Expect gushing declarations from EU foreign ministers on Friday when they will pledge to stick up for tiny Lithuania in its highly unequal trade showdown with China.
Beyond the warm words at their meeting in Brittany, however, the EU ministers have few cards to play, particularly in terms of hard trade countermeasures. Brussels isn’t going to risk a full-blown tariff war with China over the restrictions on Lithuania. Instead, the nearer-term response is more likely to be a band-aid of financial support measures to stem any losses from Beijing taking a big bite out of the Lithuanian economy.
There is much at stake for the EU as the dispute reaches far beyond Vilnius, and raises questions about how far Brussels will go to defend democratic principles and the integrity of the single market against Beijing’s attempts to undermine Europe’s economic unity.
In reaction to strengthening diplomatic ties between Vilnius and Taiwan, China has not only cracked down on Lithuanian imports but also on goods from other EU countries — such as France, Germany and Sweden — that include parts from Lithuanian supply chains.
Even though this dispute hinges on China’s exercise of hard power, messages of solidarity do still carry some weight, particularly when dealing with Beijing, which is highly conscious of diplomatic optics. Paris and Berlin are both at pains to insist that they won’t sweep the matter under the carpet. Earlier this week, French President Emmanuel Macron said “the targeted actions against Lithuania continue to worry us.”
Germany’s Parliamentary State Secretary for Economic Affairs Franziska Brantner also visited the Baltic nation this week to show support.
“The single market itself is being put to the test,” she told POLITICO. “Everyone is aware that you can’t just let this drag on, that you have to find an answer together as Europeans, that we send a signal to the Chinese government: Our internal market is sacred.”
The outpouring of diplomatic goodwill is not restricted to Europe, with the U.S. also keeping a close eye on the fate of its NATO ally in the Baltics. Secretary of State Antony Blinken has voiced concerns about China’s attempts to “bully” Lithuania and U.S. Trade Representative Katherine Tai has spoken with EU Trade Commissioner Valdis Dombrovskis to express America’s “full support” for Vilnius.
Call for action
As the country holding the rotating presidency of the Council of the EU, France has vowed to punch back quickly against Beijing. “We will take measures very quickly,” a senior French government official said last week.
But when pushed on the conflict, Paris is struggling to identify meaningful weapons.
In the years ahead, the EU hopes to have a gun to put on the negotiating table when the bloc is being blackmailed by trade rivals. The upcoming “anti-coercion instrument” is being designed to allow Brussels to retaliate in precisely these kinds of cases.
France wants to speed up the negotiations on that instrument. “The Lithuanian case is another example that there is a gap in terms of instruments to fight against coercive practices,” said an official from the cabinet of France’s trade minister, Franck Riester.
Paris hopes to conclude an agreement between EU countries before the summer, despite the reluctance of some nations about the broad scope of the instrument. Still, even if the French manage to land a deal between EU capitals, the fresh legislation still has to be negotiated between the EU institutions, which can take years.
No good cards
Until then, the EU is short on options.
“This is not a classical trade defense case, which makes imposing retaliatory tariffs difficult,” said Jonathan Hackenbroich from the European Council on Foreign Relations. “Apart from classical sanctions, it’s really hard to see what else France or the European Commission could do.”
Imposing sanctions against China is a political minefield and is not on the table, the French official from Riester’s cabinet said.
Paris is not willing to launch an all-out trade war with Beijing. Despite his encouraging remarks on Lithuania, Macron was quick to make clear those tensions should not overshadow the overall EU-China policy agenda. “Our approach is one of unity, solidarity, but also the willingness to move forward with the subjects on which the Sino-European discussion is structured,” he added, mentioning cooperation on areas such as climate protection or Africa.
For now, the European Commission is trying to impose pressure via political and diplomatic channels.
“We need to react with existing tools, and we are in intensive contact with both the Lithuanian authorities and the Chinese authorities to try to find a way to de-escalate this situation,” the EU’s trade chief Dombrovskis said earlier this week.
Brussels has also been preparing a lawsuit at the World Trade Organization in Geneva.
“We think there is enough evidence indeed that trade flows from Lithuania are being blocked, and concerns not only Lithuania but also trade flows from other EU member states if they have some kind of Lithuanian contents in the value chain,” Dombrovskis said.
However, such a procedure will again take years and might only address breaches in WTO commitments, but not counteract the coercive nature of China’s measures.
In the meantime, there are options to try to shore up some of the economic damage to Lithuania. Here, Taiwan has been the quickest ally to move, with a pledge of more than $1 billion in potential funding for strategic investments in Lithuania.
That’s a tactic the EU could also use to show China that it’s going to stand by Vilnius.
“Lithuania could benefit from European solidarity via classic economic cooperation instruments,” the French official said.
And that could also play to France’s own advantage.
“If, for example, a Lithuanian company needs Chinese components for its production and doesn’t find it because of the Chinese blockage, we will be happy to help by putting them in contact with French or other EU businesses,” the official added.
Hans von der Burchard and Jakob Hanke Vela contributed reporting.
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