EU abandons WTO case against China over alleged coercion of Lithuania

The European Union has formally terminated a long-running dispute with China at the World Trade Organization, centred on Beijing’s alleged coercion of Lithuania in 2021.\nIn a statement circulated to WTO members, the bloc said it was abandoning the case “considering the key objectives behind this dispute have been met and relevant trade has resumed”.\nThe case arose after Lithuania permitted the opening of a controversially named “Taiwanese Representative Office” in its capital, Vilnius.\nSoon after the office opened, Lithuanian exporters found they could no longer ship products to mainland China. The country’s details had been wiped from the official Chinese customs system, they said.\nIn November 2021, customs data showed the value of shipments fell by 91.4 per cent compared to a year earlier. The virtual wipeout led the commission, which manages the trade policies of the EU’s 27 member states, to launch a case at the WTO.\n\n\nBeijing always denied that there was any official boycott of Lithuanian goods, even as it downgraded diplomatic ties with Vilnius. At several junctures, it claimed that Chinese people just did not want to buy goods from the tiny Baltic country, which had made concerted efforts to grow ties with Taipei.\nBeijing sees Taiwan as part of China to be reunited by force if necessary. Most countries, including the US and all EU member states, do not recognise Taiwan as an independent state, but Washington is opposed to any attempt to take the self-governed island by force and is committed to supplying it with weapons.\nWith the exception of Lithuania, Taiwan’s offices across the EU have traditionally avoided mentioning the island in their name, bearing the name of the capital city, Taipei, instead.\nWhile Brussels and Berlin had privately lobbied Vilnius not to open the office, rightly fearing that it would hurt ties with Beijing, the EU was forced to intervene, stating that any attack on an EU member compromised the single market.\nBut the case proved difficult to argue in the Geneva trade courts. Despite reports that China had also pressured companies from elsewhere in Europe to drop Lithuanian products from their supply chains if they wanted to sell in the country, the EU struggled to convince them to give evidence on the record.\nDuring consultations between Brussels and Beijing over the case, EU officials noticed that when they raised a particular cargo that a Lithuanian exporter had reported as being blocked, it would quickly be released. At the time, EU sources complained that their Chinese interlocutors were “muddying the waters in real time”.\nThe case divided the EU’s directorate of trade, with orthodox thinkers arguing that it was unwinnable, but an ascendant group of geopolitical thinkers insisting that what they considered to be economic bullying must be called out.\nIn January 2024, when a WTO deadline was approaching to submit a new tranche of evidence, the EU paused proceedings for a year. A year later, it restarted the case only to quickly pause it again days later.\nThe commission’s claims that the “relevant trade has resumed” could be contested by critics.\nChinese customs data for the first 10 months of this year show that imports from Lithuania are down 53 per cent compared to the equivalent period in 2021, when the wipeout occurred. There is, however, a significant rebound – 156 per cent – on the same period of 2022, when the trade had virtually ground to a halt.\nNonetheless, research shows that Lithuania’s overall trade was barely affected, suggesting its exporters managed to find new markets to replace China at the time.\nAn EU support scheme worth almost US$140 million was launched in 2022, with Lithuanian businesses encouraged to apply for loans if they were affected by the affair. Local media reported that under US$4 million was allocated from the pot to two companies, before it was wound down in 2023.\nNonetheless, the episode was seen as a turning point in EU-China relations and added to rising suspicion towards Beijing in parts of Europe. This was aggravated further months later by the Russian invasion of Ukraine and China’s close ties with Moscow.\nIt galvanised the adoption of an anti-coercion instrument – known colloquially as the “trade bazooka” – that would enable the bloc to punch back against perceived bullying in the future.\nThat tool, however, has never been used, even as observers and lawmakers demanded that Brussels trigger the ACI against US President Donald Trump’s trade tariffs or China’s rare earth export controls over the course of 2025.\nOn Wednesday, the commission will propose a new “economic security doctrine”, which will attempt to recalibrate Europe’s approach to what its leadership has described as “an era of geoeconomics”.\n“Every day, we see how the tools of traditional statecraft are being used to weaponise interdependencies and leverage alliances. To create chokeholds on countries and industries. To exert control and impose coercion on others,” said European Commission President Ursula von der Leyen in an October speech.\n