EUOBSERVER / BRUSSELS - EU-China relations have been placed under increased strain following news that a European firm is to sell a number of helicopters to Taiwan, the disputed island over which China claims sovereignty.

The revelation comes just a day after China hauled the EU to the World Trade Organisation over a long-running shoe tariff dispute.

Reports on Friday (5 February) said Taiwan's military is set to buy three helicopters from German manufacturer Eurocopter, a subsidiary of EADS, with an option to buy up to 17 more.

Taiwan's defence ministry spokesman Martin Yu said the contract for the EC-225 search-and-rescue helicopters was valued at $111 million.

The European deal comes hot on the heels of last week's news that Taiwan will buy roughly $6.4 billion-worth of arms from US companies, prompting Chinese condemnation and threats of sanctions.

Whether Europe will now come in for the same response is yet to be seen.

Some analysts suggest Beijing's response may be more muted due to an unwillingness to fight on two diplomatic fronts as the same time.

Recent murmurings within the EU over a possible lifting of the bloc's arms embargo with China could also result in a softer response from the Asian powerhouse.

EUOBSERVER / BRUSSELS - EU-China trade tensions were further strained on Thursday (4 February), after China filed a formal complaint with the World Trade Organisation over European shoes tariffs.

The Chinese government said European tariffs "violated various obligations under the WTO and consequently caused damage to the legitimate rights and interests of Chinese exporters."

Brussels immediately hit back, saying the tariffs had been imposed in response to the "unfair trade practices" pursued by the Asian powerhouse.

"Anti-dumping measures are not about protectionism; they are about fighting unfair trade," said the European Commission's acting trade spokesperson, John Clancy.

"The decision to impose measures was taken on the basis of clear evidence that dumping of Chinese products has taken place and that this is harming the otherwise competitive EU industry," he added.

The quarrel comes on the same day that US President Barack Obama vowed to take a "much tougher" stance on China, in a bid to make sure it opens its markets to US exporters.

Sino-American relations are already frayed following last Friday's announcement that US companies are set to sell $6.4 billion worth of arms to Taiwan.

China joined the WTO in 2001, but waited until July of last year to file its one and only unfair trade case against the EU. Thursday's decision to haul the EU to the international trade body is been seen as a sign of greater trade assertiveness by some analysts.

Controversial tariffs

Europe itself has been divided over the shoe tariff issue, with producer nations such as Italy strongly in favour, while several net exporting states have expressed their opposition to the duties.

On 22 December, EU countries voted to extend anti-dumping duties on Chinese and Vietnamese leather footwear imports for a further 15 months as of January 2010.

In total, 13 member states voted against the commission's proposal to extend the duties, nine voted in favour and five abstained. Under EU anti-dumping rules, abstentions count in favour of a commission proposal.

The European duties add between 9.7 percent and 16.5 percent to the import price of Chinese shoes and 10 percent to Vietnamese shoes.

In an eight-page legal complaint, the Chinese government requested consultations on both the original 2006 decision to impose the shoe duties and last year's move to extend them.

The European Footwear Alliance (EFA), which represents several big manufacturers such as Adidas and Timberland, welcomed China's move.

"The EFA shares China's view that the EU's decision to extend the duties for a further 15 months in December 2009 was based on a very questionable investigation and a flawed analysis of the economic facts," said the group in a statement.

"Ironically, the measure hurts European business and consumers the most," it added.

EUOBSERVER / BRUSSELS - The Spanish EU presidency has indicated it is willing to reconsider the bloc's arms embargo with China, implemented over 20 years ago following the 1989 Tiananmen Square crackdown on Chinese pro-democracy protesters.

Following a meeting of EU foreign ministers in Brussels on Tuesday (26 January), Spanish foreign minister Miguel Angel Moratinos said his country was "weighing the pros and cons" of lifting the ban.

"We are all aware of the new role which China is assuming in the world," he added.

China considers an end to the ban to be long overdue. "The embargo is outdated, it does not go along with the partnership between China and the EU," Wang Xining, spokesman for the Chinese mission to the EU, told EUobserver.

"Its a political principle on the definition of the relationship," he added, indicating that China was not necessarily going to place a large military order should the embargo be lifted.

France has been a vocal supporter of ending the ban, a line Moratinos said Spain would now follow, but other member states have traditionally indicated China's human rights record did not merit an end to the EU restriction.

Last October saw the EU lift an arms embargo against Uzbekistan however, despite continuing concerns about human rights in the central Asian nation, suggesting a reluctance to allow full Chinese access to EU military capabilities is also a factor.

European diplomats also queried whether the Spanish decision to visit the perennial issue would win the backing of all 27 member states this time round, with any decision requiring unanimity for a change of position.

The United States, which also maintains an arms embargo on China, is a further complicating factor, with the country likely to be reticent towards a unilateral European move.

The European Parliament has shown its support for the ban, voting in 2008 to maintain it as long as Beijing supports armed forces and groups involved in African conflicts in general.

News that Spain would revisit the thorny issue first hit the headlines last week following a China Daily interview with Spain's ambassador in Beijing.

The issue has subsequently attracted considerable media attention in the Asian powerhouse.

EUOBSERVER / BRUSSELS - Concerns over Greece and indications that China could take steps to cool its economy this year are weighing heavily on the value of the euro, with the common currency reaching a five-month low against the dollar in some markets on Thursday (21 January).

In Strasbourg the day before, European Commission president Jose Manuel Barroso told the European Parliament that Europe's economy is "at a delicate moment."

The euro has fallen steadily this week as investors keep a close eye on Greece's ongoing budgetary difficulties.

A change of government last autumn resulted in a dramatic upward revision of the country's deficit forecasts, prompting credit rating cuts and raising the possibility of a possible Greek default and spillover effects to other euro area economies.

"This Greece news is a huge piece of news," Gregory Salvaggio, vice president of capital markets at the currency- trading firm Tempus Consulting Inc. in Washington, told Bloomberg.

"If we see sovereign debt default, it could lead to a fracturing of the euro zone, and the euro's shine as a reserve currency is certainly going to diminish," he added.

Sentiment that Europe's economy will perform less strongly than the US this year also contributed to Thursday's slide in Asian markets, with the euro hitting $1.4067, the lowest point since 18 August last year.

"The euro is now being targeted ...as one of the assets likely to underperform in 2010 based on headwinds," Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington, told Dow Jones.

Chinese data

Fresh data pointing to strong economic growth in China also contributed to the euro's slump, as speculation mounted that Beijing may take further steps to cool its economy. On Wednesday China's banking regulator said it would rein in new lending this year.

Figures showed China's gross domestic product expanded 8.7 percent in 2009, beating market expectations for 8.5 percent growth.

"The China data were strong, so people are now even more anxious over when the authorities might again try to apply the brakes on the economy," said Yasuo Nakayama, manager at Shinkin Central Bank, reports Dow Jones.

With many economies around the world, including Europe, still struggling as a result of the financial crisis, speculation about Chinese tightening has raised worries about the potential impact on the world economy as a whole.

EUOBSERVER / BRUSSELS - With MEPs on the lookout for overly vague responses during the ongoing European Parliamentary hearings, trade commissioner-designate Karel De Gucht was crystal clear on two matters on Tuesday (12 January).

The Belgian politician candidly told euro deputies that he is not in favour of an EU border carbon tax, adding that he saw an undervalued Chinese currency as a "major problem" for the European Union.

France has led European calls for an EU border tax on products manufactured in external countries with weaker environmental standards, but Mr De Gucht said the measure risked triggering an international trade war.

"In terms of border adjustments, I'm against it," said the Liberal politician in response to a question.

"I don't see that as the right approach, it's one that will lead to lots of practical problems," continued the former foreign minister and current European commissioner for development and humanitarian aid.

"We've seen it in the past. The big risk is that it will also lead to an escalating trade war on a global level," he said.

While the blunt statements may disappoint some who favour the proposed border tax, pro-environment MEPs are likely to be buoyed by Mr De Gucht's strong support for an abolishment of tariffs on environmental goods such as wind turbines and solar panels.

Yuan threat

Turning his attention to China, Mr De Gucht reiterated the European line that the Asian powerhouse should revalue its currency to ease global trade imbalances.

Fresh export data for 2009 released by Chinese customs authorities on Sunday suggest the country is set to strip Germany of its leading exporter title in terms of gross volume.

With the yuan essentially pegged to the dollar for more than a year, despite the US currency's protracted slide, European manufacturers have increasingly pointed to their diminishing price competitiveness.

But China has shrugged off repeated calls by European policy makers to allow the yuan to rise, saying the currency's stability is in everybody's best interest.

The Chinese administration "must show its responsibility by being able to address thorny questions such as currency misalignment," Mr De Gucht told the hearing, adding that European antidumping duties against Chinese firms were only "a very partial solution" to ongoing problem.

Semeta

In a nearby room to the trade discussion, Lithuanian commissioner-desiginate Algirdas Semeta also fielded questions from MEPs on Tuesday morning.

Currently serving as the commission's budgetary chief, the centre-right politician is hoping to take over in a beefed up portfolio responsible for taxation and customs union, audit and anti-fraud.

"It will be an essentially new economic portfolio of especially high responsibility," Mr Semeta said before the hearing. He stressed to MEPs the importance of pushing through new rules on energy taxation within the EU, amongst other issues.

"The energy taxation directive will be one of my first priorities in my future job," Semeta said. "I think in the future if we would move forward with green taxation it would allow us to decrease taxation on labour."

EUOBSERVER / BRUSSELS - China looks set to overtake Germany as the world's largest exporter, with fresh customs data showing the Asian superpower sent goods valued at $1.2 trillion overseas in 2009.

However, analysts have been quick to point out that the figures only reveal half the story, with China still behind Germany and other net exporting countries in the value-added stakes.

The figures, released on Sunday (11 January) by China's General Administration of Customs (GAC), mark a 16 percent fall on 2008, but are still tipped to exceed total German exports for last year.

Forecasts by the Federation of German Wholesale and Foreign Trade predict exports in Europe's largest economy area are likely to fall by 18 percent this year to 816 billion euros ($1.18 trillion), with official figures expected in February.

Commenting on the likely switch in positions between Germany and China on the global export ladder, analyst Duncan Freeman of the Brussels Institute of Contemporary China Studies said the figures on crude volumes of trade were "something of note," but added: "it doesn't necessarily mean China is a dominant trading force."

"The Chinese are right to say that many of their exports have relatively low added value," he told EUobserver, adding that profits on products assembled in China frequently leave the country.

The Chinese 2009 annual total was given an important boost by strong exports in December worth $130.7 billion, up 17.7 percent from a year earlier and marking the first rise since November 2008.

Compared to the country's exports, Chinese imports slid a more modest 11.2 percent to $1.006 trillion in 2009, something Chinese officials are likely to point to if foreign criticism over the country's trade surplus resurfaces.

EU-China business tensions look set to continue following complaints from Polish motorway constructors that a Chinese group unfairly won a recent tender to build an important stretch of road in the large EU member state.

In a letter to European Commission president Jose Manuel Barroso, Poland's constructors' lobby group, the OIGD, urged the EU executive to take action against the Chinese group on the grounds it received competition-distorting state aid from Beijing.

"We note that the bid by the Chinese consortium is based on a price far below the value of the tender, which constitutes unfair competition," reads the letter, obtained by AFP.

The Polish lobby group says the commission, EU watchdog on competition matters, should initiate anti-dumping measures against the China Overseas Engineering Group Company (COVEC).

The value of COVEC's successful bid to build the stretch of road was 1.3 billion zloty (319 million euros).

"That was 48 percent less than the estimated cost of the tender. It was also 23 percent less than the second-lowest bid," says the Polish lobby group, claiming that the Chinese government will simply cover the cost of COVEC's losses.

After decades of underdevelopment, Poland is pushing hard to upgrade its infrastructure in time to co-host the 2012 European football championships

In September, COVEC's bid beat several European competitors who were also vying to upgrade the 49 kilometres of motorway linking the Polish and German capitals, Warsaw and Berlin.

EUOBSERVER / BRUSSELS - Turkmenistan and China inaugurated a major new gas pipeline on Monday (14 December), complicating the EU's energy ambitions in Central Asia.

Chinese leader Hu Jintao switched on the gas at a ceremony on the Turkmen-Uzbek border with Turkmen president Gurbanguly Berdymukhammedov and the leaders of Uzbekistan and Kazakhstan.

The 1,833 km pipeline passes through Uzbekistan and Kazakhstan before reaching Xinjiang in China. It will pump 40 billion cubic metres of gas a year - about half the consumption of Germany - when it is in full swing in 2012.

The development highlights the difficulties surrounding EU efforts to get direct access to Turkmenistan's gas, breaking Russia's monopoly on EU-bound exports from the region.

"Everybody thinks we are in competition with Russia in Central Asia. But we are also in competition with China, and to a lesser extent, with Iran," an EU official said.

The Chinese pipeline was built in lightning speed.

China and Turkmenistan signed a preliminary agreement on the project in April 2006. Construction began in August 2007 and was completed 27 months later by an army of 8,000 workers.

In contrast, EU firms signed the first agreement on the Nabucco pipeline, designed to bring in gas from Turkmenistan and other countries in the region via Turkey, in 2002. It launched a wide-sweeping Central Asia strategy in 2007 and ratified a basic trade agreement with Turkmenistan in late 2009.

As of the end of this year no EU company has a gas contract with Turkmenistan and not one kilometre of the 3,300 km project has been built.

Early drafts of the Central Asia strategy said that EU concerns with human rights abuses in the region could hold back the union's interests. Unwillingness by EU companies to pay a huge bribe to Mr Berdymukhammedov's predecessor also stymied progress.

The Chinese pipeline does not directly threaten Russia's monopoly on gas exports to the EU but it challenges Russia's influence in the three post-Soviet states.

"I hope that, thanks to this investment we will be not just good neighbours, but also faithful partners," Mr Hu said at the ceremony.

EUOBSERVER / BRUSSELS - The last decade has seen enormous changes in the way the European Union and China do business, with the evolving relationship set to remain tense in the coming years.

These were among the sentiments expressed by speakers and delegates at a high-level EU-China business conference organised by Friends of Europe, a Brussels-based think-tank, on Wednesday (9 December).

The meeting was organised as part of the Understanding China programme, a three-year project to increase European business awareness of Chinese market issues, and co-funded by the European Commission.

As European firms increasingly turn to China's rapidly growing economy, with its 1.3 billion potential consumers, questions over currency valuation, market access and intellectual property rights are foremost in the minds of many European CEOs.

But Europe also needs to put its own house in order, and should not simply compile a list of requests for Chinese policy makers, said Arnaldo Abruzzini, secretary general of the European business organisation, Eurochambres.

With citizens around the globe increasingly calling for job protection, a large number of recent protectionist measures have been implemented in Europe, he said, adding however that Chinese non-tariff barriers are considerably more extensive than the headlines suggest.

"We need to make order ourselves first," said Mr Abruzzini, referring to the EU's fragmented economic and trade policies as a frequent stumbling block in this regard.

Fragmented Europe?

As part of the EU's new rulebook – the Lisbon Treaty – which came into force on 1 December, two new top-level posts were created in a bid to increase the bloc's visibility on the world stage.

However some doubt whether the new high representative for foreign affairs, Catherine Ashton, and the permanent president of the European Council, Herman Van Rompuy, have the political stature to successfully achieve this aim.

Jean-Claude Knebeler, director of foreign trade in Luxembourg's economy ministry, said European discussions with China are likely to remain at the bilateral level.

"As long as the big players such as Nicolas Sarkozy, Gordon Brown, Angela Merkel take prominence on the stage in discussions with China, we will probably remain on a more nation state-focused approach," he said.

He pointed out that while the EU complains about the trade deficit with China, a figure that reached €169 billion in 2008, Luxembourg enjoyed a trade surplus with China in the same year.

Cheap labour

Chinese officials and academics are also quick to point out that many of the exports leaving the Asian giant's shores, destined for Europe, have in fact been produced by European companies with factories in China in order to take advantage of the cheap labour force.

One recent estimate suggests that only 15 cents in every dollar of the added value created in China actually stays in the country.

Despite this fact, deficit and currency tensions look set to continue in the short and medium term say observers.

"The nature of the EU-China dialogue over the next 10 years is still going to be very challenging," says Patrick Horgan, a member of the European Chamber of Commerce in China.