EU officials to talk tough on trade in China

BRUSSELS, Nov 25 (Reuters) Top European Union officials will talk tough in Beijing next week about China's snowballing trade surplus and its reluctance to open its booming economy further to European business.

The EU has long taken a softer approach to China than the United States. Washington has sued Beijing more often at the World Trade Organisation and protested more loudly about China's currency, which is widely seen as undervalued to help exporters.

But EU officials, alarmed at the surge in the value of the euro, now cite the yuan as their main currency concern and say that while China's trade surplus with the 27-nation bloc is billowing, EU exporters face barriers to the Chinese market.

In an unprecedented move, EU monetary officials, including the head of the European Central Bank, will urge China on Tuesday in Beijing to speed up strengthening the yuan's value, echoing French President Nicolas Sarkozy's call yesterday.

On Wednesday, at an EU-China summit, European trade chief Peter Mandelson will warn Beijing it must make a ''major change'' on investment restrictions, red-tape barriers for EU companies, and counterfeiting, or risk tougher action by Brussels.

''We do not intend to turn away from dialogue and cooperation. What we will do is treat China as a normal trading partner in the future, especially by enforcing rules where necessary,'' Mandelson said in a statement on Friday.

From almost no trade 20 years ago, the EU recently overtook the United States as the biggest export market for China.

China joined the WTO in 2001 and was given time to adapt to its rules. But with its EU trade surplus heading for 252 billion dollars this year, according to EU estimates, a near 30 percent rise on 2006, European patience is wearing thin.

TWO-FRONT TRADE WAR? As well as more access for its companies, the EU wants China to chop myriad incentives to export-based investment and do more to encourage local spending and stimulate demand for imports.

In a sign of the changing mood in Brussels, discussions about when to award China the EU's Market Economy Status -- coveted by China because it would reduce the risk of its exporters being hit by anti-dumping duties -- have gone quiet.

By contrast, Mandelson has suggested he could soon press ahead with an anti-dumping investigation into imports of Chinese steel after complaints by European industry, an apparent shift from his previously more hands-off approach to Chinese imports.

Litigation at the WTO is also under consideration.

''China cannot afford to fight a two-front trade war with both the United States and EU at the same time, said Cheng Xiaohe at the People's University of China in Beijing.

EU trade officials stress change will be gradual. But some note that when China wants action, it can happen quickly, citing what they say is an apparent scarcity of counterfeited goods relating to the Chinese Olympics on the streets of China.

''Perhaps if you want to reinforce (anti-piracy), you can,'' said David O'Sullivan, the EU's top civil servant for trade.

For its part, China plans to ask the EU to abolish restrictions on high-tech exports to China, Wang Xinpei, a spokesman with the Ministry of Commerce, said last week.

The ban on technology that could have military uses was imposed after China's army crushed pro-democracy protests in Beijing's Tiananmen Square in 1989.

Reuters TB VP0755