China's WTO hopes suffer double setback

By Adrian Croft

BRUSSELS (Reuters): China's failure to agree terms with the European Union (EU), coupled with rising U.S. congressional hostility to a China trade deal, have dimmed Beijing's hopes of joining the World Trade Organization (WTO) soon.

In a bizarre end to the latest round of EU-China negotiations on Thursday, the European side contradicted reports in Chinese state media that China had reached a "basic understanding" with the EU on its entry to the world trade body.

"We don't have any knowledge of a basic understanding," European Commission spokesman Anthony Gooch said.

Gooch said the four days of EU-China talks in Beijing had made slow progress, but negotiations were not yet ripe for EU Trade Commissioner Pascal Lamy to fly to China to finalize an agreement.

The Chinese report of a deal appeared to be another example of the brinkmanship China is famous for. Chinese officials called back U.S. trade negotiators to wrap up an agreement last November as they were about to leave for the airport.

Both sides had raised hopes of a breakthrough in the EU-China negotiations and the failure to set a date for the next session is a setback to China's hopes of joining the world trade body in the first half of this year.

In another blow, leaders of a powerful U.S. Senate committee warned on Wednesday that a landmark U.S. trade agreement with China was in peril after Beijing threatened to attack Taiwan.

U.S. President Bill Clinton on Thursday promised an all-out effort to win congressional approval of his administration's trade deal with China, urging business leaders to join in what he predicted would be a difficult battle.

With market-opening agreements already reached with the United States, Japan, Canada and many other countries, agreement with the EU is the highest hurdle China must overcome to attain its 13-year-old dream of joining the WTO.

But, despite U.S. pressure to wrap up the talks quickly, the EU has made clear it will not be rushed into a bad agreement while China is reluctant to make more concessions.

"We always thought it might take a long time. The Chinese are tough negotiators and we like to think we are too," one EU diplomat said.

"The Chinese have got political problems giving us more than they gave the Americans on anything," he added.

Paul Brenton, a trade economist at the Centre for European Policy Studies, a Brussels think-tank, said China viewed the United States as the key to its entry to the WTO.

"They felt in many circles they gave a lot to get a deal with the U.S. There is an element in the Chinese administration that would not want to go further," he told Reuters.

EU officials said the bloc's talks with China were based on trade considerations and had not been influenced by controversy over China's threat this week to use "drastic measures, including military force" if Taiwan delayed indefinitely on unification talks.

Brenton said however that the Chinese threat to Taiwan "wouldn't have helped" the talks. "U.S. reaction would have been taken into account to some extent by the EU," he told Reuters.

The EU is seeking Chinese tariff reductions and greater access to the Chinese market in areas such as telecommunications and financial services.

While giving few details of the negotiations, EU officials made clear they were disappointed by the lack of movement shown by China in this week's talks.

An EU source in Beijing said European demands for 51 percent foreign ownership rights in Chinese mobile phone networks were a key factor behind the failure of the talks.

The EU says about 80 percent of its trade interests were covered by the U.S.-China market-opening agreement reached last November. Under WTO rules, most of the concessions China gave to the United States must be extended to other WTO members.

"But that doesn't take anything away from the fact that we always had our 20 percent (of issues) which was specific to Europe. We have always set out to achieve those objectives," Gooch said.