The mouse and the giant: will Lithuania affect EU-China trade relations?

When we think of the potential adversaries of China, we would never think of Lithuania. But facts defy our perception, and the tiny baltic State has challenged China’s authority by allowing the opening of a Taiwanese embassy in Vilnius in November. This is not a common occurrence: only a few countries recognize Taiwan (officially Republic of China, different from the People’s Republic of China that refers to mainland China), while the most common approach is the One China policy, agreeing to considering Taiwan as an integral part of China. This is done out of convenience, as agreeing to the One China policy is a prerequisite to establish official ties with China; any country upholding the independence of Taiwan is excluded from formal relations with the country and is seen as more of an enemy than as a partner. Still, most countries have informal connections to Taiwan, such as hosting its economic and cultural centres, representative offices, and missions under the name of Taipei, thus not specifying the extent of the territory that Taipei represents and avoiding conflict with the One China policy.

What did Lithuania do?

Lithuania recently allowed Taiwan to open a representative office using the name “Taiwan” rather than “Taipei” and China was predictably not happy about it. It recalled its ambassador and demanded that the Lithuanian ambassador leave the country, thus downgrading the relations between the countries below ambassador level. All while Lithuania plans to open its representative office in Taiwan. This is an attempt to withstand the pressure of China to deal with foreign affairs following its own established policies. Despite the small size of the country, this diplomatic debate has arisen concerns all over Europe. After the opening of the office, Lithuania left the China-CEEC format (Cooperation between China and Central and Eastern European Countries), ending collaboration on trade, infrastructure, and culture that is the focal point of the initiative. Lithuania is also pretty active in seeking a uniform foreign policy and trade action by the EU, rather than leaving ample autonomy to Member States: both its Foreign Vice-Minister Prankevičius and the EU Trade Commissioner Dombrovskis called for unitary action and looked forward to the proposed EU Anti-Coercion Instrument.

Is Europe divided in its approach to China?

LIthuania has been obstacled in trading with China by being erased from the customs’ declaration system, but after a statement by Borrell and Dombrovskis threatening to report the situation to the WTO for unfair treatment, and numerous protests by Lithuanian industrial unions, the trade appeared to resume normally. Although China denies all accusations, European pressure has definitely helped resolve the situation. However, it seems that the EU’s relations with China are ambivalent: on one hand, Europe needs to hold a strong position and maintain its role as a cohesive region open to cooperation but also attached to its values; on the other hand, China is gaining a prominent space especially in Eastern Europe promoting investments, exchanges, and extending its presence in those regions that are not yet part of the EU and that are therefore looking to enter a variety of markets in absence of a clear path for the future. Although China represents a great chance to conclude important deals, its approach is often questioned as too aggressive and one-sided.

What can we expect?

In the Joint Statement we can read that the EU remains committed to respecting the One China Policy. However, Lithuania is challenging it, and it might be followed by other Member States. A solution is not easy to find. China and the EU trade massively with each other, so that sanctions and trade wars would just damage both parties; still, Europe needs to address the problem of having a “contender” to trade within its territory which may impose conditions to trade that contravene EU and sometimes WTO directions. That is why the European Commission proposed on December 8th an Anti-Coercion Instrument. The tool would prevent third countries undermining the EU’s strategic autonomy, making it less open to trade, and would establish ways in which to negotiate if coercion is detected. The instrument has now to pass in the Parliament and Council. The measure, if adopted, must be used carefully in order not to undermine Europe’s free trade, especially with giants such as China. While it is for sure that trade relations between China and the EU will continue to grow in the next years under shared initiatives and Free Trade Agreements, and unlikely that other countries will join Lithuania, this episode acted as a wake up call for Europe to question its attitude to trade and to take the necessary steps to prevent unfair action.

Sources:

• ROC Embassies and Missions Abroad

• What is “Chinese Taipei”?

• China Embassy Statement by the Ministry of Foreign Affairs

• Joint Statement by High Representative/Vice-President Josep Borrell and Executive Vice-President Valdis Dombrovskis on China's measures against Lithuania - Trade - European Commission

• EU strengthens protection against economic coercion