Finance

Brussels challenges China at WTO over block on Lithuania imports

The EU has launched a case against China at the World Trade Organization over its de facto ban on exports from Lithuania in a dispute over Taiwan.

The move increases tensions between two of the world’s biggest economies, which are embroiled in conflicts over steel and the treatment of the Muslim Uyghur minority in China.

Brussels said China had blocked imports from Lithuania and other EU member states since December if they had Lithuanian content in their products.

“These actions, which appear to be discriminatory and illegal under WTO rules, are harming exporters both in Lithuania and elsewhere in the EU,” the European Commission stated.

Valdis Dombrovskis, the trade commissioner, said: “The EU is determined to act as one and act fast against measures in breach of WTO rules which threaten the integrity of our single market. We are in parallel pursuing our diplomatic efforts to de-escalate the situation.”

Dombrovskis told reporters the EU would drop the case if China ended its measures.

Gabrielius Landsbergis, Lithuania’s foreign minister, welcomed the move and the solidarity shown by other EU countries. “This step is a clear message to China that the EU will not tolerate politically motivated acts of economic coercion,” he said.

Landsbergis added that Lithuania wanted to de-escalate the situation but needed to protect both its interests and those of its companies and foreign investors.

The problems began after Vilnius permitted a Taiwan representative office to open. Beijing considers the island part of its territory and acts against those who recognise its existence formally.

Other EU states host Taipei representative offices, using the name of the Taiwanese capital to avoid disputes with China. Beijing stripped diplomats from the Baltic country of their diplomatic status and blocked imports.

The commission said it had evidence that Beijing had refused to clear Lithuanian goods through customs and rejected import applications from the country. It also said China pressured EU companies to remove Lithuanian parts from their supply chains.

Taiwan has been buying many of the goods turned away by China and set up a $200m investment fund for Lithuania. Lithuanian exports to China fell by 91 per cent in December 2021 compared with the previous year.

Taipei pledged to give Lithuania and the EU its full support. “We firmly believe that any behaviour that violates international norms will be condemned and corrected,” said Joanne Ou, a foreign ministry spokesperson.

The EU has few legal tools with which to hit back. It has proposed an anti-coercion instrument that would allow the commission to take urgent tit-for-tat measures such as an import ban. Dombrovskis urged member states and the European Parliament to approve the tool as soon as possible.

Consultations at the WTO will last for 60 days, after which the EU can ask for an adjudication panel that will take months to reach a verdict but could allow Brussels to impose retaliatory tariffs. If the decision goes against China, it can forestall punishment by appealing. But appeals cannot be heard as the US has blocked the appointment of any members to the appellate body.

Support for Lithuania is grudging among several member states, who believe it needlessly provoked China. Germany is particularly anxious to preserve access to the lucrative Chinese market.

“There is a modus operandi on Taiwanese representations in the EU. Lithuania did not consult with any member state before it took this decision and now requires unconditional solidarity from EU member states,” said one EU diplomat. He warned that the bloc should not allow relations with China to be driven by “ad hoc events”.

Dombrovskis said he hoped the dispute would not damage wider co-operation on issues such as climate change. “We aim to deepen and strengthen our relationship with China.”

Additional reporting by Emma Zhou in Beijing

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