China-Lithuania Issue – UPSC GS2

Context: European Union has launched action against China at the World Trade Organization (WTO) for targeting Lithuania over its stance on Taiwan.

Lithuania support for Taiwan:
  • In November 2021, a Taiwanese Representative Office was opened in Lithuania.
  • It is for the first time that Taiwan was allowed to use its own name to open an office within the EU.
  • Following this, China has downgraded its diplomatic relations with Lithuania, calling it a violation of the “One China Policy”. China has also unofficially boycotted products from Lithuania, whether it is sourced directly or indirectly from the country.
  • China alleges that Lithuania is acting in concert with the American efforts of containment by using the Taiwan card, and to spread discord between China and Europe.
  • ‘One China Policy’ means that countries seeking diplomatic relations with the People’s Republic of China (PRC, Mainland China) must break official relations with the Republic of China (ROC, Taiwan) and vice versa.
Action at WTO:
  • By going to the WTO, the EU lent support to accusations by Lithuanian business leaders and officials that the row has resulted in China blocking imports from Lithuania and other economic restrictions.
  • China’s crackdown on Lithuanian imports affects other European nations as well.
  • The country has also imposed trade restrictions on goods from countries like France, Germany and Sweden, which include parts from Lithuanian supply chains.
  • The EU is currently China’s largest trading partner, and about 80-90% of Lithuania’s exports are based on manufacturing contracts with the rest of the EU.
Why Lithuania is doing it?
  • Domestic Reasons:
    • Lithuania’s current wave of assertive moves against China to a certain extent have been attributed to the change of government in 2020.
    • The new Government of Lithuania espouses a “values-based” foreign policy based on democracy and freedom, and had explicitly offered support to the cause of Taiwan in 2020 itself.
  • Geopolitical Reasons:
    • It is also due to growing geopolitical tensions in Eastern Europe over EU and NATO’s fallout with Lithuania’s adversarial neighbours, Russia and Belarus.
    • Lithuania, being the first constituent of the Soviet Union to break out as an independent state, has its own historical context and ideological rationale for standing up to China.
    • The growing Sino-Russian partnership against the West has also made Lithuania wary of China.
  • Others:
    • Lithuania has been one of the biggest critics of China within the EU on the Xinjiang and Hong Kong issues.
    • Lithuania supported Taiwan’s pitch to become an observer at the World Health Organization in 2020 against China’s opposition in the wake of the Covid-19 pandemic.
    • Lithuania’s rationale that economic relations can be sustainable only with democratic regimes, has heightened tensions between Lithuania and China.
    • In May 2021, Lithuania quit China’s 17+1 cooperation forum with central and eastern Europe, by calling it “divisive”, now it is 16+1.
    • Lithuania is the first country in that group to have done so and stated economic non-reciprocity of China and threats to European unity as reasons for its exit.
    • Citing security reasons, Lithuania has advised its population to avoid buying smartphones made in China, and has kept China away from acquiring controlling stakes in its Klaipėda seaport, as well as from its 5G infrastructure bids.
Geopolitical Fallout:
  • Taiwan has made efforts to compensate the Lithuanian economy from China’s coercion.
  • About 20,000 bottles of Lithuanian rum that had been bound for China were bought by Taiwan offering a symbolic gesture of support.
  • Taiwan has come up with a USD 200 million investment plan to help cover Lithuania’s economic losses.
  • This move is also supposedly designed to make Lithuania a gateway to Taiwan for accessing the EU market, especially given the current semiconductor supply shortages.
  • Taiwan is also planning to introduce a USD1 billion credit program aimed at benefiting Lithuanian businesses.
  • The US has expressed concerns about China’s attempts to coerce Lithuania over Taiwan, along with EU countries like Germany who have expressed solidarity with Lithuania.
Way Forward:
  • China’s response suggests an attempt to “kill the chicken to scare the monkeys”, and ensure other countries do not contemplate a similar move.
  • Beyond the Lithuania-China tensions, of particular salience to India is how the EU, as a major power, will take forward ties with China as it similarly weighs strategic considerations against a booming trading relationship.
  • China’s use of trade as leverage and as a method of coercion, which stands in stark contrast to its declaration on the 50th anniversary of its UN membership, that it eschews “power politics” and “hegemony”, is another matter of concern.
  • Lithuania is an exception in having both a trade surplus with China and no pressing need to access the China market.
  • India shall closely watch the EU move to assess the benefits and costs of taking on China on a core concern — the Taiwan issue.

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