upon, to carry out further expensive bank recapitalisations, with some in Brussels suggesting the eurozone's €440 bail-out fund - known as the European Financial Stability Fund (EFSF) - could be used.

Originally intended to bolster the public finances of governments struggling to raise money on capital markets, supporters say the money could be indirectly channelled into banks.

But other EU sources say such a move would be impossible, with late-in-the-day Slovak reluctance to sign up to the bail-out mechanism also raising a further question mark. The country's new government has said it wants its contribution to the scheme, roughly €4.4 billion in loan guarantees, to be reduced.

With pressure growing on Bratislava to sign up, the stability fund's manager has said its failure to do so would not prevent the fund from raising money through debt issuances.

"The EFSF could begin financial operations if necessary, if required, almost immediately," said Klaus Regling.

Separately on Monday, EU finance ministers gathered with European Council President Herman Van Rompuy to discuss reform on the EU's economic governance.

In a statement after the third "taskforce" meeting, Mr Van Rompuy said ministers agreed that greater sanctions, including the potential suspension of EU farm and regional payments, were needed for states that repeatedly breached the bloc's budgetary rules.

"The scope of financial and non-financial sanctions will have to be widened, including in the community budget," said Mr Van Rompuy.

EUOBSERVER / STRASBOURG - China's deputy foreign minister has warned that the level of "misunderstanding" between Brussels and Beijing is on the rise, despite the EU's new architectural framework, designed in part to improve the bloc's dialogue with the international community.

Ms Fu Ying made the comments in an interview with EUobserver in Strasbourg on Tuesday (6 July), ahead of a series of meetings with senior European Parliament officials.

"I think the misunderstanding is strong on the European side and is growing on the Chinese side as well," said Ms Fu, whose portfolio includes handling her country's relations with Europe and Taiwan.

"Since 2008, the perceived China-bashing sentiment of European countries has hurt China and Chinese people," explained Beijing's most senior female official, whose previous positions include three years as ambassador to the UK.

And while China hopes for an improvement under the Lisbon Treaty, the EU's new rulebook that creates a stronger foreign policy supremo in the shape of Catherine Ashton, so far there has been little tangible evidence of change.

"I'm not saying the new position is not working, it [simply] hasn't started very much yet," said Ms Fu of the seven-month old post, conceding that she has never spoken to Ms Ashton over the phone to discuss bilateral issues.

Despite strong trade ties, a number of recurring issues continue to create tension between the two sides.

Among them, Europe's perceived unwillingness to grant China market economy status, an escalating number of trade disputes and persistent criticism of the country's human rights record, especially from MEPs, continue to vex Chinese officials.

This comes despite the fact that some NGOs say Europe's criticism of conditions in the autonomous regions of Tibet and Xinjiang has been increasingly overtaken by commercial interests.

At the same time, European businesses say they receive unfair treatment when operating inside the Asian powerhouse economy, while the valuation of China's renminbi currency has attracted harsh criticism since an effective currency peg with the dollar was put in place in 2008.

Renminbi

US and EU pressure on the currency issue appeared to bear fruit last month, when China announced its intention to allow the renminbi greater flexibility to appreciate.

This decision however, insists Ms Fu, reflects the easing of the global economic recession rather than external influences.

"We don't like the pressure from outside because Chinese people are now asking why we changed our currency stance because somebody told us to," she said.

The conflicting nature of domestic and international demands is also evident in market access disputes.

In April, the EU Chamber of Commerce in China said growing nationalist sentiment expressed by Chinese internet users is driving the country's protectionist policies at the expense of foreign firms.

Taken together, the litany of potential flashpoints between the two sides seems likely to keep Ms Fu busy in the coming years, with Europe's tendency to hand out advice also grating against Beijing.

"Europe believes it has the best and that the whole world should copy it, although after a long period of time, many countries that did copy it are not so successful," said Ms Fu. "But Europe does not lose its confidence, you keep on lecturing."

EUOBSERVER / BRUSSELS - WTO chief Pascal Lamy has told the EU, China and the US that they must start making real concessions in the Doha round of multilateral trade talks due to growing business uncertainty.

The Frenchman made the comments at the European Business Summit in Brussels on Wednesday (30 June), flanked by the EU's trade commissioner Karel De Gucht, the US ambassador to the WTO Michael Punke and his Chinese counterpart, ambassador Sun Zhenyu.

"The truth is that we are stuck, because Mike, Karel and Zhenyu are trading words not concessions," Mr Lamy said bluntly during a jackets-off debate which saw all sides call for others to go further.

The behind-the-scenes glimpse of the nature and personalities involved in the drawn-out trade talks may not have instilled much optimism among the hundreds of business executives sitting in the audience, although some progress appears to have been made at the recent G20 leaders' meeting in Canada.

"I was pleasantly surprised by what happened in Toronto," Mr De Gucht said on the gathering, where leaders talked for an hour and a half on trade, indicating to each other what was politically possible. "I see an overall awareness ... that we need to conclude this."

Hopes will now focus on the next G20 leaders' meeting this November in South Korea, with a view to eventually wrapping up the agreement next year.

For the US, any deal must provide a badly needed stimulus to the country's struggling economy, which is slowly clawing its way out of recession, amid strong doubt over the package as it currently stands.

"For it to be a stimulus it has to create new opportunities for trade," said ambassador Punke, whose country is frequently blamed for the breakdown of talks in 2008. "The tariff cuts being offered by advanced developing countries are small and over a long period of time ...so that we don't even know what we will get."

The thinly veiled criticism of the Chinese position prompted ambassador Sun to question the political willingness of some countries to move forward, with US mid-term elections at the end of this year frequently cited as a barrier to immediate progress.

Many Democrats are traditionally wary of free trade agreements, and are unlikely to support much discussion on the subject until their seats are secured in November.

With roughly 80 percent of the deal supposedly negotiated, it is clear that securing agreement on the final 20 percent will prove difficult, with emerging nations such as China stressing the round's original aims of first and foremost improving conditions for less developed nations.

But nine years on from the start of the Doha talks, the global economic environment has changed dramatically, with Western countries saying that emerging giants such as Brazil, India and China can no longer be treated in the same way.

As the speakers sweated under the lights, Mr Lamy proffered some more advice to the warring sides, urging them to invest some political capital in a deal that he said would ultimately create a net benefit, even if some particular constituencies lost out.

"Spend half your time negotiating, and the other half explaining to your domestic constituencies what you are doing," he suggested to the panelists.

EUOBSERVER / BRUSSELS - A new survey has shown that European firms operating in China expect the regulatory environment to tighten over the next two years.

At the same time, other indications suggest EU member states are increasingly clamouring for a slice of the Asian behemoth's foreign direct investment, with a number of infrastructural projects in cash-strapped Greece recently benefiting from Chinese capital, for example.

The results of a poll of some 500 European companies, carried out by the European Chamber of Commerce in China and published on Tuesday (29 June), indicate that CEOs are worried the country's Communist leaders will become more discriminatory towards foreign firms.

Intellectual property rights issues and discretionary enforcement of local laws are cited among the list of frustrations.

The chamber warned that concerns over Beijing's policies, including those aimed at supporting 'indigenous innovation,' could result in foreign firms leaving the country, despite expectations for solid growth in China in the coming years.

"Nobody should take for granted that European companies will continue investing whatever the business environment," Jacques de Boisseson, president of the European business group in Beijing, told a news conference, according to various media reports.

"If things turn sour, China is not necessarily a must for them," he added.

Chinese capital in Europe

Moving in the other direction, there are signs that Chinese capital is being increasingly sought after in Europe, with firms and government officials flocking to the Chinese stand at the Expo 2010 in Shanghai this year.

China is set to pump billions of dollars into Greece's ports this year, with investors also reported eyeing the country's train network.

Recently-joined EU members Romania and Bulgaria have also successfully solicited funding from China, as European credit markets suffer from a shortage of liquidity.

But the head of research at the Brussels Institute of Contemporary China Studies, Jonathan Holslag, recently warned that the rising level of investment was not without its dangers.

"These growing commercial ties could have important political consequences," he wrote in an opinion piece in the Financial Times. "Especially if Beijing's closer links with eastern Europe undermine the formulation of a more coherent EU policy towards China.