March 21, 2014 5:42 pm

EU and China strike deal to end wine wars

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Pauillac wine bottles stored in a wine cellar©AFP

Bordeaux lovers from Beijing to Chongqing can all breathe a sigh of oenophilic relief: the EU and China have called an end to the wine wars just in time for a European tour by Chinese President Xi Jinping.

The European Commission announced on Friday that Beijing has agreed to drop a trade dispute with the EU after last year launching a probe into whether European winemakers were illegally benefiting from government subsidies and dumping cheap wine on the Chinese market.

The announcement came a day ahead of Mr Xi’s departure for an 11-day European tour which will, for a time next week, see him and US President Barack Obama circling each other around the continent, as they each embark on their own charm offensives.

While Mr Obama is heading to Brussels for an EU-US summit to discuss the situation in Ukraine and reassert his commitment to a transatlantic trade deal, Mr Xi appears set to land with gifts in hand. Reuters on Friday reported that China was close to announcing a deal to buy 150 aircraft from Airbus and to end a freeze on purchases from the European aircraft maker imposed as a result of a row over environmental standards.

The move to end the wine fight is emblematic of the different approach the EU is taking towards China after a difficult year of trade relations. It also highlights the fact that even as the EU and the US set about negotiating a transatlantic trade deal – which officials on both sides privately say is in part about responding to China’s economic rise – Washington and Brussels have diverging approaches to Beijing.

Both are now in the early stages of pursuing investment treaties with China. But while the EU is seeking to settle all of its outstanding disputes with Beijing in the name of harmonious trade relations, the US has been launching new cases and taking a much harder line on products, such as solar panels.

The Chinese investigation into European wine was widely seen as retaliation for the EU’s decision to impose punitive tariffs on Chinese-made solar panels. At the same time officials in Brussels were working on launching a case related to telecommunications equipment that many in the industry accused China of selling below cost to grab market share in Europe.

[It is] yet another positive development which will further strengthen the EU-China bilateral relationship

- Karel De Gucht, EU’s trade commissioner

The solar panel case was eventually resolved after Germany and other EU member states intervened on China’s behalf and both sides struck a deal on prices in what many saw as a blow to the European Commission’s authority on trade matters. And both Beijing and Brussels have in recent weeks stepped up efforts to resolve the other outstanding cases ahead of Mr Xi’s visit.

The European Commission announced earlier this week that European and Chinese industry groups had resolved a dispute over polysilicon, a key ingredient in solar panels. The resolution of the wine dispute leaves only the row over telecommunications equipment outstanding and officials on both sides say they are keen to bring an end to that as well.

“Since the resolution last year of the China-EU solar panel dispute via dialogue and consultation, China and Europe [have] been on the correct track to dealing with trade friction,” Gao Hucheng, the Chinese commerce minister, said on Friday.

Karel De Gucht, the EU’s trade commissioner, called the resolution of the wine dispute “yet another positive development which will further strengthen the EU-China bilateral relationship”.

The wine dispute is indicative of the growing trade dependence between the EU and China, which are each other’s biggest trading partners, and how China continues to find new ways to apply pressure and develop its own industries at home.

The EU is the world’s biggest wine producer and exporter and China last year became the largest consumer of red wine. The appetites of Chinese buyers have been behind a surge in prices for Bordeaux and other top-end European wines. But that has also prompted questions over how dependent some wine regions have become on the Chinese market and over whether demand from the Asian giant might be feeding a bubble in fine wines.

Bordeaux’s wine council, the CIVB, said earlier this week that exports to China last year fell by 16 per cent in volume terms and 18 per cent in value terms, blaming a government crackdown on corruption and new austerity measures for the fall.

The agreement struck by the European and Chinese wine industries to resolve the trade dispute will see European winemakers help train their counterparts from wine-growing areas. In return the Chinese industry will help organise tastings in China for European wines.

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