EU warns China it is ready to launch telecoms dispute

BRUSSELS Wed May 15, 2013 1:10pm EDT

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BRUSSELS (Reuters) - The European Commission has told China it is prepared to launch an investigation into anti-competitive behavior by producers of mobile telecoms equipment, opening a new front in a multi-billion-euro trade offensive against a critical partner.

European Trade Commissioner Karel De Gucht said he and fellow commissioners had agreed in principle to open an anti-dumping and anti-subsidy case against China, but would first seek to negotiate a solution with Chinese authorities.

"The clock is ticking. We have had an open-door policy for negotiations with our Chinese partners for approximately one year now and we hope that the Chinese authorities step forward and engage with us in a serious manner," De Gucht's spokesman told a news briefing on Wednesday.

While no companies were named in the statement from De Gucht, officials have in the past said Huawei and ZTE Corp, the world's second- and fifth-largest telecoms equipment makers, were the objects of their concern.

In a statement, Huawei said it was disappointed the Commission had taken the unprecedented step of threatening to launch a case on its own initiative, rather than based on complaints from European companies.

It also dismissed the allegation that it was selling telecoms equipment below cost to secure market share.

"Huawei is confident that these unfounded accusations can be addressed and amicable solutions can be found," it said.

"Regrettably, to date the Commission has not responded to Huawei's requests for meetings and has relied upon unsubstantiated and incorrect information."

ERICSSON OPPOSES MOVE

The Commission's move, which is not supported by all member states or by Sweden's Ericsson, the global industry leader, runs the risk of sparking a trade conflict with China.

The European Union is China's most important trading partner, while for the EU, China is second only to the United States. Chinese exports of goods to the 27-member bloc totaled 290 billion euros ($376 billion) last year, with 144 billion euros going the other way.

The EU now has 31 ongoing trade investigations, 18 of them involving China. The largest to date is that into 21 billion euros of imports from China of solar panels, cells and wafers, for which it is set to impose punitive duties.

While European manufacturers such as Ericsson, Nokia Siemens Networks and Alcatel-Lucent have suffered as a result of cheap Asian imports, they are not prepared to make a formal complaint for fear of Chinese reprisals, which has made it hard for the Commission to gather evidence.

The EU said that by launching a case on its own initiative - known as an ex-officio case - it would provide a degree of protection for EU companies too concerned to step forward.

Chinese telecoms operators will start awarding contracts for super-fast mobile networks this year, expected to give a big boost to both Huawei and ZTE.

China exports network equipment, base stations and connections used by telecoms providers to transmit voice and data messages worth more than 1 billion euros a year to the European Union, giving it almost a quarter of the market.

The investigation is not into end-user devices such as telephones and modems but into interconnecting equipment.

Ericsson, the global leader with around 35 percent of the mobile equipment market, said it opposed the Commission move.

"Ericsson is a strong supporter of free trade," said Ulf Pehrsson, Ericsson's head of government and industry relations. "We don't believe in this type of unilateral measure."

(Reporting by Ethan Bilby, additional reporting by Robin Emmott in Brussels, Simon Johnson in Stockholm; writing by Philip Blenkinsop; editing by Luke Baker and Mike Collett-White)

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