The following article is based on Professor Xiankun Lu’s remarks at the ECIPE Roundtable on EU–China Bilateral and Multilateral Interactions on September 10, 2026, and is for reference only.
Combining Bilateral and Multilateral Approaches Is the Best Way to Resolve China-EU Bilateral Economic and Trade Issues
Brussels, September 10, 2026
Thank you for the invitation. Before I became involved in the WTO’s multilateral work, I was responsible for China-EU economic and trade affairs for eight years. That included nearly four years stationed in Brussels 30 years ago—a very fond memory. So having this opportunity to return to Brussels feels like coming home.
This conference examines how to resolve China-EU economic and trade issues from both a bilateral and a multilateral perspective. That is the right approach. I would also like to combine the two perspectives and share some personal observations with you.
Let me begin with the bilateral dimension. Recently, China-EU bilateral economic and trade relations have become strained, with sharp exchanges between the two sides: the EU has spoken of a month-end deadline and threatened the “full use of defensive tools,” while China has warned the EU against “sliding into the abyss of protectionism.” As for the October meeting of the two sides’ Trade and Investment Consultation (TIC) mechanism and a possible statement, I may take a different view from my European friends present. I do not believe that in less than a month the two sides can produce specific solutions to bilateral economic and trade problems such as trade imbalances. Many of these problems are structural in nature. Therefore, the October statement is unlikely to contain the very specific measures some friends just envisioned. Past experience also suggests that such statements are rarely very specific. Instead, I believe China and the EU should focus on the overall stable development of China-EU economic and trade relations, combine short-term and long-term objectives, and explore mechanisms that can help resolve specific problems. These could include the following.
I. Establish a Joint Working Group on Trade Imbalances to Build an Evidence Base for Possible Measures
On the issue of trade imbalances, China and the EU talk past each other and hold different views. As a result, the specific situation and causes of the imbalance are unclear, and there is a lack of historical perspective. The phrase “a €1 billion deficit every day” is eye-catching, but it is one-sided and superficial, and it does not help solve the real problem.
If we look at the 51 years since China and the EU—then the European Communities—established diplomatic relations in 1975:
In trade in goods, the EU has run a surplus for 22 years and China for 29 years. In the first 10 of those years, China’s surplus was below €50 billion. Moreover, a large share of China’s exports to the EU consists of intermediate goods, which after entering the EU are circulated and further processed through intra-EU trade, with final products then exported to other EU trading partners—while the EU runs a surplus with all its other trading partners.
In trade in services, the EU has had a surplus for 51 years, reportedly accounting for 41.6% of China’s total services trade deficit.
In investment, the EU has also consistently held the advantage. In only 3 of the 51 years has it been in “deficit” — 2010, 2015 and 2016. Moreover, 40% of the products made by EU-invested enterprises in China are directly re-exported to the EU, especially in automobiles, machinery and chemicals. That is why, with respect to China’s exports to the EU, it is often said that “the surplus is in China, but the profits are in the EU.”
Therefore, China-EU trade imbalances cannot be resolved by treating the symptoms without addressing the root causes—what a Chinese saying describes as “treating the head when the head aches and the foot when the foot aches.” I suggest establishing a joint working group of Chinese and EU officials and experts to do the necessary homework, comprehensively analyze the precise situation and causes of China-EU trade deficits, and then prescribe the right remedies.
When China-US trade imbalances emerged in the 1990s, China and the United States established a similar working group in 1994—the “Bilateral Trade Statistics Working Group.” Its preliminary conclusion was that the China-US trade deficit had been exaggerated by 20%.
II. Select the Sectors with the Largest Imbalances for Focused Study and Balanced Measures
The three sectors with the largest China-EU imbalances are: electrical machinery and equipment; machinery and mechanical appliances; and EVs and other new-energy products. Targeted studies could be carried out in these sectors, and balancing measures proposed. These could include further market opening by China—including the signals China has already sent on opening its services trade market further—and wholly foreign-owned hospitals, where the EU’s AstraZeneca has already made multi-point arrangements in China, from R&D to cell therapy.
However, the relevant measures must comply with WTO rules. The “voluntary export restraints” (VERs) or “managed trade” proposed by the EU are not good options. VERs are prohibited by relevant WTO rules, including Article XI of the GATT and Article 11 of the Agreement on Safeguards, and are therefore not feasible. Not only with the EU but also in negotiations with the United States, China has repeatedly stressed that any agreement must be based on respect for the basic rights and obligations of the WTO. In this connection, China’s recently issued “Guidelines for Overseas Competition Behavior and Compliance Construction in the Automotive Industry” deserve attention.
III. Negotiations Must Be Two-Way and Balanced, and EU Export Restrictions against China Must Also Be on the Table
This includes EU high-technology exports to China, the Foreign Subsidies Regulation (FSR), and foreign investment screening. A spokesperson for China’s Ministry of Commerce recently stated that China-EU negotiations must “adhere to equal treatment in addressing each other’s concerns, and must not unilaterally make demands or set conditions.”
IV. Take a Long-Term View and Build a Legal Framework for China-EU Economic and Trade Relations
China and the EU are among each other’s largest trading partners, with daily trade exceeding €2 billion. Yet for a long time, China and the EU have lacked a legal framework governing bilateral economic and trade relations. There is only the 1985 China-EU Trade and Economic Cooperation Agreement. In investment, the 25 bilateral investment treaties (BITs) between China and EU member states were all signed before the 2009 Treaty of Lisbon, under which the EU acquired unified competence over foreign investment. They do not cover trade in services or pre-establishment national treatment. The China-EU Comprehensive Agreement on Investment (CAI) was also rejected for political reasons, and the progress it represented on trade in services, transparency of SOE subsidies and labour standards was swept away. This situation—using “old-timer” rules to govern Gen-Z trade and investment—is unsustainable.
Of course, under current geopolitical circumstances, exploring a new and comprehensive legal framework for China-EU economic and trade relations undoubtedly faces enormous obstacles. But that does not mean Chinese and EU policymakers have no room for manoeuvre at all. Could they not pilot such an approach in certain key sectors and issues, for example in trade in services? China and the United Kingdom began exploring a bilateral services trade agreement early this year, and just yesterday China and Cape Verde signed the Framework Agreement on Economic Partnership for Shared Development—the 40th between China and African countries—covering agricultural transformation, the marine “blue” economy, manufacturing development, and so on.
Let me now turn to the multilateral dimension. WTO reform is already one of the four tracks of the China-EU TIC, and China and the EU have previously cooperated well on WTO reform, for example in establishing the WTO’s Multi-Party Interim Appeal Arbitration Arrangement (MPIA). We could envisage China-EU multilateral cooperation in the following areas.
1.Advance Negotiations on Specific Issues
Take industrial policy. It is one of the main issues in current WTO reform discussions and is also related to key issues in China-EU bilateral economic and trade relations. China and the EU can work together to advance WTO reform negotiations on this issue, which would also indirectly help resolve some of the key issues in China-EU economic and trade relations. Transparency and notification could be an area to advance first. In addition, on the development dimension of industrial policy, there is room for China-EU cooperation. The African Group has put forward a proposal on industrialization and policy space (JOB/GC/880; WT/GC/W/992), and China recently submitted its own proposal (WT/COMTD/W/311), proposing to support the industrialization of developing members through experience sharing, rules review, and financial and technical empowerment.
Take trade and national security. Although it may not be possible, as some experts here have proposed, to establish a formal WTO committee—because that would require consensus among the United States and other members—it is possible to establish a plurilateral informal working group.
Of course, there is also the ongoing second phase of fisheries subsidies negotiations, Fish II. China and the EU should work to bring it to a successful conclusion as early as possible and establish comprehensive, integrated disciplines on fisheries subsidies.
2.China and the EU Should Strengthen Their Leadership on WTO Reform
Of course, China and the EU cannot focus only on the WTO reform issues that relate to the bilateral economic and trade issues mentioned above. Judging from the recent reports of the Chair of the WTO General Council and the facilitators, WTO reform still faces numerous difficulties, and the outlook is hardly optimistic. Many believe that the United States has checked out of the WTO, while middle powers have yet to coalesce. China and the EU still need to play the role of major powers and jointly advance the next stage of WTO reform negotiations.
Several key issues across the four tracks of WTO reform deserve China-EU attention: the Most-Favoured-Nation (MFN) principle under “Foundational Issues”; “responsible consensus” under “decision-making”; industrialization of developing members at the development level; and industrial policy under “fair competition issues.”
Open plurilateral negotiations are the right direction. China and the EU can also cooperate here. This could include: autonomous implementation of the already concluded Investment Facilitation for Development Agreement (IFD) and the E-Commerce Agreement; improving the MPIA—expanding it to include more developing members, strengthening arbitrator appointments and institutionalization, and so on; strengthening cooperation with New Zealand, Norway and others on trade and environment under the Agreement on Climate Change, Trade and Sustainability (ACCTS); and putting forward new plurilateral initiatives. The “forward-looking agenda” proposed in the recent International Chamber of Commerce (ICC) report deserves attention, as it sets out specific recommendations in areas such as e-commerce, the Information Technology Agreement (ITA), and trade facilitation (TFA).
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