By Matthew Dalton in Paris and Matthias Verbergt in Stockholm
A European Union plan to help shield the bloc's
telecommunications-equipment companies from a rush of Chinese
rivals is floundering, according to EU and industry officials,
compounding the European industry's troubles amid weak demand for
its mainstay wireless products.
Beijing, the officials say, isn't abiding by the terms of a 2014
pact with the EU, in which Brussels dropped the threat of import
tariffs on gear made by China's Huawei Technologies Co. and ZTE
Corp. In exchange, Beijing agreed to a number of measures aimed at
helping European champions Ericsson AB and Nokia Corp. secure more
Chinese business while containing the relentless market-share gains
of their Chinese rivals.
A key plank of the agreement called for empowering an
independent commission to monitor telecommunications-equipment
markets. The panel was supposed to identify practices like dumping
and ensure European access to the Chinese market. But nearly two
years after the pact was signed, the body has yet to be set up.
China hasn't provided funds for it and has rejected a demand by
Brussels that panel members have no ties to the government, one EU
official said.
China's Ministry of Commerce didn't respond to a request for
comment.
The fraying of the 2014 pact with China shows the limits of the
EU's capacity to confront Beijing over its export-oriented economic
policies, European and industry officials say.
Western officials have long said Beijing provides hefty
subsidies to favored Chinese companies. The result is overcapacity
in sectors ranging from steel to solar panels to aluminum, they
say, pushing down prices and wreaking havoc in many markets. For
telecommunications equipment, Western officials have previously
pointed to large credit lines provided by Chinese state banks to
finance exports by Huawei and ZTE as evidence of the companies'
state support.
But enticed by the prospect of doing business with China, many
EU nations were reluctant to back tariffs on Huawei and ZTE for
fear of alienating Beijing. Ericsson and Nokia themselves, eager to
win contracts in China, also refused to support tariffs.
China has denied that the companies are "dumping" their products
on world markets. Huawei says the quality of its equipment now
rivals or even exceeds that of European. "We're not winning
business on price anymore," said Kenneth Fredriksen, chief
executive of Huawei's Swedish subsidiary. ZTE didn't respond to a
request for comment.
The fast-eroding dominance of European companies in
wireless-network equipment has been on vivid display in recent
days. On Thursday, Nokia reported a net loss for the second quarter
in a row, blaming tough competition.
The Finnish company, which recently completed the acquisition of
French rival Alcatel-Lucent SA, pledged to intensify cost-cutting
efforts after posting an 11% drop in second-quarter revenue. Last
week, Ericsson of Sweden ousted its chief executive, Hans Vestberg,
amid recriminations by core shareholders that he has failed to come
up with a strategy to counter Huawei and ZTE's ascent. Mr. Vestberg
said it was time for new leadership.
The sector has been hit by falling prices and lower demand from
telecom carriers, as many of them have completed the rollout of
modern wireless networks, known as 4G. This hasn't stopped Chinese
firms from continuing to make inroads in Ericsson and Nokia's
European backyard.
Meantime, Ericsson's market share for wireless-networking
equipment in China fell to 6.9% last year from 26.5% in 2011,
according to industry tracker IHS.
For now, the European Commission, the EU's executive arm, has
little stomach for reviving the tariff threat. It is already
occupied with another major trade dispute with China: whether to
label the country a "market economy," a move that would limit the
EU's power to impose tariffs on China. Beijing says its agreement
to join the World Trade Organization requires such a move by the
end of the year.
On Thursday, the EU imposed anti-dumping tariffs on some Chinese
and Russian steel imports, but those measures are less than a 10th
the tariff levels set by the U.S. for the same product earlier this
year. Complicating matters in Brussels, the commission's upper
echelons will also soon be occupied with the U.K.'s looming divorce
from the EU.
In July, the EU complained about the telecom-equipment deal at a
high-level meeting with Chinese counterparts in Beijing, according
to people familiar with the situation. But one EU official said the
impasse with China is unlikely to be resolved soon.
In contrast with Europe, the U.S. government has effectively
blocked Huawei from the U.S. network infrastructure market because
of concerns that its gear could be used by Beijing to spy on
Americans. Huawei has denied the allegations.
The EU previously attempted to play tough with Beijing. In May
2013, under then-EU trade chief Karel De Gucht, the European
Commission threatened to open an investigation into alleged unfair
competition over Chinese telecom equipment, a move that could have
resulted in tariffs on Huawei and ZTE.
In October 2014, however, Mr. De Gucht shelved the probe amid
weak political support in Europe for the move. Instead, he signed
what the commission called an "amicable settlement" with China,
which mandated the independent commission.
Write to Matthew Dalton at Matthew.Dalton@wsj.com and Matthias
Verbergt at Matthias.Verbergt@wsj.com
(END) Dow Jones Newswires
August 05, 2016 05:27 ET (09:27 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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