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Wednesday, 17 May, 2000, 08:24 GMT 09:24 UK
Tough talk on EU-China trade deal
Both sides are talking tough after a third day of talks has failed to agree a compromise that could lead to Chinese membership of the World Trade Organisation.
But there are signs that the EU is beginning to back down on demands for better conditions than those granted to the United States in November.
Officials from the EU met with Chinese officials for several hours on Wednesday following a high-level political meeting between EU trade commissioner Pascal Lamy and Chinese trade minister Shi Guangsheng.
"The technical discussions could still go on for quite a while but a compromise is a possibility," said one diplomat.
China has expressed the hope that the negotiations will be wrapped up this week, before a crucial vote in the United States on trade relations with China.
But the EU insisted it would not be rushed into a premature agreement, and wanted more concessions on areas where Europe had a comparative advantage, most notably telecoms and financial services.
Now one trade official has revealed that the EU had dropped its demand that foreign companies should be allowed to gain a majority stake in telecoms ventures. The US deal gave foreigners a 49% stake, rising to 50% after two years.
As the negotiations began, Pascal Lamy told the BBC's Today programme he was "more hopeful than last time" that he would reach agreement with Chinese officials on market-opening measures that would benefit European companies.
But he made it clear he was not starting with a ''commitment to finish the talks" as that would be a bad negotiating tactic.
It is Mr Lamy's second visit to the Chinese capital in two months after a round of talks in March failed to make a breakthrough.
Stakes are high
The stakes could not be much higher.
A deal with the EU would remove a major barrier to China's accession to the WTO, opening key markets, especially in the service sector.
At the same time, Chinese membership of the WTO would seal its commitment to economic reform.
Mr Lamy said that "China has made it an important part of their policy to join the WTO in order to restructure and reform their economy".
Under WTO rules, China must reach agreement with all existing WTO members over trade liberalisation measures before it can be admitted.
The 15-nation EU is the biggest of seven WTO members who have yet to reach a bilateral trade deal with China.
Previous negotiations broke down when the EU team demanded that China allow majority foreign ownership of telecommunications and life insurance companies - a proposal which was rejected when put by the US last autumn.
Mr Lamy said it was important to reach a deal in the areas "where Europe has a comparative advantage".
He added that it was also important to ensure that China demonstrated its ability to deliver on its trade agreements, especially in relation to intellectual property.
The EU's continuing failure to nail down a deal with China has added to the uncertainty facing Beijing's 14-year campaign to join the WTO.
For their part, business leaders around the world know that opening up China would give them access to a huge new market - 1.3 billion people.
US deal under threat
The EU negotiations take place against a background of increasing political controversy in the US over its market-opening deal reached with China last November.
Opponents of that deal, who question China's commitment to enforcing human rights and labour standards, are trying to undermine that agreement by refusing to grant China permanent normal trading relations with the USA.
Although a vote will not prevent China from joining the WTO, it will prevent US companies from benefiting from any deal.
A successful trip by the EU's trade commissioner might add to pressures on a divided Congress to heed President Clinton's plea not to disadvantage US companies trading with China.
Under WTO terms, any agreement reached by the EU would also have to be offered to US firms.
Strong growth in China
Meanwhile, the attractiveness of the Chinese market to Western firms was reinforced by new figures that showed how quickly the Chinese economy was growing.
Chinese GDP grew by 8.1% in the first quarter of 2000, compared to the same period last year.
The Chinese Finance Minister Xiang Huaicheng said that the economy was on course to grow by 7.5% this year, compared to 7.1% in 1999.
The government is planning to boost growth by a programme of public works and military spending, leading to a public spending deficit of $28bn.
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