Telecom Deal to Defuse China-Europe Trade Tension

The EU agrees not to investigate Chinese subsidies in exchange for a stable market share.

China and the European Union are preparing a telecommunications deal that could defuse trade tensions between the world’s second largest economy and its largest trading bloc, The Wall Street Journal reports.

Under the agreement, the European Union would not pursue investigations into Chinese phone companies Huawei and ZTE, even if it believes these firms enjoy an unfair edge in the form of cheap state financing and tax credits. In exchange, European companies like Ericsson and Nokia would get around 30 percent of the market share in China.

In recent months, Chinese telecommunications operators have given European companies a third of contracts to roll out high-speed 4G mobile networks across the country in deals that are worth billions of dollars. Chinese companies have won around half of G4 contracts in the European Union since the middle of last year.

Last week, China also said it would not impose tariffs on European winemakers for allegedly “dumping” their products on the Chinese market. It threatened to do so last year, after the European Commission had threatened to raise tariffs on Chinese solar panels which are heavily subsidized by the government.

Especially Northern European countries, including Germany, Sweden and the United Kingdom, worried that such a tariff would provoke Chinese retaliation and voiced opposition against it. A trade war was averted when the two sides agreed to limit Chinese solar panel sales in Europe.

With the threat of tariffs on European wines dropped and a deal on telecommunications contracts and equipment imminent, the trade relation between China and the countries in the European Union, which was worth nearly €480 billion last year, appears to be normalizing.

However, the Europeans will keep open the possibility of imposing duties to counteract the effect of Chinese subsidies for its manufacturers. To end that threat, European companies would have to be given access to China’s standards regime and be able to win research and development contracts from its government — neither of which seems likely in the short term.