China and the European Union (EU) will soon launch negotiations over compensation for China's possible losses caused by the EU's enlargement on May 1.

"We have completed the preparatory talks and the EU has agreed to hold further talks with us," said Ma She, deputy director with the Department of European Affairs under the Chinese Ministry of Commerce.

Ma made his remarks at the China-EU Economic and Trade Forum 2004 hosted by the Beijing-based University of International Business and Economics (UIBE).

The 15-member EU absorbed 10 eastern European countries -- the Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia - On May 1.

Despite the greater market for Chinese goods, the EU enlargement will certain bring short-term impacts, said Luo Hongbo, a senior researcher with the Institute of European Studies under the Chinese Academy of Social Sciences.

With an improved investment environment, the EU's new members will attract greater investment, especially from Western Europe. Some of this money might have otherwise been invested in China, Luo told China Business Weekly.

Ma said that although the general tariff rate will be lowered following the EU enlargement, the tariff rate on certain products might be higher.

Luo also said that stricter technical requirements on imports, harsher anti-dumping and anti-subsidy measures, and the higher safety standards of the EU will threaten Chinese exports to these countries.

Cyril Sayag, first secretary of the EU Delegation in China, said the EU had held talks with China about compensation under the WTO framework, but the formal negotiation will be launched only after the EU enlargement.

According to the rules of the General Agreement of Tariffs and Trade, the predecessor of the WTO, WTO members have the right to seek compensation for any trade losses incurred as a result of less attractive terms of access to the EU than they previously had with the new members.

"We will study with our Chinese partner to find out what they (the impacted industries) are, and how to compensate," Sayag said.

But he also confirmed that no compensation will be given for the export losses caused by the EU's unified and stricter technical criteria for imports. Losses caused by more anti-dumping cases from the enlarged EU will not be compensated.

Luo said that any compensation China may receive will not be high, as the impact of the change will be limited.

Chinese exports to the EU totaled US$72 billion last year, with exports to the 10 new members reaching just US$6 billion, according to Luo.

Xia Youfu, director of the China-Europe Research Center under UIBE, said the certainly increased foreign direct investment (FDI) in new EU members does not mean China will have less FDI.

"Our advantage of cheap labor and large markets in attracting FDI cannot be easily weakened by the (EU) enlargement," Xia said.

(China Daily May 9, 2004)