EU says needs more action from China on trade gap

BEIJING, Oct 17 (Reuters) The European Union wants Beijing to take more action to resolve currency and other disputes, the EU's ambassador to China warned today, suggesting Brussels may reconsider its relatively cooperative approach.

Serge Abou said the EU had told Beijing it hoped to see movement on a range of policies, from government subsidies for domestic industry to market access barriers for European imports as well as the sensitive question of the yuan's exchange rate.

''We asked the Chinese government for some correction, some policy changes, and we do not see a significant answer,'' Abou told reporters today.

The EU's frustration is mounting in tandem with its trade deficit with China, which reached 130 billion euros (184 billion dollars) last year. Abou said it would probably grow another 20-25 per cent this year.

''It is certain that these facts are considered with a certain bitterness in our leadership, and that we would like a real debate on these issues,'' he said.

Abou said Trade Commissioner Peter Mandelson felt let down that the EU's fairly non-confrontational approach to trade disputes over the past few years -- in contrast to the more forceful methods of the United States -- had not produced results.

''He's not yet angry, but is strongly disappointed,'' Abou said.

''It is politically significant because Mandelson is one of the best friends of China in Europe.'' The EU, like the United States, has regularly cautioned China about the dangers of protectionism unless it does more in areas such as defending intellectual property rights.

But the EU has not joined some of the US complaints at the World Trade Organisation and has been less vocal on the hot-button issue of the yuan .

That is changing. EU finance ministers last week singled out the yuan's inflexibility as a primary culprit behind global imbalances and said they planned to send a delegation to Beijing later this year to discuss the currency.

Abou said he had not yet heard a formal response to the EU's initiative but had made clear that the EU expected to be heard.

''If China makes an effort toward the dollar and does not make an effort towards the euro, while we are the first trade partner of China, there is something wrong in the reasoning,'' Abou said.

While the yuan has gained about 7.9 per cent since Beijing revalued it by 2.1 per cent and decoupled it from a dollar peg in July 2005, it has fallen against the euro by roughly the same margin over that time period.

Abou also sent a warning on steel, saying Chinese exports to the EU had grown from around 1 million tonnes in 2005 to 5 million tonnes last year -- and could hit 12 million tonnes this year.

''We have some ideas that this export of steel has been subsidised and so we will not prevent our industry from raising some complaints. And if they raise some complaints, we will investigate,'' he said.

REUTERS RN AS1249