BRUSSELS, Oct 24: The European Union urged China today to open its economy to more foreign investment as part of a ''two-way street'' between the trading powers or risk a backlash against its exports which are vital to China's growth.
The European Commission, mindful that the EU trade deficit exceeded 100 billion euros (5 billion) last year and that many member governments want to protect jobs, said China was helping depress EU inflation and boost its competitiveness.
But it also said in a policy paper it was time for China to accept its responsibilities as a member of the World Trade Organisation by lowering barriers to foreign firms and to improve low labour and environmental standards.
EU trade chief Peter Mandelson said access to EU markets helped China lift 180 million people out of poverty since 1990.
''But China's growing trade muscle means growing expectations.
China must fulfil its WTO obligations and commit to trading fairly,'' he said in a statement.
Trade ties have been strained this year by anti-dumping cases involving Chinese exports backed by some EU countries, principally Italy and France. The paper said EU opposition to openness would grow if the relationship did not seem reciprocal.
The paper accompanied a broad review of EU-China ties which said on human rights ''progress on the ground has been limited''.
The review also urged closer dialogue on climate change and said the EU should encourage oil and gas-hungry China to be ''an active and responsible'' partner in the world energy market.
Talks on a new, broad partnership pact between the EU and China are due to start in January.
RIGHTS DOWN THE LIST?
Mandelson, due to visit China in November, wants to open up the world's most dynamic markets as EU companies face low growth rates at home, and global trade talks at the WTO are deadlocked. Rights groups said the EU was too focused on economy issues. ''Human rights used to be at the top of every summit meeting and every diplomatic exchange,'' said Brad Adams, Asia director for Human Rights Watch. ''From where the Chinese are sitting, they are very happy because it's now well down on the list.'' European External Relations Commissioner Benita Ferrero-Waldner denied the EU was downgrading its rights concerns, including its calls for the release of prisoners held since the 1989 Tiananmen Square pro-democracy protests.
''I think the most effective way to really improve the situation in China is like we did up to now, to work with the Chinese government and influence them where possible,'' she said.
EU-China trade doubled between 2000 and 2005, making China the bloc's top challenge on trade policy, the Commission said.
China recently made gains towards an ''early granting'' of the EU's Market Economy Status, which would make it easier for Chinese exporters to avoid anti-dumping tariffs, but Beijing needed to go further with reforms, it said.
The Commission also said it favoured dialogue in trade rows but warned it would turn to the WTO's courts if talks failed.
Brussels recently sued China at the WTO for the first time over what it sees as restrictions in China's auto sector.
The report listed concerns about doing business in China, ranging from rules that force foreign companies into joint ventures with local partners to rampant counterfeiting, closed public procurement markets and discriminatory regulations.
Chinese currency rules, seen as undervaluing the yuan, distorts trade but are ''moving towards increased flexibility'', it said.
Brussels urged other measures to boost China's domestic demand to help redress imbalances in the global economy.