As an economy straddling the barrier between rich and poor, China could hold the key to the fate of the World Trade Organization’s beleaguered Doha Round, European Trade Commissioner Pascal Lamy said in Shanghai on March 15. Mr. Lamy said the two sides would work on key Doha issues, such as agriculture, industrial tariffs, investment, competition, customs and development.

Mr. Lamy, who earlier held talks with Chinese Vice Prime Minister Wu Yi on the Doha talks, and said “EU-Chinese co-operation may be one of the keys to unlock the door to the end of the round”. He urged Beijing to engage more fully. “We wish China was rather more active in pursuing the Round, in her own interests, and in the interests of the overall dynamic, but we will continue to work closely with the Chinese Government on this point”, he said.

After meeting newly appointed Chinese Commerce Minister Bo Xilai, Mr. Lamy said both sides share “a sense of urgency” for renewed world trade talks after the Doha round broke down in September, primarily due to disagreements among WTO members about agriculture. “I’ve explained to my new colleague why we believe it’s so important to move rapidly”, he said. “We have to move on agriculture, we have to move on industrial tariffs, we have to move on things like development.” He added that China understood that it could expect huge dividends if the talks worked out. “I think there is a common sense that we have to get things moving in the coming weeks—not the coming years, not the coming months, but the coming weeks”, he said.

China also pressed to be considered a full market economy when it comes to EU anti-dumping and anti-subsidy investigations. But the Commissioner was cautious about this request, warning that he needed assurance that prices and costs in China were based on market economic forces rather than state forces. Because China is currently not characterized by the EU as a full market economy, countries that level dumping accusations against it can decline to factor in China’s own domestic production costs. Instead, they can pick data from a “surrogate” country with a recognized market economy, often leading to a huge mark-up in production costs and making the charge of artificially low pricing more plausible. Mr. Lamy also promised the EU would negotiate with China on the trade impact of the EU’s enlargement.

Trade Flows

China officially became the EU’s second largest trading partner in 2003, with total trade reaching Euro 135 billion, up 17% on 2002. Mr. Lamy said the rate of growth, but not the size, of China’s Euro 55 billion trade deficit with the EU was a concern and could become a political problem. “Yes, we have a Euro 50 billion or so deficit, but no, I don’t think it’s an urgent problem. It’s more the speed than the level”, he said. “If I want to avoid the sort of protectionist syndrome that we see rising here and there, it’s more important that I can provide evidence that China is open, remains open… than fiddling with the numbers.”

Mr. Lamy said that the Yuan’s peg to the US Dollar must go eventually, but that the need to scrap it was not urgent. He also told business executives in Shanghai that China’s immense demand for raw materials had begun to hurt European industry. China’s appetite for raw materials to power its surging economy was pushing up global prices of everything from coal to metals, he warned.

Mr. Lamy also praised China for its progress in the implementation of WTO promises made when it joined in late 2001, but said that a number of problems remained. But he said he brought a “laundry list” of trade concerns to the meetings in Beijing. He identified construction, banking, motor vehicles and intellectual property rights enforcement as particularly worrisome for the EU. In addition, China’s growing need for raw materials to power its fast growing economy was causing market distortions. “For instance, shortages are now hitting us in both metal scrap and most recently by the effect of a significant drop of Chinese exports of coke since the star