EU trade chief pressures China over procurements

(HONG KONG) - China is protecting a domestic market for public procurements worth $1.1 trillion, EU Trade Commissioner Karel De Gucht said Thursday as he appealed to Beijing to open up further to global trade.

De Gucht dismissed fears of an escalating trade war with China but said people around the world were sceptical of Beijing's commitment to a rules-based global trade system, undermining faith in free markets everywhere.

He cited the World Trade Organization's recent ruling that Beijing's limits on key raw material exports broke its international obligations, and China's massive but tightly restricted market for domestic government contracts.

"No country more than China has benefited more from the current framework," De Gucht said in a speech in the southern Chinese city of Hong Kong.

"As it gains prominence and in some areas even achieves dominance, China needs to adapt to its new position of strength and leadership.

"It must help ease anxieties about open markets among its partners by applying and underwriting the rules, even if this means changing long-held government practices."

He said purchases by governments represented 17 percent of the world economy, and businesses that depended on such contracts represented 25 percent of the European Union's gross domestic product.

The EU was "one of the most open procurement markets in the world", offering almost twice as much business to foreign bidders as the United States.

"This openness has meant huge business opportunities for non-EU firms, including companies from China," the commissioner said.

"China is certainly not the only country where there are problems, but problems there certainly are."

He said China's domestic public procurements market was valued at 830 billion euros ($1.1 trillion), but "only a small fraction is open to foreign business".

Much of the business goes to state-owned Chinese companies, he said, adding that Brussels reserved the right to deny Chinese firms access to European procurements if Beijing refused to open up its market.

De Gucht said he had spoken to internal markets commissioner Michel Barnier about developing a legal response to China's refusal to reciprocate Europe's openness.

De Gucht said he was confident Beijing would respond positively to last month's WTO ruling that it liberalise duty and export quota measures on elements including magnesium and zinc.

Beijing had argued that measures on some of the metals were justified to conserve its natural resources -- the same reasoning it uses to defend its export restrictions on rare earths, which are used to make high-tech products.

"We expect China to re-visit its overall export restriction regime in light of this ruling," De Gucht said.

Despite differences over market access, EU-China trade will set new records in 2012, he said. The relationship was worth 428.3 billion euros last year, having come from "almost nothing" 20 years ago.

"As we understand the strains of liberalisation among the Chinese people, so too must China grasp that European support for open markets can only be guaranteed if accepted by the public at large," he said.

"And that acceptance can only be guaranteed by a perception of fairness."

He added that "there is a general feeling among European companies and governments that economic openness in China is improving too slowly or not at all."

China - EU factsheet

EU relations with China