* Agreement would protect EU investors in China
* Could eventually pave the way for a free-trade deal
By Robin Emmott and Ethan Bilby
BRUSSELS, May 23 The European Commission will
seek the support of EU governments to launch talks with China on
an investment pact that could be a precursor to a free-trade
deal if Brussels and Beijing can overcome growing tensions.
EU trade chief Karel De Gucht said on Thursday he would ask
the European Union's 27 countries to agree on a negotiating
mandate for a deal with China that would reduce barriers to each
other's markets and encourage new capital flows.
Documents seen by Reuters this week show that a much more
ambitious free trade agreement could be considered after an
investment pact - but only if China and the European Union can
work out their differences.
"From the EU side, we want this investment agreement and we
want to see this as a first step, and once this is successful we
are ready to consider further options," said an EU official, who
requested anonymity because of the sensitivity of the matter.
The European Union wants to deepen ties with China, its
second-largest trading partner, to help it emerge from economic
crisis. But the bloc is concerned by what it sees as China's
state capitalism, accusing Beijing of flooding domestic industry
with cheap credit to undercut European rivals.
Trade friction has increased since Brussels said this month
it is preparing to levy prohibitive duties on billions of euros'
worth of solar panels from China.
De Gucht also publicly accused Chinese telecoms companies
Huawei and ZTE (000063.SZ) of dumping products in
Europe and has threatened to launch an investigation that could
lead to duties on the two companies' equipment.
Brussels says an investment agreement could provide security
for Chinese investors in Europe, which would replace national
bilateral investment treaties with one EU treaty.
"In terms of market access, Chinese firms aren't going to be
gaining very much, but you have to recall that at this time
there are a lot of questions being asked about Chinese
investments in a number of countries," said the EU official.
China says solar panel duties would seriously harm trade
ties, and Beijing is expected to decide in June whether to levy
its own duties on imported European solar-grade polysilicon, a
raw material used in solar panel production.
But De Gucht sees an potential investment pact with China as
part of a wider strategy to force Beijing into line with
international trade rules.
China has the most restrictive foreign investment regime in
the Group of 20 major economies, according to the Organisation
for Economic Co-operation and Development, and requires EU
companies to share their know-how with Chinese firms.
"The agreement needs to secure existing openness and deliver
new liberalization of the conditions for accessing each other's
investment market," De Gucht said in a statement. "Crucially, it
should improve the treatment of investors and their assets."
Chinese direct investment could bring more than $250 billion
in fresh capital to Europe this decade, according to a 2012
study by New York-based research company Rhodium Group.
The European Union is the world's top destination for
foreign direct investment, attracting 225 billion euros ($290
billion) from the rest of the world in 2011, European Commission
There was no precise timeline for talks on the agreement,
but EU officials said they normally aim to conclude negotiations
on such agreements within two or three years. A negotiating
brief could come this year.