It is the $22m (€15m) question. How does Europe deal with Chinese imports? That is the hourly rate of the trade deficit with the rising superpower and it is causing angst on the continent.

Even a liberal such as Peter Mandelson, the EU trade commissioner, says the figure is on Europe’s mind. Having praised China’s rise as an unalloyed good for Europe and the world, he has recently taken to wielding the stick with Beijing, warning of a backlash if it does not itself open up to foreign companies.

Mandelson wants a two-way street. China’s vast cheap labour force is bound to mean its exports increase, he says. But there should be a flow of imports of the kind of upmarket goods in which Europe specialises the other way. Service providers should have more opportunity in China’s domestic market. In the meantime, the backlash has started.

Steelmakers have alleged that Chinese producers, benefiting from subsidised energy and other raw materials, are dumping products below production costs. They want antidumping tariffs.

These are historic times for antidumping (stay awake at the back). Mandelson, like his 1990s British predecessor Sir Leon Brittan, tried but failed to change the rules. He wanted more flexibility to take account of the benefits of low-priced goods for consumers but met a storm of protest from manufacturing countries such as France and Germany. The 27 member states have the final say over trade policy, provided enough of them can agree.

Nevertheless, there have been ad hoc innovations.

Mandelson tinkered with the timeframe for measures, traditionally set at five years. When Italian producers complained of a flood of cheap Chinese shoes in 2006 there were months of bitter arguments between retailers, manufacturers and their proxies among governments. Mandelson embraced a compromise proposal of tariffs for two years. They expire in October so expect the same arguments to be rerun this summer.

When Osram of Germany filed to extend tariffs on energy efficient lightbulbs from China for a further five years last year there was another almighty fuss. This time, with days before the deadline for expiry, Mandelson plumped for a year. Now for the first time, according to lawyers, a decision is subject to legal challenge from both sides. Philips of the Netherlands and Targetti of Italy, which have big operations in China, want it scrapped. Osram wants it increased.

This week Mandelson dismissed a request from manufacturers of air compressors, used in tyre inflaters and spray paints. The Commission found that the Chinese were dumping but that the European interest would not be served by penalising them. The EU producers represented just 8 per cent of the market, against 50 per cent for China. The companies involved say they will now probably shift their remaining European production to China, costing 500 jobs. Roberto Balma, President of Nu Air Italy, said:. “Today the Commission sacrifices our industry, which is totally viable if protected against dumping. Tomorrow, it may be the German and French car-manufacturing industry.” Unlikely, given their lobbying power.

This has happened before, says the Commission, over car radios in 1999. The message for many sectors seems to be: offshore now before it is too late.

Whether Mandelson gets any closer to resolving this issue on a forthcoming trip to China remains to be seen. Bo Xilai, the smooth-talking Chinese trade minister, says the deficit simply reflects the fact that other East Asian countries have moved production to China. He’s also aware that Mandelson has not much more than a year of his tenure to run and is devoting much of his energy to securing a world trade deal.

February 8, 2008 12:21pm in Trade | Comment