Will Asian dragon spring a bad surprise?

Next week the European Commission will set out its vision for EU-China relations over the next five years. In a strategy paper, which is to be agreed on Tuesday (24 October), the Commission will chart a course to developing trade and political ties.

The paper marks a significant shift in the EU’s policy towards China. Up to now, the emphasis has been on maintaining good relations to encourage China’s peaceful emergence as a world power.

But the Commission is ready to adopt a more robust approach, pursuing the EU’s commercial interests more vigorously, demanding that China delivers concrete results on a range of trade disputes.

Its main commercial concerns are a requirement that China enforce intellection property rights and a demand that China relax rules on investing in the fast-developing country.

The strategy paper coincides with the end of the five-year transition period for China to meet World Trade Organization (WTO) rules. The Commission hopes that WTO obligations will force China to create a more level playing-field for trade.

The paper also comes at a moment of uncertainty and opportunity for international trade relations, after the suspension of WTO negotiations on a new trade round. Peter Mandelson, the European trade commisioner, has announced that the EU will seek bilateral trade deals with major Asian partners, including China, in the wake of the Doha failures.

The Commission hopes to receive before the end of the year a mandate from the EU member states to negotiate a free trade agreement with China.

Despite the bold aims of the paper, EU officials say they are already feeling the ‘push-back’ from China following the EU’s more ‘hard-nosed’ approach.

China has reacted with growing agitation to the EU’s decisions to place anti-dumping measures on dozens of Chinese products from shoes to bicycles. The trade imbalances have provoked numerous complaints from manufacturers struggling to compete against cheap imports from China.

The ‘bra wars’ - over cheap textiles - have been followed by further complaints. The EU and China have been embroiled in a dispute over car parts. The EU, the US and Canada are opposed to China’s practice of imposing tariffs of 25% on car parts constituting more than 60% of fully constructed cars.

Last month, however, their request to launch proceedings at the WTO was blocked by China. Later this month, they will try again and China, having already used its one-off veto, will be unable to stop them.

Earlier this month, Mandelson imposed blanket duties of 16.5% on imports of cheap leather shoes from China. According to Chinese press reports, companies affected are now planning to lodge a complaint at the European Court of Justice by the end of the month. In parallel, the Chinese government is preparing to launch its own complaint at the WTO. "We are thinking about the feasibility," said one Chinese source. "The Commission’s approach was not in line with WTO rules, so we believe we have the legal basis to sue." But China would attempt to hold conciliatory talks with EU officials before going ahead with the case in order to avoid springing any "bad surprises".

During a visit to Brussels last week Xiaodong Chen, the number two in charge of EU policy at China’s ministry of foreign affairs hinted that the EU’s use of sanctions, like those recently levied on Chinese shoe exports, put relations at risk.

"Both sides should transcend economic sanctions and think strategically," he said. "We are looking for bilateral relations rather than sanctions."

According to research by the Asia-Europe Foundation, the EU is increasingly seen in China as a political actor as well as an economic player. The work of EU foreign policy chief Javier Solana features frequently in Chinese newspapers.

But if EU-China political relations are deepening, some officials in Brussels warn that those deeper relations will throw up new challenges for the EU.

"Eight years ago the interest [in the relationship] was very different to what it is today," said one Commission official. "Expectations on both sides are increasing. The Chinese expect us to listen more closely to them before we make a decision."

One issue where the Commission hopes to influence Chinese policy is in its dealings in Africa, where Chinese companies have been buying up assets while disregarding labour and ethical standards.

On issues like Iran, North Korea and Sudan, China has been more reluctant than the EU or the US to impose sanctions, this increased expectation could prove problematic.

The Commission is keen that the EU’s relationship with China should develop, becoming deeper and more sophisticated.

But if, as seems likely, that wish is fulfilled, it does not follow that the relationship will be any less turbulent. The next five years will be full of tension and disagreement.

Next week the European Commission will set out its vision for EU-China relations over the next five years. In a strategy paper, which is to be agreed on Tuesday (24 October), the Commission will chart a course to developing trade and political ties.

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