Where Trade Trumps Politics

In the coming months, if not weeks, the European Union is set to lift the arms embargo it has imposed on China for the 15 years since the killing of pro-democracy demonstrators near Tiananmen Square.

It is a diplomatic gesture, and a very big one, clearly intended to demonstrate that relations are back to normal and China is no longer to be punished for that shocking abuse of human rights and disdain for the lives of idealistic students who took to the streets in 1989.

Beijing has been lobbying furiously for the move for several years but not really because it wants the weapons. China gets most of the defence equipment it cannot produce itself from Russia and Israel, its two principal suppliers. Rather it is a question of face: not being classified as just another rogue state.

The decision has split the EU between those (mainly the smaller states such as the Nordic countries and Ireland) that think it is still too early to forgive and forget and the pragmatic majority (led by France, Germany, Italy and the UK) that want to get on with a profitable trading relationship. The commercial pragmatists are winning.

It has also caused fury and alarm in Washington and in Tokyo. But that has much less to do with concern over human rights. It reflects anger, especially in the US Congress, at the possibility that Europe will provide arms or defence technology to China with which the mainland can threaten the US navy if it ever sails to support an embattled Taiwan.

The timing of the decision seems extraordinary, given the desire on both sides of the Atlantic to patch up a relationship so badly damaged by the war in Iraq. George W. Bush is coming to Brussels to make peace later this month. But it is not just a question of timing. In Washington, they are asking a more fundamental question: what is the EU grand strategy in China?

It is a good question (although it could equally be asked of the US). But it suggests a misunderstanding of the way the EU works. For, unlike in America, the driving force in EU foreign policy is reactive, not pro-active. There is no "grand plan" towards China, at least not in the US sense of geopolitical strategy. This is not about trying to create a "multi-polar" world to counterbalance the sole superpower. It is fundamentally about trying to do business and reacting to events.

That is not to say there is no strategic thinking involved. Jacques Chirac, the French president, who first put the issue on the EU agenda, does have a multipolar vision. It is not widely shared by the other EU leaders. They are far more concerned on two other fronts: boosting trade with the world's most dynamic economy; and binding China into the international order of institutions, including the World Trade Organisation, before it seeks to be an alternative superpower to the US.

The pragmatists say it is nonsense to classify China with pariah states such as Burma, Sudan and Zimbabwe, the only other countries subject to EU arms embargoes. They admit there has not been enough progress on human rights but they maintain that China today is a more liberal country than it was in 1989.

Unlike the US, Japan, and indeed Russia, the EU members do not have security interests in east Asia. They do not see China as a military rival. Nor do they have the same intimate political ties to Taiwan as Washington. The last time France sold arms to Taipei was in 1992.

Even so, the Europeans are bending over backwards to devise ways of restricting arms sales so that they do not threaten any of their other partners. They are trying to agree on ways of reinforcing their existing code of conduct on arms sales with rules requiring all contracts to be subjected to scrutiny and objections.

The reality in Europe is that everyone wants to do business with China and no one wants to be left behind. That is an important reason why the UK has come off the fence and is backing the move. Another reason is that there is growing British resentment at the restrictions on US technology transfers to Europe.

Ironically, the angry US attitude seems to be causing EU members to close ranks on the issue. The feeling is that China should be treated "no better and no worse than Russia", according to one diplomat. "Lifting the embargo does not mean we have to sell them arms."

But there is another political factor that counts. China is one of the few EU partners that grants equal importance to its dealings with the union as it does to bilateral relations with national capitals. In that regard, it differs both from the US and from Russia. China's attitude recognises the role played by the EU in promoting and negotiating its membership of the WTO. In Brussels, officials also see a common interest in promoting "effective multilateralism", rather than a world order based on the exclusive power of nation states.

Perhaps that is European wishful thinking. China is probably far more conscious of its nation status, and the leaders in Beijing do think in geopolitical terms. But the EU is condemned to think and act as it does by its own structure - a complicated decision-making process, rather than a single entity with clear strategies.

In the case of China, a clear EU strategy would have been to maintain the arms embargo because respect for human rights had not improved. Instead, competition for trade advantage has prevailed. But that is Europe: it is not threatening, only venal. A continent of shopkeepers.