In a post on January 7, 2022, I reviewed the bullying and coercion being pursued by China against goods from Lithuania and the pressure on companies to stop using Lithuanian components. See January 7, 2022: China’s “bullying” of Lithuania — a repeating story inconsistent with WTO rules, https://currentthoughtsontrade.com/2022/01/07/chinas-bullying-of-lithuania a-repeating-storyinconsistent-with-wto-rules/ (https://currentthoughtsontrade.com/2022/01/07/chinas-bullying oflithuania-a-repeating-story-inconsistent-with-wto-rules/). China’s actions followed actions by Lithuania to improve relations with Taiwan.
Today, January 27, 2022, the European Union filed a request for consultations at the WTO with China on the restrictions on trade with Lithuania and the efforts to restrict other countries from using Lithuanian components in their products.
The background section of the request for consultations reviews the myriad actions being taken to deprive Lithuanian and other goods including parts from Lithuania from accessing China’s market and restrictions on goods going to Lithuania.
“1. Background to the dispute
“Beginning in or around the final quarter of 2021, importers of products originating in Lithuania and/or transiting through Lithuanian ports and/or with some other link to Lithuania began encountering restrictions on securing customs clearance for their goods to enter Chinese territory. Those restrictions include in particular: (i) error messages on the IT systems used to input data necessary to secure customs clearance from the Chinese customs authorities; (ii) containers being blocked in Chinese ports pending customs clearance; (iii) failures on the part of the Chinese customs authorities to process requests for customs clearance in due time or at all. Those restrictions are novel, numerous, recurrent, persisting and strongly correlated in temporal and substantive terms, as well as in terms of the provenance of the goods.
“Commencing in or around the final quarter of 2021, entities established in = Lithuania began encountering difficulties relating to goods due to be exported from China to Lithuania. Those difficulties include failures on the part of the Chinese customs authorities to process requests for customs clearance for export in due time, or at all. Those restrictions have similar characteristics.
“Since August 2021, there have similarly been reports of entities established in Lithuania encountering difficulties in obtaining financial services from Chinese entities. Beginning in or around the final quarter of 2021, there have similarly been reports of shipments of products covered by SPS certificates issued by Lithuanian authorities being refused customs clearance by Chinese customs authorities.
“2. The measures at issue
“The measures at issue include the adoption, maintenance and application through its actions or omissions, in law and in fact, by China, of:
“import bans or import restrictions on the products at issue, from the EU;
“export bans or export restrictions on the products at issue from China to the EU;
“restrictions or prohibitions on the supply of services from the EU or by a service supplier from the EU in the territory of China or in respect of EU consumers of services provided by Chinese service suppliers.
“The means through which China imposes and administers these measures operate collectively but also separately, and affect the importation or exportation of goods or the supply of services from or to Lithuania, or showing a link to Lithuania for example through the presence of Lithuanian components.
“These measures predominantly concern goods or services from or destined for Lithuania or linked in various ways to Lithuania, but also have an effect on supply chains throughout the EU.
“The above-described complex of measures are inter-linked and show a targeted prohibition or restriction relating to trade in goods or services from or to Lithuania or linked to Lithuania which is intended to be generally applicable.
“These measures are attributable to China which, through actions of the Government, and/or through measures designed, promulgated, or applied by entities (including local government bodies, nongovernmental bodies and state owned enterprises) in Chinese territory acting as, under the authority of, or in concert with the Government, has encouraged, incentivised or otherwise instigated a coordinated policy designed to restrict trade from and with the EU, and more specifically, Lithuania, in a manner that is inconsistent with the terms of the covered agreements.
“In particular, the acts or omissions of the General Administration of Customs China resulting in the failure to take administrative actions or decisions necessary for customs clearance, has the effect of prohibiting or restricting importation.
“China also grants less favourable treatment for transit for products with a link to Lithuania as described above.
“Furthermore, it appears that Chinese State Trading Enterprises are not acting in conformity with the principle of non-discriminatory treatment in their purchases or sales involving either imports or exports from the EU with a link to Lithuania as described above.
“China arbitrarily or unjustifiably discriminates between the EU and other Members where identical or similar conditions prevail, including between China’s own territory and that of the EU, in applying sanitary and phytosanitary measures, and applies sanitary and phytosanitary measures in a manner which constitutes a disguised restriction on international trade, when goods with a link to Lithuania are involved.
“Moreover, China has put in place restrictions or treatment less favourable than that accorded to service suppliers from other Members or domestic service suppliers, in relation to the supply of services from the EU, by a service supplier from the EU in the territory of China, and as regards EU service consumers seeking services from Chinese service suppliers, when those services, suppliers or consumers had a link to Lithuania.”
The EU press release of today’s date (https://trade.ec.europa.eu/doclib/press/index.cfm?id=2355 (https://trade.ec.europa.eu/doclib/press/index.cfm?id=2355)) on the matter is copied below.
“Directorate-General for Trade
“ENFORCEMENT AND PROTECTION
“Brussels, 27 January 2022
“EU refers China to WTO following its trade restrictions on Lithuania
“The EU has today launched a case at the World Trade Organization (WTO) against the People’s Republic of China over its discriminatory trade practices against Lithuania, which are also hitting other exports from the EU’s Single Market. These actions, which appear to be discriminatory and illegal under WTO rules, are harming exporters both in Lithuania and elsewhere in the EU, as they also target products with Lithuanian content exported from other EU countries. As attempts to resolve this bilaterally have failed, the EU has resorted to initiating dispute settlement proceedings against China. The WTO consultations initiated today are the first step in this process.
“Executive Vice-President and Commissioner for Trade Valdis Dombrovskis said: ‘Launching a WTO case is not a step we take lightly. However, after repeated failed attempts to resolve the issue bilaterally, we see no other way forward than to request WTO dispute settlement consultations with China. The EU is determined to act as one and act fast against measures in breach of WTO rules, which threaten the integrity of our Single Market. We are in parallel pursuing our diplomatic efforts to deescalate the situation.’
“Over the past weeks, the European Commission has built up evidence of the various types of Chinese restrictions. These include a refusal to clear Lithuanian goods through customs, rejection of import applications from Lithuania, and pressuring EU companies operating out of other EU Member States to remove Lithuanian inputs from their supply chains when exporting to China.
“To deal with such cases in future, the Commission is strengthening its toolbox of autonomous measures. Last month, the Commission adopted a proposal for an Anti-Coercion Instrument, which would give the EU more possibilities to react in the event of economic coercion. The proposal is currently being considered by the European Parliament and the Council of the EU.
“From December 2021, and without informing the EU or Lithuanian authorities, China began to heavily restrict or de facto block imports from and exports to Lithuania, or linked to Lithuania. The Commission has repeatedly raised the matter with the Chinese authorities.
“The first stage under WTO dispute settlement procedures is the ‘request for consultations’, under which the EU formally asks China for more information on its measures with a view to reaching a satisfactory solution. Should these consultations not lead to a positive outcome within 60 days, the EU may request the establishment of a panel to rule on the matter.”
As noted in my prior post, the United States has come out in support of Lithuania in comments from the Biden Administration. One can expect many WTO Members to seek to join the consultations supporting EU concerns. China’s use of trade restrictions and coercion in response to actions by trading partners it disagrees with has been a major problem for various countries. Actions against Australia reviewed in a prior post are just one other example. See December 22, 2020: China’s trade war with Australia – unwarranted and at odds with China’s portrayal of itself as a strong supporter of the WTO, https://currentthoughtsontrade.com/2020/12/22/chinas-trade-war-with australia-unwarranted-and-atodds-with-chinas-portrayal-of-itself-as-a-strong supporter-of-the-wto/ (https://currentthoughtsontrade.com/2020/12/22/chinas-trade-war-with australia-unwarranted-and-atodds-with-chinas-portrayal-of-itself-as-a-strong supporter-of-the-wto/).
As the EC press release makes clear, the EU is considering additional tools to broaden its capabilities to respond to coercive economic actions by trading partners. See Brussels, 8.12.2021, COM(2021) 775 final 2021/0406 (COD), Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the protection of the Union and its Member States from economic coercion by third countries, https://trade.ec.europa.eu/doclib/docs/2021/december/tradoc_159958.pdf (https://trade.ec.europa.eu/doclib/docs/2021/december/tradoc_159958.pdf). As noted the proposed regulation is awaiting action by the European Council and European Parliament. The proposal is embedded below.
While major WTO Members like the EU and the U.S. can resort to or are working to have the internal authority to resort to unilateral actions to address coercion, the same is not true for most trading partners when facing such actions from countries like China. And unilateral actions by any WTO Member prior to authorization by the WTO is likely inconsistent with WTO obligations. Thus, such action shouldn’t be encouraged but is inevitable in circumstances like the Lithuania one covered in the present dispute where the actions taken follow a pattern of abuse of WTO obligations.
While Australia and the EU have pursued or are pursuing discrete WTO disputes against such coercion from China, a broader and more timely solution is obviously needed for such willful disregard of WTO obligations by a Member.
While China likes to state that it is a major defender of the multilateral trading system, its record belies that claim.
Terence Stewart, former Managing Partner, Law Offices of Stewart and Stewart, and author of the blog, Current Thoughts on Trade.
To read the full commentary from Current Thoughts on Trade, please click here.