John O’Donnell, Andrius Sytas, and John O’Donnell

VILNIUS/FRANKFURT – German companies are urging Lithuania to renege in a dispute against China, to end a blockade on the Baltic states. This is despite European trade officials trying to diffuse the situation, sources familiar with the matter stated.

China is threatening multinationals with exclusion from their market if they don’t cut ties to Lithuania. This unusually severe move has led to companies being drawn into a dispute with Lithuania and Beijing has been in a collision with the European Union. [L1N2SU0G7]

This row broke out after Taiwan opened a defacto embassy in the Baltic state. Taiwan is a self-governing island China considers part of its territory.

According to people familiar with the matter and correspondence reviewed by Reuters, some of the affected companies have requested that Lithuania’s political leaders de-escalate their dispute to avoid a company exodus.

Multinational corporations are all affected. However, the German auto sector is the worst.

The German-Baltic Chamber of Commerce sent a message to the Lithuanian foreign and economic ministers stating that imports of Chinese parts and machinery had halted and that certain firms might have to move.

The chamber urged ministers to find a constructive solution to restore relations to China. It stated that “the fundamental business model of these companies was in doubt and some… will not have any other option than to stop production in Lithuania.”

According to one attendee, Ingrida Simonyte (Lithuanian Prime Minister) met with top business executives, including Continental’s executive directors, last month to hear their concerns.

According to one person, industry has sustained damage of hundreds of millions of euro. This would only increase if there is a continuing dispute that interrupts global production.

According to one source, the Lithuanian President Gitanas Nuseda met with business leaders this week and was asked to “immediately deescalate”

According to a source familiar with the matter, Valdis Dombrovskis is the top European Union trade representative. He also attempts mediation between Vilnius and Beijing in advance of an EU-China summit. Lithuania is part of the 27-state bloc.

RENAMMING

While the issue is centered on Taiwan opening a representative office in Vilnius for Taiwan, tensions are mounting since Lithuania’s ruling alliance agreed last year that it would continue to support “those who fight for freedom” there.

It could solve the problem by changing the name of the office so that Taiwan is not mentioned. Taiwan does have other offices located in Europe and America, however they only use Taipei’s name to avoid any reference to Taiwan.

It will not be easy to save relationships.

“The Lithuanian government has betrayed China’s trust,” the Chinese foreign ministry told Reuters in a statement.

According to the ministry, China is not exerting economic pressure.

The spokesperson of the European Commission stated that it will resist coercive measures and added: “We stand with Lithuania.” Lithuanian exports can be considered EU exports.

The Commission stated that it would be reaching out and examining China’s situation to find out if China was following international trade rules. According to the spokesperson, “We won’t hesitate to take action to defend our rights,” he said.

The president of Lithuania told this week’s business meeting that there has not been any sign of Lithuanian leadership. He said it was now up to Brussels to solve the problem.

One official in Lithuania, who asked not to be identified, stated that Brussels’ role was essential. Another said EU backing was partial and suggested that EU officials urged Lithuanians to make concessions.

‘NO-GO ZONE’

China seemed to be against Brussels involvement.

China’s foreign minister stated, “Problems between China & Lithuania can and should only be resolved through bilateral channels between China & Lithuania.” The problem cannot be solved by connecting China-Lithuania matters to China EU relations.

The dispute threatens Lithuanian industry. It has built clusters of factories producing parts for parts that are destined to be shipped overseas such as furniture and clothing. There are hundreds of empty containers with goods and spare parts.

The ripple effect has been felt throughout global supply chains, and in Continental’s case, it has had knock-on consequences on luxury carmakers BMW (DE:), according to two people.

Volkswagen stated that its production has not been affected while BMW and Continental refused to comment.

Joerg WUTTE, President of China’s EU Chamber of Commerce in China stated: “Lithuania became a no go zone in China,”

It is not possible for European companies to register the country as their country of origin in order to sell products here. It was removed.

Franck Riester (France’s Trade Minister) promised Lithuanian assistance.

“If a Lithuanian manufacturer needs Chinese components but can’t find them in China, we are happy to assist it with putting it into contact with French or other Member States,” he stated.

Paris is trying to increase the speed of the implementation of EU trade protection measures.

Although China could be penalized in these disputes, it remains to be seen if Europe, where Germany and other countries depend on China, will consent.

According to one source, the difficulty for Brussels in launching legal action against China is similar. Companies affected by this have refused to be named publicly.