The European Union announced Thursday that it has launched a case against China at the World Trade Organization (WTO) for targeting Lithuania over its stance on Taiwan.
The move by Brussels is a further deterioration in ties between China and the bloc, with a long negotiated investment deal already on the rocks after both sides exchanged tit-for-tat sanctions.
The latest spat is over Lithuania, one of the smallest countries in the EU, which made waves in July when it allowed Taiwan to open a diplomatic outpost in Vilnius.
The move outraged Beijing, which does not recognize Taiwan as a state and considers the self-ruled democratic island a rebellious territory of the mainland.
Lithuania broke with diplomatic custom by agreeing that the Taiwanese office in Vilnius would bear the name Taiwan instead of Chinese Taipei, a term used by other countries to avoid offending Beijing.
Beijing expelled the Lithuanian ambassador and withdrew its own ambassador. Last month, Lithuania closed its own embassy in the Chinese capital. Tensions have mounted, and Lithuania accuses Beijing of holding up goods at China’s borders. The EU is now turning to the WTO.
"Launching a WTO case is not a step we take lightly. However, after repeated failed attempts to resolve the issue bilaterally, we see no other way forward than to request WTO dispute settlement consultations with China," European Commission Executive Vice President Valdis Dombrovskis said.
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.
WTO arbitration is a slow-moving process, however, and any result could take years to come.
In response, China said the EU's complaint is "groundless and inconsistent."
"The so-called Chinese coercion against Lithuania is groundless and inconsistent," said Chinese Foreign Ministry spokesperson Zhao Lijian, adding that "the issue between China and Lithuania is a political one not an economic one."
EU finds evidence
The EU said that it had built up a trove of evidence of Chinese restrictions.
These included "a refusal to clear Lithuanian goods through customs, rejection of import applications from Lithuania, and pressuring EU companies operating out of other EU member states to remove Lithuanian inputs from their supply chains."
Despite the evidence, Dombrovskis said that the bloc would continue to pursue diplomatic solutions to the feud, and has raised the problem with his Chinese counterparts in recent weeks.
The European Commission handles trade policy for the EU's 27 member states and takes the lead on conflicts at the WTO in Geneva.
In November, China downgraded diplomatic ties with Lithuania and stopped issuing visas there in protest at Vilnius's decision to allow Taiwan to open the representative office under its own name.
The United States has signaled its support for the EU and Lithuania in the fight.
Reports said that Lithuania, at the prodding of Washington, was considering renaming its mission to Taiwan to something less provocative for Beijing.
Under the stewardship of former German Chancellor Angela Merkel, the EU has long pursued friendlier ties with China, but this has also proven harder to defend as Chinese President Xi Jinping's leadership turns more centralized and hard line.
The relationship with Beijing grew even more complicated a year ago when an EU-China investment deal wanted by Germany was put on indefinite standby after both sides exchanged tit-for-tat sanctions over the treatment of the Uyghur Muslim minority in China.
Spurred on by the latest controversy, the EU is discussing draft regulation that would equip Brussels with new powers to swiftly retaliate against efforts by foreign governments to undermine the European economy and businesses.
The first stage of the EU’s action under WTO dispute settlement rules involves a "request for consultations" under which the bloc will formally ask China for more information about its measures with the aim of resolving the dispute amicably.
If no results are achieved within 60 days, the EU can request that a WTO panel rule on the dispute.