Trade policy with China must be reoriented

by Hans Diederichs

The perception of China as an important trading partner has changed in the mechanical engineering sector. Previously tolerated subsidy distortions and unequal market access are no longer acceptable.

"In many areas China has long since ceased to be a developing country. Therefore, the same international trade rules must apply to China as to Germany or the EU," demands Ulrich Ackermann, head of the VDMA Foreign Trade Association. In a position paper, the VDMA appeals to the German and European institutions to review their trade policy instruments and - where necessary - adapt them to the new circumstances. This applies when Chinese companies receive state subsidies as well as to the rules governing public tenders in China. The VDMA is therefore pressing for a rapid conclusion of the EU-China investment agreement, which has been negotiated since 2013, so as not to further encourage unfair competition. "Chancellor Merkel has linked her invitation to the EU-China Summit in Leipzig in September 2020 to the conclusion of such an agreement. China must be measured against this deadline," says Oliver Wack, East Asia officer at the VDMA.

Subsidies in focus

Subsidies for state and private companies in China distort production costs in the People's Republic. Furthermore, Chinese export subsidies influence international competition. "We must therefore achieve a reversal of the burden of proof for corresponding WTO proceedings," explains Ackermann. At present, although World Trade Organisation (WTO) members are obliged to notify subsidies, practice shows that this is only done to a limited extent. "The instrument must be sharpened and every non-notified subsidy must automatically be classified as market-distorting - combined with the possibility of countermeasures," demands the head of the VDMA Foreign Trade Association.

Modernise public procurement rules In the EU

Public procurement does not distinguish between EU and non-EU companies. This means that the European procurement market is in principle also open to bidders from third countries. In China, this openness does not currently exist. Furthermore, the extent to which Chinese bidders meet international requirements, for example in terms of labour, human rights or sustainability standards, which are taken for granted by EU companies, is not transparent. In addition, Chinese bidders are not subject to the strict rules on state aid, which in turn leads to an unlevel playing field. "Guaranteed market access should only be granted to third country companies if there is a binding bilateral agreement granting reciprocal equal, transparent and non-discriminatory market access. Otherwise, it must be possible to exclude them," explains Ackermann.

Great market importance of China

In its position paper, the VDMA describes a total of seven areas in which it believes there is a need for action. These are: Subsidies, public tenders, EU merger control, Foreign investment, Belt and Road Initiative, Export financing and Export control.

Germany is China's second most important foreign supplier in mechanical engineering. At the same time, Chinese mechanical engineering has become the second most important foreign supplier for Germany and Europe in recent years. China has also gained great importance as an investment location. Only in the USA have companies in the German capital goods industry set up more branches. The German mechanical engineering industry currently offers around 70,000 highly qualified jobs in China. "Germany is doing a great deal to further promote this positive development. China is now called upon to implement measures for a 'level playing field'", demands Ackermann.

Source: VDMA                    Photo: Shutterstock

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