Taiwanese and Lithuanian flags are displayed at the Taiwanese Representative Office in Vilnius, Lithuania on January 20, 2022. REUTERS Janis Laizans File Photo
VILNIUS FRANKFURT, Jan 21, Reuters - Lithuania is under pressure from German companies to back down in a dispute with China to end a blockade of the Baltic state, as European trade officials struggle to defuse the row, people familiar with the matter said.
The row erupted after the Baltic state allowed the opening of a de facto embassy by Taiwan, a self-ruled island that China views as part of its territory.
Some of the companies affected have asked the political leaders of Lithuania to de-escalate the dispute or risk a corporate exodus, according to people involved and correspondence seen by Reuters.
One of the most significant impacts is the German car sector.
In a letter to Lithuania's foreign and economy ministers, the German-Baltic Chamber of Commerce said imports of Chinese machinery and parts and the sale of Lithuanian products to China had ground to a halt and that some firms may have to leave.
The chamber said that the basic business model of the companies is in question and some will have no other choice but to shut down production in Lithuania Last month, the prime minister of Lithuania, Ingrida Simonyte, spoke with business leaders from German car-parts giant Continental to listen to their concerns, according to a person who attended.
The dispute continues to disrupt global production, and the damage to industry goes up to hundreds of millions of euro, and she was told this would escalate.
According to one person with knowledge of the discussion, Lithuanian President Gitanas Nauseda also held talks with business executives this week when he was urged to make an immediate de-escalation.
Valdis Dombrovskis, the top trade official of the European Union, is trying to mediate between Beijing and Vilnius ahead of a possible EU-China summit in the coming months, said a person with knowledge of the matter. Lithuania belongs to the 27 state bloc.
The opening of a representative office by Taiwan in Vilnius is a topic of the dispute, but tensions have been mounting since Lithuania's ruling coalition agreed last year to support those fighting for freedom on the island.
Renaming the office to remove the word Taiwan could resolve the dispute. Taiwan has other offices in Europe and the United States, but they use the name Taipei, avoiding reference to the island itself. It will be hard to salvage relationships.
The Lithuanian government has betrayed China's trust, the Chinese foreign ministry told Reuters in a statement.
The ministry said that Lithuania must correct its attitude and take practical measures to correct its mistakes for China-Lithuania relations to get back on track.
A spokesman for the European Commission said it would resist coercive measures, adding: We stand by Lithuania. Lithuanian exports are EU exports. The Commission said it was reaching out to China to solve the situation and collect facts and evidence to see if China was complying with international trade rules. The spokesperson said we will not hesitate to act to defend our rights.
There is no sign of a climbdown by Lithuania, with its president telling the business meeting this week that it was up to Brussels, home of the European Commission, to find a solution.
One Lithuanian official, asking not to be named, said Brussels' involvement as a go-between was critical, while another said EU backing was half-hearted and its officials too urged Lithuania to compromise.
The problem between China and Lithuania can only be solved through bilateral channels between China and Lithuania, according to China's foreign ministry. China-Lithuania issues to China-EU relations are unlikely to solve the problem. The stand-off threatens the Lithuanian industry, which has built up clusters of factories that make parts destined for overseas, such as furniture, clothing, car parts and lasers. Hundreds of containers of goods and parts are in limbo.
Two people said that it has had knock-on effects on customers, such as luxury carmaker BMW and Volkswagen, and that it has rippled through global supply chains.
Volkswagen said its production isn't affected, while BMW and Continental didn't want to say anything.
According to Joerg Wuttke, president of the EU Chamber of Commerce in China, Lithuania has become a no-go zone.
It has been taken off the map. If a Lithuanian company needs Chinese components for its production but can't find them because China is blocking, we'll be happy to help by putting it in contact with French companies or companies from other Member States, he said.
French officials said that Paris, which holds the EU presidency in the coming months, is attempting to speed up the introduction of new EU trade defence measures.
It is unclear whether Europe, where countries such as Germany depend on it for trade, will agree to the measures, which could penalise China in such disputes.
One person with knowledge of the matter said that it has been difficult for Brussels to take legal action against China because companies that are unwilling to be publicly named.