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EU members agree to enter investment negotiations with China

The European flag fly in front of the European Parliament in Strasbourg October 12, 2012. REUTERS/Vincent Kessler
The European flag fly in front of the European Parliament in Strasbourg October 12, 2012. REUTERS/Vincent Kessler

By Philip Blenkinsop and Robin Emmott

LUXEMBOURG (Reuters) - European Union governments agreed on Friday to start talks with China to remove restrictions on foreign investment and set clearer rules on doing business after months of trade disputes over Chinese solar panels and EU wine.

The decision by trade ministers from the EU's 28 member states means negotiations with China can start at a summit in Beijing on November 21, with the aim of sealing an investment agreement in the following two-and-a-half years.

The deal, reinforcing existing bilateral agreements between China and individual EU members, would seek to guarantee investors that they would be treated fairly and that their assets could not be expropriated without compensation.

The European Union also wants greater access to China and the removal of restrictions on investment in certain sectors, notably in services such as banking, or the requirement to work with a Chinese joint venture partner.

"For us it is a condition that the agreement should be about investment protection, but also about market access. That of course will be the big discussion," EU Trade Commissioner Karel De Gucht told a news conference in Luxembourg.

Trade between Europe and China has doubled since 2003 and is worth more than 1 billion euros ($1.37 billion) a day, but China receives just 2 percent of the EU's foreign investment.

European companies complain of poor treatment in China, for example being pushed into joint ventures and forced to share sensitive information.

De Gucht said it was for both sides to compromise.

TRADE WAR AND PEACE

The European Union and China spent the first half of the year in a trade battle, principally over EU accusations that Chinese companies were selling some 21 billion euros ($29 billion) a year of solar panels into the bloc below cost.

China threatened to retaliate by imposing duties on EU wine.

A deal on solar panels was reached at the end of July, prompting China to discuss dropping its inquiry into whether Europe was dumping wine.

"We don't want to have trade wars, we want to have trade peace," Swedish trade minister Ewa Bjorling told Reuters on the sidelines of Friday's meeting with her EU counterparts.

"We should have a more appropriate trade relationship. China is important and will become even more important," she added

The investment talks are the first by the European Union not to be tied to a free-trade deal.

De Gucht said a number of obstacles stood in the way of such a full trade pact with China - such as subsidies, export credits and cheap loans.

"You cannot start a free trade agreement if there is not already in principle a level playing field," he said.

"I don't believe that any time soon negotiations for a free-trade agreement make a lot of sense, unless all of a sudden the Chinese would dramatically change."

Trade ministers also agreed on Friday to include investment in talks that are ongoing with certain members of the Association of Southeast Asian Nations (ASEAN): Malaysia, Thailand and Vietnam.

They also agreed that the EU would discuss investment protection with Singapore, having already struck a free-trade deal last December.

(Reporting By Philip Blenkinsop and Robin Emmott; Editing by Robin Pomeroy)

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