EU deals a blow to China's WTO bid, PNTR debate

By Rachel Morarjee

BEIJING (AFP): The breakdown of Sino-EU trade talks is a blow to China's hopes of joining the World Trade Organization (WTO) this year and could hurt its bid for permanent normal trade relations (PNTR) from the United States.

Pundits said the latest failure to reach a deal will slow China's entry into the WTO and may complicate U.S. President Bill Clinton's push for the U.S. Congress to grant PNTR to China in May.

While both China and the European Union put a positive spin on the latest round of negotiations by describing the talks as constructive, no date for the next round has been set.

The presence of EU Trade Commissioner Pascal Lamy, who did not attend the previous round of talks in February, had fueled hopes the two sides would strike a deal this time.

Industry sources here expressed their disappointment but noted that talks were complicated because the EU negotiators had to balance the commercial interests of 15 different countries.

"It is disappointing that an agreement was not reached, even though the European side has tried to play up the positive progress in negotiations," said Luciano Bay, head of Italian automaker Fiat's China operations and chairman of the Italian Chamber of Commerce.

"These negotiations were always going to be perhaps a little more difficult than the Chinese imagined because the EU represents 15 member states who all have their own individual demands," he added.

Both Chinese and EU negotiators have remained tight-lipped about which points derailed this round of talks but European firms' demands for access to key market sectors such as telecoms and insurance proved intractable last time.

"The EU is interested in areas such as telecoms, financial services, some machinery and pharmaceuticals that the United States is not particularly strong in," said Bob Broadfoot, of the Political and Economic Risk Consultancy.

EU trade officials said the gap between the two sides was narrowing but sources in Beijing say the main roadblocks to a EU- China WTO deal are likely to be still in place.

"I think it is fair to say these negotiations did not break down over small tariff issues. The issue of telecoms is extremely important to Europe because representing 15 countries it has so many large telecoms companies with extensive interests here, so is insurance," said Fiat's Bay.

The EU is the last of China's major trade partners not to have a signed a bilateral market opening deal, a prerequisite for China to successfully end its 14-year bid to enter the Geneva- based WTO.

The deadline for the U.S. Congress to approve PNTR with China at the end of May is looming and China's failure to reach an agreement with the EU will make it harder to secure PNTR approval from skeptics in Congress.

Although the battle over approval of PNTR is rooted in U.S. domestic politics, such as the leverage the United States has over China's human rights and labor standards, if no China-EU trade deal is struck it will be a setback for the pro-China lobby.

"In reality, it will have some implication, because the Clinton administration is using the strategy of saying if we don't grant the Chinese a deal, this opens the door to Japanese and European firms," said Dong Tao, senior regional economist at Credit Suisse First Boston.

If there is no China-EU deal, "it will reduce the incentive for Congress to pass permanent NTR by the end of May," he added.

Congress must approve PNTR for China if a landmark accord signed with Beijing is to take effect. Under the terms of a Sino- U.S. WTO accord signed last November, China agreed to lower tariffs on U.S. goods and to take other market-opening measures.

In exchange, Washington agreed to back China's bid to join the WTO. But Beijing made it clear the concessions it offered were dependent on congressional approval of PNTR.

U.S.-China Business Council head Pat Powers sounded an optimistic note, saying he believed the EU and China will be able to resolve their differences.

"It's mildly disappointing that they didn't reach an agreement this week, however, some progress has been made and the fact that talks will continue in the future is positive," he said.