EU Hits Back at China Over Trade Limits, Taking Lithuania Fight Global

EU Executive Vice President

Valdis Dombrovskis

said his office had requested a consultation at the WTO with China over what the EU sees as discriminatory trade practices, the first stage of an official proceeding. The EU handles foreign trade on behalf of its 27 members.

Gao Feng,

a spokesman for China’s Commerce Ministry, said that the country “has been maintaining communications with the WTO dispute settlement mechanism” and that Beijing “has always managed its foreign trade in a way that conforms to WTO rules, and will handle related issues in accordance with relevant WTO rules.”

The EU said China’s actions “appear to be discriminatory and illegal under WTO rules” and were hurting exporters in Lithuania and other EU countries.

The spokesman for U.S. Trade Representative

Katherine Tai

said Thursday that the U.S. would request to join the WTO consultations. “The United States is deeply concerned by the People’s Republic of China’s discriminatory trade practices against Lithuanian goods and EU products with Lithuanian content,” the spokesman,

Adam Hodge,

said on Twitter.

Lithuanian and EU officials claim China has used a variety of trade restrictions that it hasn’t made public in retaliation for the country’s decision to allow Taiwan to open the office under the name Taiwan. The alleged Chinese actions are prohibited under WTO rules.

The EU consultation request also covers difficulties Lithuanian companies have faced in importing goods and services from China in recent weeks. Export restrictions are prohibited under EU law.

The face-off between the EU and China centers on core values for each and comes as the two trading giants depend on the other to recover from the Covid-19 pandemic. European officials have accused China of violating the EU’s single market, in which goods exported from any of the bloc’s economically integrated countries should be treated equally.

“These measures are a threat to the integrity of the EU single market,” Mr. Dombrovskis said Thursday. “They affect intra-EU trade and EU supply chains. And they have a negative impact on EU industry.”

For China, Lithuania has violated the one-China principle, a pillar of China’s foreign policy for decades.

The Chinese Communist Party considers Taiwan to be a part of China and fiercely opposes its independence or any language that indicates Taiwan might be a sovereign country.

Taiwan has opened de facto embassies in countries including the U.S. under the name “Taipei,” the name of Taiwan’s capital.

The filing, while an escalation of the situation beyond diplomacy, is unlikely to move quickly. WTO proceedings are slow and can take years to yield results, which can then take years to implement. Senior EU officials said they hope that just by filing the case through the WTO, an organization whose rulings China has generally followed, Beijing might seek to resolve the issue soon.

Mr. Dombrovskis said that “after repeated failed attempts to resolve the issue bilaterally, we see no other way forward.” He said that the EU is pursuing diplomatic measures “in parallel” and that it would drop the case if China moved to resolve the issue.

While some European diplomats have privately criticized Lithuania’s handling of the Taiwan representation issue, China’s alleged move to block the exports of some EU companies with Lithuanian supply chains has galvanized support within the bloc.

EU officials said member states reject Beijing’s position that this is a bilateral matter between China and Lithuania and see it as an attack on the bloc’s single market of goods and services. EU members were consulted on Wednesday’s decision and unanimously backed the move, the officials said. The Biden administration has also repeatedly criticized China’s actions against Lithuania.

Lithuania’s fight echoes an escalating trade and political row between Australia and China. Beijing, angered by Australian policies critical of China and its state-linked companies, has used a variety of measures to curtail imports from Australia. In response, Canberra has drawn closer to the U.S., including by changing longstanding policy and agreeing to buy nuclear-powered submarines from the U.S.

Since December, Lithuanian companies trying to get goods into or out of the world’s second-largest economy say they have been unable to learn why their shipments are stalled. As of last week, more than 1,000 containers bound for Lithuania were stuck, unable to leave China, and another 300 sent from Lithuania were blocked from entering, according to Vidmantas Janulevičius, president of the Lithuanian Confederation of Industrialists.

Ordinary businesses, from dairy farms to solar-panel makers, have been struggling to get the equipment they need to run their business. Companies from other EU countries with suppliers or facilities in Lithuania have also been affected.

According to Lithuanian businesses, some that have managed to get shipments out from China have lost access to Sinosure, the Chinese state insurance program. Sinosure lets importers pay just 15 % upfront for their goods from China, with the remainder due when the goods arrive. Long shipping times have meant that Lithuanian businesses are forced to keep their capital locked up for months, while their competitors outside the country take advantage of the insurance program.

“This really creates an additional cost for the business. Companies are starting to think, the Chinese are not a very reliable partner,” said Mr. Janulevičius. “Today it’s Lithuania, but tomorrow it could be any country.”

—Grace Zhu and Laurence Norman contributed to this article.

Write to Daniel Michaels at daniel.michaels@wsj.com and Drew Hinshaw at drew.hinshaw@wsj.com