The European Union is helpless in the dispute with China. Germany blocks sanctions for the persecution of Lithuania.

"In the shadow of the dispute between the EU and Russia over the fate of Ukraine, another one is taking place, in which the foreign power can count on the favor of Germany breaking out of the EU's unanimity. It is about the Chinese attack on the Lithuanian economy. 

Lithuania infuriated China by allowing the opening of a representative office of Taiwan (with "Taiwan" in the name) in Vilnius. Beijing is demanding that its partners around the world not recognize Taiwan's sovereignty. Both the EU and the United States agree. So in practice, the country's representative offices function like the offices of Taipei, its capital city.

Lithuania broke with this principle, which was met with stiff opposition from Beijing. First, there was the closure of the Lithuanian embassy in Beijing and the downgrading of diplomatic relations, and finally a total embargo on Lithuanian products. And also threats to companies from other EU countries to stop supplying Lithuanian components for these products, which are then sent to the Chinese market. If this does not happen, the exports of German, Dutch, Danish or Swedish companies will also be blocked.

Phone call from Olaf Scholz's office

Brussels spent several weeks wondering what to do about it. It is not only about defending one Member State, but also about defending the entire single market. There are no trade barriers inside the EU - the entire economic model is built on the free movement of products between 27 countries. Thus, companies create production chains that may include suppliers from several countries. China wants to challenge this model because it does not like the decision of one country.

Importantly, China uses economic weapons in a political and diplomatic dispute. The very closure of the Lithuanian embassy and the lowering of the rank of mutual relations did not provoke a reaction from the EU, as it was a response comparable in importance to the Lithuanian decision. But economic sanctions already change the context of this dispute.

The most powerful weapon would be an equivalent response, that is, the imposition of economic sanctions against China. This, however, cannot be done without unanimity. - It would be enough to break out of one country and there would be no sanctions. It could be Germany, but also some smaller EU country, on which China would be easy to put pressure on - said Jonathan Hackenbroich, an expert of the ECFR think tank, told Rzeczpospolita. In the past, such an advocate of China in discussions about sanctions was, for example, Hungary. 

Behind the scenes, it was Berlin who argued that Brussels should not propose any sanctions.

The Politico website quotes unofficial officials of the European Commission who told how representatives of the office of Chancellor Olaf Scholz called German employees of the European Commission, dissuading them from this idea. The European Commission therefore understood that the proposal actually had no chance of success. 

The first vice-president of the European Commission, Valdis Dombrovskis, informed not about the sanctions, but about the complaint against China to the World Trade Organization.

- The EU is determined to act as one and act swiftly against WTO violating measures that threaten the integrity of our single market. At the same time, we are making diplomatic efforts to alleviate the situation, said the Latvian.

This procedure is mainly symbolic. China now has 60 days to respond, but if it fails to show goodwill, a panel will be set up. It may take up to a year to come up with a verdict, during which time Beijing will still be able to stalk EU companies. The mere blocking of Lithuanian exports to China is not of key importance for this small country. "It's not an important market for them, which is probably why they decided to move on Taiwan," said Hackenbroich.

According to Brussels estimates, the value of goods blocked by China is EUR 26.5 million. But the problem will become much more serious if Lithuanian companies integrated in the EU production chains lose the ability to deliver components to Germany, the Netherlands, Sweden or Denmark.

How to respond to political blackmail

China's actions show that the EU is defenseless against pirate diplomacy. It has the ability to retaliate with economic sanctions against other countries, but only equivalent ones. So, for example, it can introduce the so-called anti-dumping duties when it finds that some Chinese products are illegally subsidized by the state and sold on the European market below their cost of production. And such measures are applied by Brussels without requiring the unanimous support of the member states.

But it cannot answer that way when blackmail - as it is today - has a political context. To change this, the European Commission proposed in December new measures to respond to the so-called economic coercion, i.e. a situation where third countries impose economic sanctions on EU countries or companies based in the single market in order to force a change of political decision. This is exactly the Lithuanian-Chinese case. In such a situation, the Commission could act on its own, without having to obtain unanimity.

The new law allowing the Commission to act like this has to be adopted by the Member States and the European Parliament."

Germany is unlikely to pass such a law. Latvians, and we, Lithuanians, we are mad in the demonstration of power, so we are forcing the Chinese to be sanctioned, despite the damage to the European economy as a whole. Germans do not want such adventurism, they protect their economy, so they are rich.