EU ready for talks with China on pact paving way for free trade

European Union countries will agree next month to talks with China on a pact making it easier to do business, possibly paving the way for a free-trade deal between two of the world's biggest markets, EU officials said on Tuesday.

Brussels and Beijing want to negotiate an accord to break down barriers to each other's markets and encourage billions of euros of new investment between the two, in a push for better ties after narrowly avoiding a trade war earlier this year.

Trade between Europe and China has doubled since 2003 and is worth more than 1 billion euros ($1.3 billion) a day, but China receives just 2 percent of the EU's investment abroad.

European companies complain of poor treatment in China, such as being pushed into joint ventures and forced to share sensitive know-how to win access to Chinese funding and local contracts.

Diplomats told Reuters that the governments of the 28-nation EU will give the European Commission, the EU executive, the power to negotiate on an "investment agreement" on their behalf at a meeting in Luxembourg on October 18. EU Trade Commissioner Karel De Gucht added that he had the support of countries in the bloc.

"We are ready and China says it is also ready. We are waiting to get started," De Gucht told business leaders, officials and diplomats in Brussels.

With the green light from EU countries, talks could be formally launched at an EU-China leaders' summit either later this year or early in 2014 and completed in about two years, potentially unleashing billions of euros in new business.

Trade between China and the European Union rose to 435 billion euros ($580 billion) last year, making the EU China's biggest trading partner. China is the second-biggest destination for European goods after the United States.


Agreeing the deal will be a challenge, however.

China has the most restrictive foreign investment regime in the Group of 20 major economies, according to the Paris-based Organisation for Economic Co-operation and Development.

European companies in Chinese markets ranging from transport to healthcare say they are blocked from bidding for contracts or applying for local grants unless they hand over sensitive business information to Chinese rivals.

Without a deal to end such practices, tensions between Beijing and Brussels are likely to persist because China is trying to make sophisticated products that compete with Europe.

The European Union is concerned by what it says is China's state capitalism, accusing Beijing of flooding domestic industry with cheap credit to undercut companies in Europe.

Both sides narrowly avoided a trade war in July over Chinese exports of solar panels when Brussels and Beijing agreed to set a minimum price for Chinese panels and avoid punitive tariffs, but a Commission investigation still found China guilty of supporting its solar industry with illegal state subsidies.

"We want clear rules on investment protection," said Bernd Lange, a German social democrat and a member of the European Parliament that must give its consent to any investment accord.

EU trade chief De Gucht said it was in both sides' interest to deepen trade ties, even if EU member countries such as France and Italy are very distrustful of China's trade practices.

"Over time, there will be a free-trade agreement between China and Europe. I am sure about that," De Gucht said. ($1 = 0.7489 euros)

(Reporting by Robin Emmott; Editing by Hugh Lawson)