EU launches WTO case against China over Lithuania blockade

The European Union took China to the World Trade Organization on Thursday over its coercive practices against Lithuania and some exporters from other member states.

“These measures are a threat to the integrity of the single market because they affect intra-EU trade and EU supply chains and have a negative impact on EU industry,” European Commission Vice President Valdis Dombrovskis, told Bloomberg in an interview.

Dombrovskis said the EU worked hard to gather evidence to document China’s restrictive measures against European products, because the actions were conducted informally and many European companies were reluctant to cooperate because they fear retaliation from Beijing. 

China, the EU’s main trade partner, started blocking Lithuanian products—and some other European goods that contained Lithuanian components—at customs last December, after Taiwan opened a representative office in Vilnius under the country’s name instead of the capital, Taipei. Beijing considered the move a challenge to its sovereignty.

The diplomatic standoff escalated after China recalled its ambassador and downgraded ties with Lithuania. Meanwhile, the Lithuanian government has rejected any change to the name of the representative office. 

China, which has denied that it’s blocking Lithuanian exports, called the EU’s move groundless. “We also hope the EU side will tell right from wrong and stay vigilant from Lithuania’s attempt to hold China-EU relations hostage,” Chinese Foreign Ministry spokesman Zhao Lijian said Thursday at a regular press briefing in Beijing. He added that China and the EU are continuing to discuss a planned summit in March between the EU and China.

The EU said in a press release that it has evidence of pressure on European companies operating in other members states to remove Lithuanian inputs from their supply chains when exporting to China. 

Dispute Test 

The EU’s move Thursday is somewhat symbolic because it could take several years for the case to work its way through the WTO’s backlogged dispute-settlement system. That dispute mechanism is hobbled by an inoperable appellate branch, but both the EU and China have agreed to mediate cases using an EU-crafted mechanism known as the multi-party interim appeals arrangement.

“As WTO members, China and E.U. have maintained communication under the dispute settlement mechanism,” Chinese Ministry of Commerce spokesman Gao Feng said in Beijing Thursday. “I want to stress that China has always managed trade according to WTO rules and will handle the issue based on the WTO’s relevant rules.”

Once the EU launches the case, China has 60 days to enter into consultations with the bloc. If that doesn’t resolve the issue, Brussels can request the establishment of a WTO panel. Those proceedings normally last more than the maximum stipulated period of nine months.

The Lithuanian Confederation Industrialists, the country’s largest business association, said some 130 companies are unable to send products to China or to clear shipments through customs. The economic value of the containers blocked is around 26.5 million euros ($29.9 million), EU officials said.

The most affected sectors have been pharmaceuticals, lasers, electronics and food and beverages.

China’s coercive measures included restrictions on exports to the Baltic nation, and Chinese companies are canceling orders from Lithuanian firms.

“China in a sense is also putting pressure on multinational companies to abandon the use of Lithuanian components in their production, otherwise they also may face import restrictions,” Dombrovskis said. “It’s clear that these kind of practices applied by China are in breach of the WTO rules.”

According to China’s customs statistics, trade of goods from Lithuania to China dropped by 91% in December compared with the same period of last year, he added. The EU’s figures aren’t available yet.

Anti-Coercion Plan

The latest salvo in the dispute with China came as the EU is preparing a new anti-coercion mechanism that would allow for countermeasures in situations like the Lithuanian case.

“We urge EU member states and the European Parliament to fast-track the work on the anti-coercion mechanism, because that would give us the possibility to react swiftly and effectively when faced with economic coercion,” Dombrovskis said.

The bloc is one of the first jurisdictions to design such a tool, and the Lithuania-China dispute has sparked interest among diplomats to discuss this type of instruments at the Group of Seven level, an EU official said.