Jan 27, 2022 - World

EU sues China at WTO over Lithuania bullying

Illustration of miniature Lithuanian and Chinese flags in a holder with the Lithuanian flag pole slightly bent.
Illustration: Aïda Amer/Axios

The European Union launched legal action against China at the World Trade Organization on Thursday, accusing Beijing of "discriminatory trade practices" against Lithuania. The Baltic country has faced a months-long campaign of intimidation from Beijing for strengthening its ties with Taiwan.

Why it matters: The decision to refer China to the WTO is an important symbolic intervention by the EU, which had been divided in its response to the coercion of a tiny member state by one of the bloc's largest trading partners.

What's happening: Lithuania's decision last year to open a de facto embassy in Vilnius under the name "Taiwan," rather than "Chinese Taipei," drew outrage from Beijing, which considered it a violation of the "One China" policy.

  • China responded by recalling its ambassador to Lithuania, downgrading diplomatic relations, and barring all imports of Lithuanian goods.
  • The EU claimed Thursday it has "built up evidence" that China is also blocking products from other EU member states that contain Lithuanian components, as well as pressuring European companies to cut Lithuania out of their supply chains.

What they're saying: "Launching a WTO case is not a step we take lightly. However, after repeated failed attempts to resolve the issue bilaterally, we see no other way forward than to request WTO dispute settlement consultations with China," EU trade commissioner Valdis Dombrovskis said in a statement.

  • "The EU is determined to act as one and act fast against measures in breach of WTO rules, which threaten the integrity of our Single Market," he added.
  • China has publicly denied restricting imports that contain Lithuanian inputs, and warned the EU on Thursday to "stay wary of Lithuania's attempt to take China-EU relations hostage."

The big picture: Most major EU leaders had hoped to steer clear of the confrontation between Washington and Beijing, but that approach seems to be shifting as episodes like this one pile up.

  • In a sign of the changing tides, Germany — which has deep economic ties with China and continues to press for a massive investment deal with Beijing — called the WTO case a "sign of European solidarity."
  • The case could take months, if not years, to make its way through the WTO's dispute resolution process.
  • In the meantime, the EU is working to develop an anti-coercion instrument to prevent countries like China from bullying its smaller members.

What to watch: Slovenia may be the next small EU member state to face Beijing's ire.

  • Prime Minister Janez Janša said last week that Slovenia would open a trade office with Taiwan — calling it a "democratic country" — and condemned threats against Lithuania as as "terrifying" and "ridiculous."
  • Within days of the comments, the Slovenian-Chinese Business Council said its Chinese partners were retaliating by terminating investment agreements.

Go deeper: The rise of China's secondary sanctions

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