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

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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