Lithuania’s Recognition of Taiwan is at the Center of the Trade Spat
February 2, 2022–The European Union opened a dispute in the World Trade Organization against China in defense of EU-member Lithuania. The request for dispute consultations alleges that China restricted trade with Lithuania in violation of international rules governing trade.
According to the EU, the trade restrictions are “novel, numerous, recurrent, and persisting” and “show a targeted prohibition or restriction” against Lithuanian goods and services.
Furthermore, the complaint says, trade restrictions impact supply chains throughout the EU. Finally, the EU claims the restrictions violate the General Agreement on Tariffs and Trade 1994 (GATT).
‘No Other Way’
Opening a dispute settlement case at the WTO is a multi-year, multi-step process involving litigation. An EU trade representative said it is necessary.
“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,” said Valdis Dombrovskis, EU executive vice president and commissioner for trade. “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. We are in parallel pursuing our diplomatic efforts to deescalate the situation.”
Economic Coercion
According to the European Commission’s statement, the action is part of the EU’s strategy against economic coersion. The commission defines that as acts by a country to influence policy by “applying, or threatening to apply, measures affecting trade or investment.”
In December, the commission proposed a set of changes to EU law that would allow the European Council and Parliament to act in the event of economic coercion.
Lithuania Supports Taiwan
The trade spat dates back last Summer. It comes in response to Lithuania’s friendly relations with Taiwan, otherwise known as the Republic of China (ROC).
In July, Lithuania agreed to allow Taiwan to open an embassy. It later opened in November.
China reacted fiercely. It considers Taiwan to be part of China. In August, the state-run newspaper the Global Times ran an editorial saying Lithuania “must pay for the price” for violating the one-China principle.
“It would be delusional for the Lithuanian government to think it can provoke China’s core interests without paying any price,” the editorial said. “In fact, there has already been speculation that economic and trade cooperation between the two countries will be the first to bear the brunt of Lithuanian sabotage.”
China Denies Coercion
China denies breaking international trade rules to punish Lithuania. China’s Foreign Ministry Spokesman Zhao Lijian said the dispute between China and Lithuania is political, not economic.
“What I can tell you is that China has been following WTO rules,” Zhao told reporters on January 27. “I want to stress that the ins and outs of the fraught China-Lithuania relations are very clear. The so-called China’s “coercion” of Lithuania is groundless and distorts facts.”
Zhao urged Lithuania to “return to the right track of adhering to the one-China principle.”
Lithuania Response
Lithuanian Foreign Ministry welcomed the EU decision and said it hopes China will participate in the process.
“The EU has sent a very clear message to China that it will not tolerate the politically motivated economic coercion,” said the Minister of Foreign Affairs of Lithuania Gabrielius Landsbergis.
Lithuania’s President Gitanas Nauseda has reportedly said the decision to allow Taiwan to open an embassy in Vilnius was a mistake. The Foreign Ministry is aiming to defuse the diplomatic conflict and considering a name change for the office. At the same time, it is planning to counter China’s trade restrictions with the help from the EU.
“It is necessary to take all possible measures to protect not only the legitimate interests of Lithuanian companies and investors but also the legitimate interests of all EU businesses,” Lithuania’s Foreign Ministry asserted in a press statement.
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