The EU is poised to launch one of its biggest trade cases against China in a generation after telling member states it has compiled firm evidence that Beijing’s telecommunications equipment companies have benefited from illegal state subsidies.
The commission has been piecing together the case for months, according to several officials and executives briefed on the case, focusing on the activities of two Chinese makers of mobile network equipment, Huawei and ZTE.
EU officials informed representatives from the bloc’s 27 member states at a closed-door meeting on Thursday they believed the commission had “very solid evidence” that those companies benefited from illegal government subsidies and had sold products in the EU below cost, a practice known as “dumping”.
People briefed on Thursday’s meeting said the EU’s declaration appeared to be one of the final steps before bringing a formal case as soon as next month.
Upon a determination China was acting illegally, the EU could subject Chinese companies to punitive tariffs.
The case differs from previous EU trade complaints against China because it does not involve low-end manufactured goods, such as steel tubes or ceramic tiles, but a cutting-edge industry of huge commercial and strategic value.
It would also mark the first time that the commission, the EU’s executive arm, has opened a trade investigation of its own accord, and not in response to a formal complaint filed by a private company or industry group.
Karel De Gucht, the EU trade commissioner, has been pushing for such “ex-officio” cases as a way to counter what he claims is Beijing’s practice of using threats of retaliation to silence European companies.
“It is undeniable that many European companies are unwilling to come forward and make justified trade defence complaints due to fear of consequences for their business,” Mr De Gucht told a trade conference earlier this month.
A spokesman for Mr De Gucht declined to comment on Friday.
Trade analysts have warned the tactic could backfire by fraying an already strained trade relationship with China at a time when Europe is suffering from a debt crisis and desperate for growth.
The commission’s involvement has also unnerved executives at Europe’s large telecommunications equipment companies, Siemens-Nokia, Alcatel Lucent and Ericsson, which all have investments in China’s fast-growing market, and fear they could still suffer retribution.
“European business is genuinely worried about possible retaliation against their market presence in China,” said Hosuk Lee-Makiyama of the European Centre for International Political Economy, a trade-focused Brussels think-tank. The commission is unlikely to make a move before a visit to Brussels next week by Chen Deming, China’s commerce minister.
Member states, which would have to approve any tariffs, could also press Mr De Gucht to let the file languish.
Mr De Gucht has sought to toughen the EU’s posture towards China since taking over as trade commissioner in 2010. He has filed the EU’s first cases against China for illegal subsidies, seeking to highlight what his aides believe is a widespread practice by Beijing of lavishing companies with cheap loans and real estate.
More recently, the EU has accused China of hoarding raw materials, and has also proposed new rules that would make it possible to shut its manufacturers out of the bloc’s lucrative government contracts market.