Wires

EU holds fire on ZTE, Huawei telecom trade case

By Philip Blenkinsop

BRUSSELS, Oct 9 (Reuters) - The European Commission hasdelayed a trade case against two Chinese telecom equipmentmakers also under scrutiny in the United States, easing tensionsbetween the European Union and its second-biggest tradingpartner.

A U.S. congressional report said on Monday that HuaweiTechnologies Co Ltd and ZTE Corp-- the world's second- and fifth-largest makers of wirelesstelecoms gear -- were potential security risks and should beshut out of the U.S. market.

In Europe, where the two have had greater success in sellingequipment and the concern is over prices rather than security,they can expect some respite -- probably until the middle ofnext year, EU diplomats and trade experts say.

EU Trade Commissioner Karel De Gucht is gathering evidencein order to launch an anti-dumping or anti-subsidy case, but hisefforts have been hindered by the fact that no Europeanproducer, such as Ericsson and Alcatel-Lucent, has complained. A formal complaint is normally aprerequisite for an investigation.

Analysts say European telecoms gear makers would bereluctant to cut themselves off from China, where demand fortelecoms equipment is growing.

Nokia Siemens Networks andAlcatel-Lucent, globally No. 3 and No. 4 telecoms gear makers,have shown no willingness to do so, while market leader Ericssonhas even said it does not want a case to be brought.

TRADE TENSION

China is the European Union's second-biggest trading partnerafter the United States, and the bloc is China's biggest tradepartner. Trade between the two is forecast to hit a record 500billion euros ($397 billion) this year.

Despite this, relations have been tense, with De Guchtcomplaining China subsidises "nearly everything", distortingcompetition.

The EU suspects that the Chinese producers are hurtingEuropean telecoms equipment suppliers through artificially lowprices, which are at least in part funded by the massive creditlines from the Chinese government.

A Reuters eyewitness has seen an offer from a Chinese gearmaker to replace the whole network of a European carrier fornothing.

De Gucht said in May the Commission was consideringlaunching a case on its own initiative, without the need for anindustry complaint. It last took this approach in a case againstIndia in 1997.

Trade experts say such cases are awkward because theCommission appears to be both complainant and judge and stillneeds co-operation from EU producers and EU member states, whichultimately vote on Commission proposals to impose duties.

"It's clear a number of member states are not in favour ofthis," an EU trade expert said.

The Commission also wishes to hold fire after starting aninvestigation last month into suspected dumping of solar panelsby Chinese producers, the largest sector evertargeted.

The move, albeit following a complaint by Europeancompanies, drew a warning from China.

Trade experts and diplomats believe the Commission isawaiting Beijing's response before launching a telecoms case andhopes the solar panel case impresses upon China how serious itis about tackling dumping and subsidies.

Without action by June, the EU would impose duties onChinese solar panels and probably launch its own action againstHuawei and ZTE, trade experts say.

(Additional reporting by Tarmo Virki in Helsinki, Ethan Bilby,Robin Emmott in Brussels; Editing by Louise Heavens)

((philip.blenkinsop@thomsonreuters.com)(+32 2 287 6838)(ReutersMessaging: philip.blenkinsop.thomsonreuters.com@reuters.net))

Keywords: EU CHINA/TRADE