Investing for dummies in China trades

The main EU trade official said he would propose legislation in 2011 to try to make China give foreign companies greater access in the race for government tenders.

The growth and exceptional public spending in China have made the country a juicy target for European companies in infrastructure and heavy equipment, including Germany's Siemens AG, France's Alstom SA and European Aeronautic Defence & Space Co., parent company of manufacturer Airbus aircraft.

These and other companies complain that China encourages domestic enterprises in their relation to foreign competition when granting government contracts.

The EU trade commissioner, Karel De Gucht, has adopted the issue as one of its flagship issues. In a speech in which he presented his formal business strategy, De Gucht said yesterday that the EU will use its bargaining power as the largest economic bloc in the world to "retaliate" against countries with closed markets of government auctions.

He said the EU's retaliation will be "moderate" and "sectoral". "The rules we create at home influence our competitiveness abroad," he said.

In other words, if China is unfairly blocking a French firm's bid to build a road in Beijing, Chinese companies could be barred from bidding similar in France. This is a significant development for investing for dummies traders.

The strategy of De Gucht expands the arsenal of traditional defensive trade measures such as antidumping duties.


The global trade in goods is governed by rules created after the end of World War II. Countries can apply a formula to determine whether other countries are doing dumping, the sale price below the cost of products in their markets. If the formula determines that the case, the importing country may impose tariffs on the product that is the subject of dumping.

There is no equivalent system for government procurement contracts. De Gucht said he would propose legislation next year, through the normal legislative process of the EU. It must be approved by all 27 EU member countries and the European Parliament. European trade officials admit they will face some political obstacles in defending a policy that will surely attract accusations of protectionism.

The legislation will complement the Government Procurement Agreement of 1996, which guarantees non-discrimination. China, however, is not a member country of the agreement and EU officials say he has no power to pressure.

Commercial lawyers say the EU has the legal scope to deal with the issue. "He may be creating something important," said Richard Weiner, a trade lawyer at Sidley Austin LLP.

De Gucht, a 56 year old Belgian known for frank talk, showed a different style of his predecessors, like Peter Mandelson, who loved a consensus and constantly traveled to China in search of a friendly alliance, diplomatic.

De Gucht, in turn, argues that Europe has enough power to deal with China without yielding. When asked why China would hear the EU trade negotiations , he said: "Because Europe is bigger than China. (...) The largest of the two economies when it comes to investing for dummies in stocks is still Europe."

Adopting a hard line on contracts has its risks for Europe. "It makes sense to present the EU as an inflexible negotiator," says Iain MacVay, a trade lawyer with Steptoe & Johnson LLP. "But it is self-defeating if you start closing access to its market" for competitive offerings.

Chinese authorities say they do not discriminate. In a recent speech, the Chinese premier, Wen Jiabao, said that "in government procurement, China gives equal treatment to all products made in China for both foreign-owned companies and by companies in the Chinese capital." The economic stimulus package later in Beijing was $ 586 billion - a gold mine for infrastructure companies.

De Gucht also called for the Doha round of global negotiations is closed until the end of 2011, which is open to foreign investment flows, and that ensure the protection of intellectual property rights.