Words by Ritika Srivatsan, News Print Editor

Increased trade tensions between Lithuania and China have led to the European Union (EU) staunchly backing Lithuania, its smallest member state, by officially filing a case with the World Trade Organisation (WTO).

The dispute began in May 2021 when Lithuania withdrew from China’s 17+1 platform, a bloc meant to act as China’s “gateway to the world” comprising Central and Eastern European nations. Lithuania then announced that Taiwan, officially recognised as the Republic of China, would soon be allowed to open a “Taiwanese Representative Office” in Lithuania’s capital city of Vilnius. The move angered China which does not view Taiwan as an independent state and believes the self-ruled democratic island territory to be a part of mainland China. Other Taiwanese diplomatic outposts in Europe utilise the term “Taipei” for Taiwan to avoid incensing China and therefore, Lithuania’s nomenclature quickly agitated Beijing.

According to a letter sent by EU Representative João Aguiar Machado to the WTO and his Chinese counterpart Li Chenggang, Beijing imposed an import and export ban along with a restriction of services against Lithuanian entities. The letter stated: “These measures predominantly concern goods or services from or destined for Lithuania or linked in various ways to Lithuania, but also have an effect on supply chains throughout the EU”.

A recent example of the trade altercation includes China turning away 20,400 bottles of Lithuanian rum. Taiwan Tobacco and Liquor Corp then bought the rum and the Taiwanese government shared tips with the public on how to utilise the alcohol efficiently. The Chinese government has denied allegations and instead claims that their disfavour for Lithuanian goods is purely based on business preferences. “The issue between China and Lithuania is a political one, not an economic one,” said Chinese foreign ministry spokesman Zhao Lijian after Beijing remained critical of the allegations and cited them to be “groundless and inconsistent”.

Valdis Dombrovskis, the European Trade Commissioner stated that “the EU is respecting the One-China policy and our assessment is that steps taken by Lithuania do not step out of the One-China policy framework”. The EU aimed to find an “amicable solution and for the time being, we have not found a negotiated solution. That’s why we are now exercising our WTO rights,” Dombrovskis added.

A “request for consultations”, is the first part of WTO settlement procedures wherein the EU would formally ask China for more information. If the matter is not settled within 60 days, the EU has the ability to request a panel to rule on the dispute.

The European Commission, the independent executive arm of the EU, has separately proposed a new trade sanctions policy which would aid quicker responses to instances of “economic coercion”.

Viking Bohman, an analyst at the Swedish National China Centre, believes that stricter sanctions would not work and said, “Beijing seems uncompromising on issues relating to its so-called core interests of which Taiwan is one of the most important. Even if the EU summoned up strong counter-measures, it’s unclear if China would change its behaviour”.

Noah Barkin, a managing editor at Rhodium Group contends that EU countries, especially significant trade partners such as Germany and France, should actively engage more to support Lithuania or else “Beijing will have won and the lesson it will draw from this is that it can pressure European countries to tow its red lines”.

Editor’s note: information correct at time of writing

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