EU Suspends Lithuania WTO Dispute with China

The Lede: The World Trade Organization (WTO) circulated a note to its members on Friday announcing the suspension of a dispute by the European Union (EU) against China for its alleged embargo on Lithuania, which has been seen as a form of economic pressure on the Baltic country after Vilnius began hosting the ‘Taiwanese Representative Office’ in the capital city. The issue had been a stumbling block for EU-China relations as Europe began pursuing a ‘de-risking’ path in the past years. 

What We Know:

• European Commission spokesperson Olof Gill said that the panel is suspended ‘for the time being’ as a ‘procedural step taken for technical reasons’ due to ‘certain elements’ that emerged in the process that began when Brussels launched the WTO dispute in early 2022 after the ‘Taiwanese Representative Office’ opened in November 2021. The controversial name offended Beijing as it broke the EU norm of using the name ‘Taipei’ for other such overseas offices. Carrying that name avoids implying any separateness from China. 
• According to the WTO notice, the case can be suspended ‘for a period not exceeding 12 months.’ Otherwise, the panel will end permanently.
• Taiwan’s director-general of the Ministry of Foreign Affairs’ Department of European Affairs Eric Huang said that Taipei respects the EU’s decision while continuing to condemn China for its ‘illegal economic sanctions.’

The Background: China maintained publicly there was not an embargo. Beijing insisted that Chinese businesses independently decided not to buy goods from countries that ‘attacked China’s sovereignty.’ Following the opening of the Taiwanese Representative Office, Lithuanian companies discovered that the country had been removed from China’s customs system. Th EU has claimed to have evidence that Lithuanian goods and applications for export were rejected by China. Brussels also claimed to have evidence of China putting pressure on companies of other EU member states to cut Lithuania out of their export supply chains. $134 million in Lithuanian goods went to China last year, down 72.4 percent since 2020 before the dispute erupted. In November last year, the Minister of Foreign Affairs of Lithuania Gabrielius Landsbergis noted that the economic pressure from China had generally subsided. 

Likely Outcomes:

• The EU likely put this dispute on hold because it is not as confident in its body of evidence as it appeared at the start. Although it is abandoning this particular dispute, the EU retains the anti-coercion trade tool that it adopted in June last year intended to punish countries that pressure individual member countries. It allows the European Commission to impose tariffs, restrict investment, and limit access to public contracts in response to instances of economic blackmail. The EU will likely hold this trade tool in its back-pocket in order to respond to future instances of such economic actions by other countries. 
• Despite the effective end of economic pressure from China, Lithuania will likely still face signals of disapproval from Beijing moving forward. According to Landsbergis, the Chinese mission in Vilnius has stopped issuing visas to Lithuanian applicants without explanation. This kind of unexplained posturing is quite common in Chinese foreign policy and is also an approach to its trade policies in many cases. While the issue appears mostly resolved in this case, the EU and its member states will likely tread carefully forward on the ‘de-risking’ path and navigate the Taiwan issue mindfully in order to avoid the risk of suffering similar headaches to the ones experienced here.

Quotables:

“I must highlight that, following discussions and various diplomatic processes, some of which are still ongoing at the WTO, most of the economic pressure measures against Lithuania have been lifted.” - Gabrielius Landsbergis, Minister of Foreign Affairs of Lithuania

“This concerns one of the fundamental principles of Chinese foreign policy, which is the one-China policy. So if a country actually harms that basic principle, we will take responsive actions - I think that is understood.” - Fu Cong, Chinese Ambassador to the European Union

Good Reads:

EU suspends WTO dispute against China’s trade restrictions on Lithuania (Politico)

EU suspends WTO dispute with China over alleged economic coercion of Lithuania (SCMP)

Taipei respects EU halting WTO case (Taipei Times)

Lithuanian FM Landsbergis talks changing world order, security, Russia, and China (LRT)