Free Trade and China’s European Playbook

China signed a free trade agreement with Iceland on Monday, its first such deal with a European country, in a move that The New York Times’ David Jolly reported will help China’s push for influence in the Arctic. For The Diplomat, Zachary Keck writes that while Iceland is China’s gatekeeper to the Arctic, and while China continues to invest more heavily in M&A opportunities in Europe compared to the United States, a number of diplomatic roadblocks continue to simmer:

This greater interaction is not without its tensions, however. Last month the EU imposed tariffs on Chinese steel which it claimed were necessary to counter state subsidies the Chinese government gives to domestic companies. The duties are expected to be as high as 44.7 percent.

This was not the first time the EU imposed anti-subsidy tariffs on China. In May 2011, the international organization levied a 12 percent tariff on Chinese paper products citing government subsidies for Chinese paper companies. The EU is also considering imposing similar tariffs on Chinese solar panels and bicycles,according to Bloomberg News.

There has also been considerable tension between the EU and China over EU companies’ access to China’s telecom market. In January it was reported that Brussels has been demanding a 30 percent stake in China’s domestic telecom market in return for ending an investigation into Chinese subsidy policies. Chinese diplomats also accused EU Trade Commissioner, Karel De Gucht, at the time of demanding that Huawei Technologies and ZTE Corp raise the price of their exports by 29 percent.

Apparently unhappy with how China responded to these demands, Reuters is reporting today that De Gucht will seek to persuade EU Foreign Ministers to agree to an investigation of the subsidies both Chinese companies receive. Such investigations are usually prompted by complaints filed by European companies. In this case the EU companies have refused to file such a complaint out of fear that China will respond by cutting them out of the Chinese market. De Gucht has therefore decided to take it upon himself to launch such an investigation.

The Economist has more on China’s agreement with Iceland:

Last month a Chinese expert on polar policy predicted that by 2020 as much as 15% of his country’s trade would move through the Arctic’s northern sea route, which is being warmed by a changing climate. Even if the estimate is exaggerated, the continued shrinking of Arctic ice cover will enhance the region’s importance. China hopes next month to be approved as a permanent observer on the Arctic Council, an eight-nation body that seeks to co-ordinate policy in the far north. China needs Iceland’s backing to do so. Beyond shipping routes and the use of Icelandic ports, it is also interested in Arctic energy resources and space-research facilities.


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