LOW EXPECTATIONS FOR CHINA-EU SUMMIT

C O N F I D E N T I A L SECTION 01 OF 02 BEIJING 004356 SIPDIS E.O. 12958: DECL: 11/26/2018 TAGS: CN ECON ETRD EU PREL SUBJECT: LOW EXPECTATIONS FOR CHINA-EU SUMMIT Classified By: Classified by Econ Minister Counselor Robert Luke for re asons 1.4 (b) and (d) ¶1. (C) Summary. EU and Chinese contacts expect little concrete progress from the December 1 China-EU Summit in Brussels, with no progress on the arms embargo or market economy status. Some minor agreements on IPR and food safety are anticipated, and the financial crisis will be addressed in a side session. EU countries are increasingly looking to the High Level Mechanism with China, which met for the first time last April, as a primary venue to seek deliverables on economic issues. The EU's top priority is improving market access for its goods and services, though EU contacts have low expectations for progress. Nonetheless, EU efforts in other areas, such as climate change and improving IPR enforcement, are showing promise and the Chinese maintain a positive attitude towards current EU programs in these areas. End summary. Low Expectations for Summit -------------- ¶2. (C) The December 1 China-EU summit, over which Chinese Premier Wen Jiabao and EU President Javier Barroso will preside, is expected to be largely symbolic and without major statements or policy announcements, our contacts told us. The main value of the summit will be the opportunity for both sides to highlight their commitment to the relationship through high-level interaction, MFA-affiliated Chinese Institute of International Studies (CIIS) EU Studies Department Deputy Director Hu Dawei said. China and the EU will likely sign several agreements, including one on counterfeiting that will be enforced by Chinese Customs and a memorandum of understanding on product safety which stipulates that the EU will notify China if an unsafe product enters its borders, prompting a response from Chinese authorities. China and the EU will reaffirm their commitment to addressing climate change and hold a separate event to address the global financial crisis. ¶3. (C) Language on the arms embargo and market economy status (MES) will not change from previous summits and no progress is expected on the China-EU Partnership and Cooperation Agreement (PCA),EU Commission Trade and Investment Counselor Olivier Micol said in a meeting November 10. According to British Economic and Trade Policy Counselor Duncan Sparkes, both sides are unable to move forward on the PCA because China is unwilling to offer concessions on market access issues while the EU is unwilling to agree to stricter language on Taiwan and Tibet's status as an integral part of China. Unlike last year's summit, the EU is unlikely to pressure China on currency appreciation, as the Yuan over the past year has appreciated against the Euro. (Note: This is primarily due to the Yuan's effective link to the dollar, which appreciated against the Euro. End Note.) The China-EU High-Level Mechanism -------------- ¶4. (C) The EU has turned to the High-Level Mechanism (HLM) as the primary forum for discussing and signing economic agreements due to dissatisfaction with the economic deliverables from the yearly summit, Sparkes said. The HLM, modeled on the U.S.-China Strategic Economic Dialogue, was first held in April 2008 between former EU Commissioner Peter Mandelson and Chinese Vice Premier Wang Qishan. The second meeting of the HLM will be in Brussels in April 2009. Micol said that the EU has pushed China to reduce trade barriers in sectors such as chemicals, auto parts, and medical devices. Additionally, the EU's market share in some sectors, such as pharmaceuticals, is too small given the EU's market share in comparative markets and the EU is pressuring China to create a more level playing field. Micol said the EU raised these issues at the first HLM meeting and the next meeting would be the "real test" to see if China is willing to address EU concerns. ¶5. (C) Sparkes agreed that the EU's key agenda item in the HLM is improving market access, but was less optimistic about the potential for progress because of the large number of administrative barriers and China's lack of incentive to offer concessions. Sparkes added that progress in the HLM in the near-term would be even more difficult because the EU in October selected a new commissioner and it would take time for her relationship with Wang Qishan to develop. Consequently, he thought the EU would be forced to focus on "second-tier" market access issues, such as updating the reimbursement drug list, which would increase incentives for BEIJING 00004356 002 OF 002 Chinese doctors to prescribe Western drugs. ¶6. (C) For its part, China's requests in the HLM were minimal and limited to issues such as opening branches for Chinese banks in the EU. Nonetheless, China continued to press the EU to offer MES and, according to Sparkes, following the EU's September Joint Economic and Trade Committee meeting with China, Mandelson said privately that the EU should consider taking advantage of China's interest in gaining MES as leverage to secure concessions on market access. The UK would support this, but other unspecified EU countries would probably oppose it, making consensus unlikely. ¶7. (C) Separately, in late 2007 China "awarded" the UK a Vice Premier-level dialogue with Wang Qishan, joining the US, Japan, and the EU as the only countries or organizations to have such a dialogue. The UK and China held their first strategic economic dialogue in April 2008. Sparkes said momentum from this dialogue, combined with the UK's restrained response to March 2008 protests in Tibet and consistent support for the Olympics, have kept Sino-British relations strong even as other key European countries have experienced setbacks in ties with China. (Note: Sparkes is probably referring to fallout from German Chancellor Merkel's meeting with the Dalai Lama in September 2007 and French President Sarkozy's March 2008 criticism of China following the protests in Tibet. End Note.) The UK is focusing on financial issues in its dialogue, such as attracting investment from China's sovereign wealth fund and discussing the reform of global financial institutions, and encouraging China to do more on climate change, he said. Climate Change and IPR -------------- ¶8. (C) EU officials pointed to climate change and IPR as areas of slow but steady progress with China. According to EU Commission First Secretary for the Environment Magnus Gislev in a November 10 meeting, China regularly emphasizes that the UN is the appropriate forum to address climate change, making it difficult for the EU to bring climate change issues into the HLM and forcing the EU to adopt a sectoral approach to emissions reductions. Nonetheless, the EU is developing plans to help China create low carbon development zones, which would be modeled on special economic zones, but would seek to attract green companies and technologies. The EU will focus investment and development assistance in these zones and transfer some unspecified technologies aimed at boosting China's ability to reduce emissions. China so far has expressed interest in these plans, though Gislev emphasized that they are in their incipient stage. ¶9. (C) According to EU Commission Trade and Investment Counselor Miguel Ceballos, the EU in 2007 launched a $50 million Euro technical assistance program aimed at improving Chinese IPR enforcement. The money is being used to train officials, judges, customs officers, and other relevant administrators on EU tools and systems for managing IPR. The program so far has focused on finding relevant EU officials to train the Chinese and is only now starting to run training workshops. China's attitude towards the program has been "positive", and they have contributed funding and worked with the EU in identifying targets for the IPR training sessions. RANDT