China wants compensation from the European Union for losses resulting from the bloc's enlargement on May 1, a Ministry of Commerce official has revealed.

The nation will lose out, as joining the EU requires the new members to scrap their own bilateral trade agreements with non-EU states.

The unnamed official said talks on the issue are currently taking place, but are not expected to be completed in the near future.

In the negotiations, China is asking for lower tariffs or more beneficial trade terms, such as increased quotas, in a number of areas as yet to be revealed.

All of these sectors will be hit by higher duties and the imposition of quotas that will be applied to new EU members.

The scrapping of bilateral trade pacts between China and the new EU members may also have an impact on businesses in those countries, added the official.

But the enlargement will also benefit China in some respects. A larger EU will mean a bigger market and average tariff rates will decrease from 9 percent to 4 percent in the new member states.

The Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia will all join up on May 1.

This will be the biggest and boldest expansion of the EU to date. The bloc has previously experienced four enlargements, growing from the original six members to the current 15.

The main change for the new member states is that they will adopt all aspects of the EU's common commercial policy.

That means they will apply all EU bilateral trade agreements, common external tariff and trade defense measures.

According to the rules of the General Agreement of Tariffs and Trade, the predecessor of the World Trade Organization (WTO), WTO members have the right to seek compensation for any trade losses incurred as a result of less attractive terms of access to the EU than they currently have with the soon-to-be members, said Li Gang, an expert on the European economy at the Chinese Academy of International Trade and Economic Cooperation.

Li said that some products, such as footwear, tableware and ceramics, which now enter the ten new members without quota limitations, will have quotas imposed on them after the enlargement.

But he believed that any compensation received will not be high, as impact of the change will be limited.

Chinese exports to the EU totaled US$72 billion last year, with exports to the ten future members reaching just US$6 billion, according to Li.

A European Commission official based in Beijing said the EU will increase its quotas on steel and textiles, as well as those remaining on certain industrial products from China, such as footwear, tableware and ceramics, in order to take account of the existing import trade in the new member states.

Third countries that consider their interests to have been damaged by enlargement may demand compensation from the EU when the enlargement takes place, he said.

The commission official expressed the EU's willingness to hold compensations talks within the WTO framework.

Overall enlargement from 15 to 25 states will be good for trade partners by offering a larger internal market, simpler market access to the new members and a substantial reduction in overall import tariffs, he added.

“They will be able to trade with a larger internal market, with more than 450 million citizens, accounting for roughly 18 percent of world trade and contributing more than 25 percent of the world’s gross domestic product,” he added.

Li said the EU is also facing demands for trade compensation from top commercial partners such as the United States and Japan if enlargement of the bloc hits their exports.

Delegates from Australia, Canada, Japan, Singapore, the Republic of Korea and the United States have already had informal meetings about holding such negotiations with the EU, said Li.

Russia, which has yet to join the WTO, is in dispute with the EU on the extension of its Partnership and Cooperation Agreement (PCA), which covers every aspect of cooperation between the two parties, including trade, science and technology and education.

Russia refused to extend the PCA to the 10 new EU members, mostly neighbors of Russia and its major trading partners, demanding compensation for trade losses.

Li said the EU has provided compensation for previous enlargements.

The United States and EU agreed compensate the United States in December 1995 for the admission of Austria, Finland and Sweden to the EU.

The agreement cut tariffs and other trade barriers for electronics, chemicals, grain and other agricultural products, which saved US companies about US$200 million a year, Li said.

But Li also urged local industries to study how to obtain maximum trading gains from the EU enlargement process.

(China Daily March 8, 2004)