An Interview with Prof. Gonzalo Villalta Puig

Q：What do you think of current China-EU relations? How should they be further promoted?
 
A： The European Union (EU) and People’s Republic of China are economically interdependent. The EU is the largest trade partner of China, while China is the largest importer into the EU. Economic interdependence leads to mutual prosperity and stability, which the EU and China should now use to develop cultural interdependency, perhaps through a replacement to the Trade and Economic Cooperation Agreement. Europeans know relatively little about China and would benefit from greater exposure to Chinese culture through easy access to Chinese media and entertainment, exchange programmes, and language education.

Likewise, the Chinese, whilst knowledgeable of past European colonial interests in China, should now think of the EU as a soft power in the World with a respect for diversity in every cultural expression. Again, access to European media and entertainment, exchanges, and language is paramount. With the assurance of economic interdependence, only when the EU and China are culturally interdependent will the two realize the potential of their relations.

Q:  In the field of law, your expertise, how can China and the EU cooperate?

A: As a specialist in Economic Constitutional Law, I hope that China and the EU continue to promote the constitutionalisation of free trade, both bilaterally and multilaterally.

Bilaterally, China and the EU should conclude a Partnership and Cooperation Agreement (negotiations started in 2007) to upgrade the framework for trade and investment relations under the now obsolete Trade and Economic Cooperation Agreement (1985). Such an agreement could set the basis for a prospective Bilateral Investment Treaty and even a Preferential Trade Agreement through the High Level Economic and Trade Dialogue and its various Joint Task Forces.

Multilaterally, China and the EU should acknowledge the work of the World Trade Organization (WTO) as a transparent rule-maker in aid of certainty and predictability in world trade. Both members should discard the single undertaking model of WTO multilateral trade negotiations. Instead, they should facilitate agreement on those items of the Doha Development Agenda that will promote the WTO as a trade liberalization forum and a trade dispute settlement body.

Q: In 2009, the European Union, the United States, and Mexico filed a complaint to the WTO, claiming China’s export restrictions on various raw materials including zinc, coke, and magnesium inflated global prices and gave an unfair advantage to the country’s domestic producers. In January 2012, the Appellate Body confirmed that China’s export duties and quotas broke its trade rules. China regrets the WTO’s ruling on this issue. As you know, China needs to protect the environment and natural resources. What is your opinion about this issue?

A: This matter remains current as, in June 2012, the EU – together with the United States and Japan – requested the establishment of a WTO panel to consider China’s exports of rare earths. Rare earths like various forms of raw materials are highly valuable commodities. They have multiple industrial applications yet, as their name implies, they are not common: China has the largest reserves of rare earths in the World while manufacturing competitors like the EU, the United States, and Japan have few if any sources. Demand exceeds supply. Furthermore, their production can be environmentally disruptive. Trade in rare earths, therefore, presents a conflict of interests – environmental, commercial, and even developmental – which only the WTO dispute settlement system should reconcile. China and the EU may disagree on the recommendations and rulings of the WTO’s panels and Appellate Body but, as members of the WTO and in the interest of the multilateral trading system, they must resolve their differences within its Dispute Settlement Body, either by negotiation or by arbitration.

Q: Around the world, some people tend to see the future of Europe very promising, an increasingly bigger player. At the same time, others would be pessimistic about the future of the EU by looking at the debt crisis. What will the EU look like in the future?

A: The development of the EU has not been without reversals. The financial crisis that affects the present stage of development is an example. However, the historical trajectory is always upward. Only recently, the Treaty of Lisbon entered into force with the conferral of greater competences for the EU both internally and externally. Already an economic and monetary union, the EU now needs the power to sanction Member State budgets as well as a revenue base independent of Member State grants. The EU will, in the future, move towards an even closer unit of integration and harmonization with true economic governance as the only guarantee to preserve the European social model of prosperity and stability.

Q: Your home country, Spain, has been attracting world attention. In your view, what are the major causes of the Spanish economic problems? How should they be resolved?

A: The causes of the Spanish financial crisis are many but they largely relate to the low liquidity of the banking system (because of the real estate bubble, most Spanish banks have their capital in untradeable mortgage-backed securities), extremely high unemployment (24%) together with an unsustainable increase to the size of the economically active population (5 million in the last 10 years), excessive regional deficits (even wealthy Catalonia has sought a bailout from the central government), unachieveable EU deficit targets (3% deficit-to-GDP by 2014) which only prompt recession-bound austerity measures, and an ever larger government debt (70% debt-to-GDP) impossible to re-finance (the yield on 10-year Spanish government bonds is 7.5%).

Whatever the causes, the Spanish financial crisis overlaps with the European sovereign debt crisis and it will only respond to EU reforms that lead to a closer economic and political union. At the very least, the reforms should establish a banking union with a single supervisor and collective resources to re-capitalise banks in need and to fund a single deposit guarantee scheme, a fiscal union that mutualises national government debts (Eurobonds) and converts the European Central Bank into a lender of last resort, a freer single market for services, and greater institutional accountability with direct elections to the European Commission.

The problem is that these reforms are not politically attractive. Some go against the sense of sovereignty that France and other Member States in the EU have and others go against the fiscal prudence that Germany and so many of their northern neighbours invoke against the moral hazard that they see in southern Europe.

Q:  You have been living in Hong Kong for some time. Do you have experiences with cultural differences in Hong Kong?

A: Hong Kong presents the best of the World to China and the best of China to the World. It is a global city with Chinese characteristics, one that reconciles diverse individuality with social harmony. I feel fortunate to live in Hong Kong and, of course, China.

（Dr Gonzalo Villalta Puig is Professor of Law and Director of the Master of Laws Programme in International Economic Law, Faculty of Law, The Chinese University of Hong Kong.）