Unrevised transcript of evidence taken before The Select Committee on the European Union Sub-Committee C (External Affairs) Inquiry on TRANSLATLANTIC TRADE AND INVESTMENT PARTNERSHIP Evidence Session No. 6. Heard in Public. Questions 52-60 TUESDAY 5 NOVEMBER 2013 9.58 am Witness: Zhang Kening USE OF THE TRANSCRIPT 1. This is an uncorrected transcript of evidence taken in public. 2. Any public use of, or reference to, the contents should make clear that neither Members nor witnesses have had the opportunity to correct the record. If in doubt as to the propriety of using the transcript, please contact the Clerk of the Committee. 3. Members and witnesses are asked to send corrections to the Clerk of the Committee within 7 days of receipt.
1 Members present Lord Tugendhat (Chairman) Lord Lamont of Lerwick Lord Maclennan of Rogart Baroness Quin Earl of Sandwich Examination of Witness Zhang Kening, Minister-Counsellor (Economic and Commercial Affairs), Mission of the People s Republic of China to the EU Q52 The Chairman: Thank you very much for seeing us. It is very kind of you to do so and very much appreciated. As I think you know, we are the House of Lords Sub-Committee on EU External Affairs. We are conducting an inquiry into the TTIP negotiations. We expect to report in the first quarter of next year. We are here in Brussels to meet a number of member state delegations, but we have also met with the United States and now we are meeting with you, as the two major external powers. If I might begin by asking you which aspects of the TTIP are of most interest to China, what you perceive to be the benefits of this negotiation and what concerns you have, my colleagues will then ask a number of questions. Zhang Kening: Thank you very much. It is my great pleasure to receive you in our office and I would like to welcome you on behalf of the Chinese Mission. We are very pleased to have such an opportunity to exchange some views with your Committee role, as your Committee plays a very important role in the House of Lords. We appreciate your considering the Chinese position and the Chinese view of the US and EU partnership and relationship. Once again, I welcome you to our office. This is the Trade and Economic Office of the Chinese Mission to the EU; our permanent Mission is located at another location at
2 Boulevard de la Woluwe, so this is a part of that Mission. The team here is working especially on trade and economic issues with EU institutions, particularly in Brussels. I know you are interested in many questions. I received a list. I think that these are very interesting questions and I will try to communicate and answer your interests. As you mentioned, TTIP has been launched between the EU and US, and we want to know the positive benefits to China. You know that, in the current work, there are various processes of trade liberalisation. There is the bilateral way and the multilateral way. China is quite open to the form of trade liberalisation, but China believes that the multilateral process is most important, because it is of a universal nature benefiting all countries, all members, of multilateral international institutions, such as the WTO. Of course, during the current negotiations at Doha, you know that they have some difficulties and, in that case, many members are seeking other alternative arrangements like bilateral or regional economic co-operation to accelerate the trade and investment liberalisation process a little. This is why China is quite open to seeing both bilateral and regional co-operation, but China believes that such a process would not substitute for the multilateral efforts. They can play a role as complementary efforts towards the multilateral process, but we believe that the final objective or the final interests of all members of multinational organisations would be the multilateral process, which will help the final trade and investment liberalisation. Regarding the TTIP, I know this is a process between the US and the EU, and we also need to recognise that any bilateral process has an exclusive nature. That means that any bilateral agreement would not apply to others as most international treatments: two have their own agreement, their own treatment, which is not automatically applied to third parties. This is why we can see that there is always something outside of an agreement that is exclusive. Those will provide some impact.
3 So far China has no such analysis to see what would be the positive impact or negative impact. We have not done that. I guess that we have to do that with the progress of the process, because we need to see what would be the possible achievements. Based on that, we can see the impact more clearly positive or negative. We know some assessments have been done by the EU side. We even think there are some studies encouraged by the EU saying that there will be some benefit for third parties outside of the agreement. They even have some figures like 99 billion of benefits to the EU and the US trade partners, in the future. They also explain some benefits from the further liberalisation of the two sides. I think this figure since there is not a specific analysis of particular countries, like China and other economies is difficult to comment on. It is difficult to see a clearer picture from that figure. We think this is probably an indirect so-called positive impact because, as I explained about this study, with further liberalisation, a third party could probably access EU and US markets more easily. With these regulatory arrangements, third parties may have some facilitation to accept or reach US and EU standards. Those are some studies. We cannot see so far in terms of real benefits or interests. Those indirect impacts may be positive, but we are far from seeing what finally would be recognised by the third party. Of course, China is a big trade partner of the US and we will certainly watch closer the development of negotiations to see what would be the exact achievements of the negotiations, and then would assess those positive elements. As I explained, all bilateral agreement arrangements will certainly be exclusive vis-à-vis the third party, because they do not apply. Q53 Lord Lamont of Lerwick: Your Excellency, do you think you could see an EU/China trading agreement? Would that be a possibility after this or would you be against that, because of your support for multilateral approaches?
4 Zhang Kening: Of course, if there is another bilateral between China and the US, or the EU, that could be a complementary effort to reduce such exclusive effects. For the time being, we do not see the immediate possibility of such an FTA between the US and China, or the EU and China; at least, there has not been an effort to launch such a process. We feel that there will be mostly negative impacts on China. Negative means, for the direct interests, we may lose our opportunity because, with the increased relationship and trade and investment relationship between two economies, the third party will compare between these two. We will certainly lose something opportunities or competitiveness. Of course, this also needs concrete analysis. Q54 Baroness Quin: You said that sometimes bilateral agreements could complement the multilateral approach but, in order for that to happen, you would probably need to feel engaged with the process. I just wondered what your formal engagement with the EU is over the EU/US trade agreement. Do you have regular meetings with the Commission about it? Do you also have regular meetings with United States counterparts about it? Do you feel engaged in the process in some way? Secondly, given what you have said about multilateral trade negotiations, do you see ways of unblocking the Doha impasse? The impetus behind this EU/US agreement is the frustration that is felt about the failure of the Doha round to really make progress. Zhang Kening: I do not know what the other parties feel regarding the EU and US relationship towards TTIP, but I thought that most of the first reaction is that, if the EU and US those two big players in the multilateral trade system conclude their own agreement, most of the parties will adopt their interests in the multilateral process. The least amount of effort they want to make, compared to the previous contribution and efforts, is that they will certainly review their energy and interest to push forward the multilateral process. Whether EU and US TTIP will contribute and complement the multilateral work is still
5 unclear. This is still a question. We should say that, whether the US and EU can continue to support the multilateral process without reducing their energy and interest, or that they are only interested in their own bilateral or small-scale I mean small-scale in terms of the number of countries activities, this is something that members of the WTO, even China, will look at: the effect. On the other hand, the US and EU say that their agreement or negotiation will contribute to the multilateral process. That means some elements they were negotiating could, in their final result, be a model or example for the multilateral agreement. That means they will do something further or something new and then will introduce those elements into the multilateral framework. This is an intention from the US and the EU. This is not automatically the common understanding from other members, because we know that the multilateral system serves all members. It tries to reach an objective benefiting all members. The EU and the US, those very big players with their very advanced development capacity, how can they convince other members that their result will be suitable to others, particularly the multilateral trading system, the WTO, when this organisation consists of various layers of development as economies? Q55 Earl of Sandwich: Can I take you back a few years to when China joined the WTO, because there was a big expectation? We have heard some evidence that China lost interest in the multilateral process. Obviously you do not think that is the case, but can you give me some examples of how China really contributed and benefited in those years? Zhang Kening: Do you mean after accession? Earl of Sandwich: After accession. Zhang Kening: I cannot agree with the view that China lost its interest in the multilateral process. I believe this is totally a misunderstanding. China s accession to the WTO, after such a long time of negotiation, reflects its determination and interest in the multilateral
6 trading system. China also feels it benefits from this system. Also, we continue our efforts to support the Doha round. Of course, the Doha round met with some difficulties. It is not easy to explain the concrete elements of these difficulties, but one sees the Doha round as a development round as decided by all members. The difficulties are that objectives could not meet expectations from permanent members. That means that some members, like industrialised members, want the Doha round to be their vision and, for other permanent members like developing countries, the WTO is not exactly the device; it is an interest group. Most developing countries want the Doha round to contribute to their development as an outcome. This understanding causes some difficulties for our members. This is why the Doha round cannot reach its schedule, as foreseen. China, as a developing country, believes its efforts in the Doha round will contribute to the development objective, as decided by a ministerial meeting in Doha, with the launch of the round. There was no reason to see that China, on the one hand, benefited from the multilateral trade system. On the other hand, they cannot continue to support this system in this direction. Q56 Lord Lamont of Lerwick: One argument that has been put to us is that this bilateral negotiation has become necessary because the WTO has run out of steam, largely because tariffs have been reduced and now it is a matter more of making regulation coherent and having mutual recognition and having convergence, above all convergence of regulatory standards. Would it be as easy for the United States and Europe to aim to do that with China regulatory convergence as it is to do it between Europe and the United States? Would it be more difficult to do that, given some differences in our political and economic systems? Zhang Kening: This is a very difficult question, because I believe that the first objective of the liberalisation of trade is trying to eliminate the tariffs. The reduction of the tariff register is the first objective of multilateral trading systems, as well as any bilateral arrangements.
7 Afterwards, the second objective is the so-called behind the border ; those would be non-tariff barriers, as well as some harmonisation or standardisation. This is only because each country could have its own standards, so converged or harmonised standardisation is a very challenging job for any country. Also, industrialised development, which means development of industry, determines the label of their standard. If this is difficult between industrialised countries like the US and EU, then it will be more difficult between industrialised and developed countries, because they have quite different regulations. Different development labels give them different expectations, different practices and different ways of regulation. This is why, if now China and the EU, or China and the US, start to talk about their convergence or standardisation it could be something more difficult, I believe personally. The Chairman: It is more difficult. Zhang Kening: It is more difficult. Q57 The Chairman: One area where there is a difference in economic systems is state-owned enterprises. These are a much more important part of your economy than they are the EU economy or the US economy. One area that TTIP will perhaps cover is state-owned enterprises. Do you have a view on that point? Zhang Kening: This is also a question from us to see what would be the objective of US and EU negotiations on these elements. As you say, state-owned enterprises in the US and EU may be less than in China, for instance; as to why this has become such an important part of the negotiation between two big economies, we saw some explanation from the beginning from the EU. They want state-owned enterprises to be a settlement, so agreement between the US and the EU could be a model to show others or ask others to follow. That could be a possibility for the US and EU to renegotiate some other bilateral arrangement to introduce
8 this element. That would also be a possibility of introducing this idea into the multilateral negotiations. As I explained, what the EU and US are interested in is their own business. If someone wants to introduce another bilateral framework, it is the business of him and his counterpart, another bilateral counterpart. If they want to introduce it into the multilateral system, it is up to the members of these organisations to say whether this is appropriate, whether it is already good or not yet. We cannot make too many comments on that, because this is a bilateral process; it is none of the others business. If the intention is to be influencing others, any others will see whether this idea is a good or bad one for third parties. State-owned enterprises still play an important role in China s economy, and we have also engaged many reforms in this area. We hope that this will not become, for the time being, an international topic, because different countries have different situations. China has its own situation and it will try to make reforms to let their state-owned enterprises adapt to market economy pressure to follow market economic regulations and practices. This is our objective from reform, so there is no reason to raise a particular subject stating or targeting a group as a state-owned enterprise as a big international topic. Different countries have different domestic situations, so this is why we certainly follow closely negotiations between the EU and the US, in this regard, and we will obviously be interested in whatever the possible intentions are of the US and EU. Q58 The Chairman: Can I deviate a little and ask a different question? How do you assess the future of Chinese economic relations with the United Kingdom itself? Zhang Kening: We always think that the UK plays a leading role in trade and investment liberalisation in the European Union, and this is why we feel China doing business with the UK is much easier than with others, although the European Union has the same trade policy framework. Investment is still a little different among the EU members. I can give a recent
9 statistic provided by the United Nations Conference on Trade and Development. For the first half of this year, the attraction of investment has declined in the European Union, but the UK is an exception. The UK has become the largest FTA attraction in this period. That showed that the UK is very open to trade and investment liberalisation, and this is why we feel that the business relationship between the UK and China is going well, and we believe that there is more potential and opportunities in the future. Q59 Baroness Quin: I wanted to ask a little bit about given that these bilateral negotiations are starting what your own immediate priorities are in terms of negotiating with the EU and the US, particularly in making progress towards dealing with non-tariff barriers, harmonising and co-ordinating, and what sort of prospects you see for China making progress on those kinds of issues, both with the EU and the US. Zhang Kening: China is also engaged in many bilateral FTA negotiations, but mostly with its neighbour countries, with ASEAN countries, and New Zealand, Australia, Korea and Japan. There are three parties in the negotiation. Some FTA experiments have also been made with European countries like Switzerland, which are outside the EU the EU is one bloc, a union and with Ireland. This is also a Chinese trade development strategy to liberalise trade and investment with more trade partners. The Chinese view on developing countries and their development is that this can only go in this direction, step by step. Step by step means that we can go further once they believe that their conditions and environment become appropriate. This is why China has had their FTAs firstly with some developing neighbour countries and then will extend them to others, and try to conclude something with industrialised countries, like New Zealand, Australia and others. With the US and EU, this is also our hope in the future, particularly if we see that the multilateral process cannot go further, because the trade and investment liberalisation process will continue, with or without your attention, but China cannot miss any
10 opportunity to develop trade partner relationships with others. All those engagements need a lot of effort. You can imagine that, between the US and EU, you have too many issues to resolve. We can foresee many difficulties for a big industrialised economy, for China as a developing economy. Anyhow, we already have an idea of how to engage in such a process with the EU. Our leaders raised questions about what EU leaders have already done in the FTA study towards concrete negotiations. So far, we feel that the EU has reservations. Q60 Lord Lamont of Lerwick: Could I just ask one question? You expressed your anxieties about the US/EU trade agreement; do you have similar parallel anxieties about the proposed Pacific Partnership? Secondly I hope you will not be embarrassed by my asking this question does China feel that there is a political agenda in these bilateral deals, on the part of the United States? Zhang Kening: China s FTA strategy is based on the whole development situation, because China has to look first at its needs, to what extent they can liberalise and to what benefit they can have this with which partners. It is difficult to see whether it is good or not already with the EU and the US, because there were good objectives for a long time, but when both sides can engage and start such process is still a question that needs a lot of assessment and analysis. Regarding the Pacific process, we know there is the TPP in the Pacific area and some others. China is open to that. China also assesses the possibility of participating in some of this process, because you know that China already has an FTA agreement with the ASEAN countries. China supports ASEAN 10+3 and now 10+6, so TPP is another framework and China would be interested in looking at it closely, but we have not decided whether to join, because with the TPP there are many others. With US participation, there will certainly be some different requirements and ambitions to meet, so we need to assess that carefully.
11 The Chairman: Excellency, thank you very much. We must go to our next appointment, but you have been very generous with your time and very frank with your opinions, and that is a great help to us in preparing our report. Thank you very much indeed. Zhang Kening: You are welcome. I hope that our thoughts will be helpful, and we hope you have a very successful mission in Brussels. Good wishes for you and for your mission.