【Ｓｅｅｋｉｎｇ　Ｅｑｕｉｌｉｂｒｉｕｍ】Nash Equilibrium

　　 　　“I hope trade [between China and the EU] is more balanced in the future.”--Serge Abou
　　
　　China and the EU have now reached their 21st year of cooperation. It’s an important milestone, and to discuss this relationship and other global affairs, Serge Abou, head of the European Commission Delegation to China, recently sat down with Beijing Review reporter Ding Zhitao.
　　
　　Beijing Review: Trade between China and the EU is an important part of this bilateral relationship. How do you view the importance of trade relations in the overall bilateral ties?
　　Serge Abou: First, trade is developing very rapidly between China and the EU. We are China’s biggest trading partner and China is our second largest trading partner. Trade is very important in our bilateral relations.
　　China has to create 20 million to 25 million jobs every year. External trade is one very important supplier of these jobs for the Chinese economy. So I can say in maintaining an open market for Chinese exports, we have made important contributions to the development of China today. We absorb 150 billion euros, which means 1,500 billion yuan, a year, of goods produced in China.
　　This trade is not unilateral of course. We also export [goods worth] billions of euros to China. I know Vice Premier Wu Yi told Trade Commissioner Peter Mandelson that China is looking at some ways to balance this trade movement.
　　To summarize, I would say trade is an important, if not the most important, part of our relations. It is not an exclusive one, and it is not the only link that we have. I hope it is more balanced in the future. Our companies are investing more and more in China. Look at Airbus. We are at the stage of doing a feasibility study, but we can say the factory in Tianjin will assemble one Airbus a week, more than what we produce in Italy.
　　
　　How should the two sides properly address their trade disputes?
　　First, I would say there are very few disputes. If somebody from the planet Mars looked at the Chinese press, they would imagine we have one trade dispute a day. That is not the case. We solved the most difficult one, textiles, last year. This year, we have the question of dumping of shoes. It is the only one, and there are no other disputes at the moment.
　　When some shoemakers in Europe make complaints against Chinese companies, we are obliged to investigate. If the defendants are not happy with the result of the investigation, they are free to proceed to an open court. They can also go to the WTO, lodge a complaint and say they are not being fairly treated. It is not a problem between China and the EU. This is a rule-of-law society. I don’t see what more we can do besides behaving in this civilized manner.
　　We have the same kind of issues with the United States, not every day, but every month. Anti-dumping is a fact of life in international trade. This is not a political issue.
　　
　　In his June trip to Beijing, EU Trade Commissioner Peter Mandelson warned China of the possibility of invoking a negative protectionist response in Europe if China does not provide better market access for European investment and trade. How should we understand this warning?
　　I do not only understand this warning, but also agree with this warning. The problem we have is made in the context of a rather big imbalance between Chinese exports to Europe and European exports to China. A deficit of 100 billion euros is very big. If we convert it into jobs, it could provide a real contribution to solving the issue of unemployment in Europe.
　　I would like to underline that we are not making it a political issue. We are not going to the press to say you have to correct this, we do not say you have to revalue the yuan by 20 or 30 percent.
　　Nevertheless, there is the anxiety in Europe about job losses. If the public has the impression that we are in the deficit simply because we are less competitive, it’s ok and we have to correct it. If they have the feeling that the deficit is due to some closure of the Chinese market, they will legitimately turn to politicians and say, either open the market or we’ll close ours. That is exactly the situation we do not want to find ourselves in. We don’t want to exert more pressure or use methods of a political nature, but we would like our demands on certain issues, like IPRs (intellectual property rights) and better access to the Chinese market, met.
　　In addition, we have a serious problem in the field of IPR. If you look at what is the remaining economic strength in Europe, it is not cheap labor. Our labor is very expensive. We have very good infrastructure, labor force and technology. Our extraordinary asset is our capability in innovation of technological research. When our IPRs are not fully respected in China, our companies are deprived of the legitimate benefits that they should receive from their research efforts. Look at some pharmaceuticals. In order to develop a pill to cure one disease, you sometimes need 10 years of research. You have to pay for long research. And sometimes, investors here are almost forced to counsel on the technology that maybe they don’t want. That does not create a climate of understanding.
　　On top of that, you have a very big imbalance, about 100 billion euros. For the time being, European institutions and member states have resisted very strongly the protectionist pressure. But if we have wave after wave [of complaints], it could eventually eliminate the natural barrier of our political wisdom that sits between protectionist pressure and politics.
　　
　　Against this backdrop, the EU is reevaluating its trade relations with China this year. Can you elaborate on the possible changes in the bilateral trade ties?
　　It is like a dance. You cannot dance alone. Or you can, but it is less fun.
　　We can rebalance through wise decisions from both sides. We are not asking for any kind of revolution. The Chinese Government knows perfectly the necessary steps to be taken by the leadership, the administration and the legislature. So we remain optimistic.
　　In any case, we have never taken unilateral measures in contradiction to our international commitment. We always prefer to solve problems by diplomacy and by discussions.
　　
　　China is very concerned about the lifting of the EU arms embargo. What is your view on this?
　　Does China want to buy arms, or does China want to become more powerful?
　　
　　Chinese Foreign Minister Li Zhaoxing once said this embargo is like political prejudice and is unfair. Li said we do not have money to buy expensive weapons. Do you have any comments?
　　It is a very serious issue. I fully admit that the arms embargo applied to China does not correspond to the general picture of our relations. We have more than excellent relations. We consider China a very important partner. We want China to engage more in the management of global issues.
　　We do not want to sell more arms, just as China does not want to buy more arms. We have to convince all the stakeholders. Some of China’s neighbors are worried about a possible arms race, which is not good for anyone in the region. Our allied friend, the United States, has shown some concern about this. We will have to take care. If we make China happy and the rest of the region unhappy, what is the benefit for China?
　　We also need to consider our public opinion. The public opinion in Europe is very pessimistic. We don’t like arms; we don’t like wars. If we say we will lift an arms embargo, people assume we are going to sell arms. For public opinion, you don’t have five hours to explain your position; people understand what they want to understand. For that reason, we have to ask the Chinese leadership to give us some time to convince our public.
　　That is the situation for the time being. Foreign policy in the EU needs unanimity. We need 25 members to agree. So it is difficult. In trade policy, we only need a majority to make a decision.
　　
　　So compared to this, is the EU’s recognition of China’s market economy status a much easier agreement to reach?
　　Yes, far easier in principle. It is not a political issue. We don’t have to go to our public for a vote. Mainly it is a technical question.
　　But it is not an easy one. We have to decide whether China functions like a full market economy. Clearly this is not the case. Everybody knows, including the Chinese Government, you have a socialist market economy. When you are a socialist market economy, how can you be a capitalist economy as we are in Europe? There is a technical debate on what exactly are the criteria of a market economy. Of course they [Chinese partners] have to progress.
　　For example, when you make an anti-dumping investigation into a company that has no accounts, or which has accounts that are not compatible with international standards, it is very difficult to say that the company is respecting the competition. It’s a question of having the same kind of standards applied in China. That is a very long process. We acknowledge that. You can’t change the system overnight. So what we have said to China is that we can be more accommodating on certain criteria, which are very difficult to fulfill, providing that you make some progress on the other side. We can help you on this matter, but help us on others. That is a good deal. We are at this stage now. If China wants a market economy, at least they know what they have to do. It’s clear. But they cannot have it for free.
　　
　　This coming November will witness the EU-China Partenariat in Chengdu, Sichuan, which is a matchmaking event for Chinese and European companies. What are your expectations for the event?
　　It will be a very important event. There will be thousands of companies from Europe, Sichuan, and also from neighboring provinces that will participate in this matchmaking. It is not the first one that we have organized. There was one in Beijing and it was so well organized that one third of the participants have married and are now doing business together.
　　There will be perhaps 5,000 companies present, and we hope that this will provoke something like 700 joint agreements. In addition to the business event there will also be some important cultural events and a political gathering with Mandelson in attendance.
　　
　　The Shanghai Cooperation Organization (SCO) recently completed its summit in Shanghai on June 15. How does the EU view this organization and its role in Central Asia?
　　When journalists asked [late Chinese Premier] Zhou Enlai what he thought of the French Revolution in 1789, he said, “We need more time to evaluate.” Two hundred years. It is still too short a time to evaluate. That is my answer to your question.
　　
　　Then in what way will the EU engage with the SCO?
　　It is perhaps too early to judge what will be the end result and the contributions of this organization to the global or regional equilibrium. For us, when people meet people from different countries, it is normally good for peace. It’s better to talk, better to confront points of view and opinions than to use a megaphone and send press communiques. But we don’t yet see what will be the contribution of this organization to the main issues in Asia, in the Middle East.
　　For the time being, we know that it is very popular for its own members, and everybody seems very happy to meet. We have noticed that [Chinese President] Hu Jintao said very clearly that this is not meant to engage anybody, and it is an internal gathering that does not represent a threat for anybody.
　　So we welcome the progress. But it is difficult for me now to make a political assessment. I simply would like to encourage the progress and concrete projects of cooperation.

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