Exclusive: EU says Chinese FTA possible, but wants market opening

The European Union is willing to deepen trade ties with China but wants to see concessions from Beijing first, documents seen by Reuters on Tuesday showed.

At the same time as EU regulators are ramping up trade pressure on Beijing by threatening duties on solar panels and telecoms equipment, Brussels is dangling the carrot of trade agreements before the Chinese.

The European Commission is expected to adopt a mandate for negotiating an investment agreement with Beijing this month, but documents seen by Reuters show that a much more ambitious trade agreement could be considered afterwards if China plays ball.

A free trade agreement (FTA) could be looked at in future if China can "address the root causes for current market access obstacles and competition concerns", a draft document written by the EU's diplomatic service said.

The strategy document is an EU response to a proposal Beijing made before last year's EU-China summit, to deepen ties between the two powers in numerous areas. This draft agenda could then be agreed at this year's meeting between top leaders from China and Europe, expected in the autumn.

"Concluding an ambitious investment agreement as set out above would send a strong signal of this readiness and ability to deepen our relationship in an effective manner," it said.

The EU's bilateral investment pact with China, proposed last autumn, would cement EU rules giving Chinese markets open access, while seeking to open Chinese markets for EU businesses. A full FTA would go much deeper.

FRENCH, ITALIAN WORRIES

But the mere suggestion of a free-trade agreement with China has raised hackles in EU member countries such as France and Italy, which led objections to the strategy proposals at meetings of EU national trade experts last week, according to EU sources and documents.

Germany and other member states said the European Union should seek to conclude a partnership and cooperation agreement (PCA) with China, which the European Union launched in 2007 and remains stuck in talks, before examining an FTA.

Fredrik Erixon of Brussels-based think tank ECIPE said that the broad goals of the PCA, which dealt with a number of issues from nuclear power to cultural diversity, led to its stalling.

This was echoed in another EU document which said those negotiations "were stuck due to different levels of ambition on the two sides and no progress could be foreseen in the future".

The draft EU-China strategy proposal sets out numerous areas for cooperation from the environment to financial services.

Brussels would like to see Europe's green technology firms help Chinese cities to modernize, and to work together with China in Africa "with a particular focus on raw material and commodities".

The European Union also seeks an agreement on regulating export credits with China by 2014, and calls for better access for EU banks to China.

(Editing by Keiron Henderson)