World·Analysis

Little Lithuania pokes China with Taiwan support and pays the price

The Baltic states may be on high alert for a possible Russian attack on Ukraine, but Lithuania has another battle on its hands. The tiny country picked a political fight with China over the naming of its new, de facto Taiwanese embassy. The move has become costly in terms of trade — not just for Lithuania, but for the entire European Union.

Lithuanian officials say China 'erased' country from customs register, effectively throttling trade

Vladas Laurinaitis, who owns a sawmill near Kaunas, Lithuania, said his company's exports to China were cut off after a spat began over the naming of Lithuania's new, de facto Taiwanese embassy. (Jason Ho/CBC)

With much of Russia's army massing next door in Belarus and fears of an attack on Ukraine, many Lithuanians could rightly be preoccupied with the thought that a terrible, new war in Europe could spill over into their country.

Except for months now, it's been China — not Russia — posing the greatest challenge to Lithuania's political and business decision makers as they've worked to resolve an unlikely confrontation that their government instigated.

The spat began over the naming of the new, de facto Taiwanese embassy in Lithuania's capital, Vilnius.   

China considers Taiwan to be an integral part of its territory, whereas Taiwanese leaders assert their independence as a self-governed island. Given the sensitivity, most Western nations have opted to use a less politically sensitive name to describe trade and political missions, such as "Taipei" office, referring to the capital city. 

But not Lithuania. 

A sign reading 'The Taiwanese Representative Office In Lithuania' is seen on Taiwan's trade and political office in Vilnius, Lithuania. Due to political sensitivity around Taiwan's relations with China, most Western nations have used the capital of Taipei for trade and political missions, but in Lithuania, the name 'Taiwan' was featured prominently instead. (Adrian Di Virgilio/CBC)

"We see the threats and dangers which arise out of the expansionist policies of Communist China," explained Mantas Adomėnas, Lithuania's Deputy Foreign Minister, during an interview in Vilnius.

"We wanted to curtail this … and support democracy in Taiwan."

And so the name "Taiwan" ended up being featured prominently in the signs, lettering and the official title of the trade office when it opened in November. 

At the same time, Lithuania also pulled out of a group known as "17 +1," established by China in 2012 to help open up Eastern Europe to Chinese businesses.

Lithuanian officials told CBC News they expected reprisals, but the scale of China's wrath caught them off guard. 

Within days, Lithuania pulled its diplomats out of Beijing after China downgraded its embassy. Virtually all of the country's exports to China — from lumber to beer to high-tech lasers — were cut off, up to $400 million US (over $500 million Cdn) of business in total.

WATCH | How support for Taiwan ended up costing Lithuania:

Support for Taiwan costs little Lithuania big Chinese business

5 months ago
Duration 5:49
After Lithuania made a show of support for Taiwan, China reacted by blocking the small Baltic country’s business. And the dispute threatens to pull in more of Europe.

'We have been erased'

Unique, and perhaps even unprecedented, was the mechanism by which Chinese officials were able to throttle Lithuania's trade.   

They simply removed the country's name from China's customs register.

"We have been erased," said Adomėnas. "Anyone who tried to declare cargo coming from Lithuania would simply not find this country on the database."

The impact on Lithuanian businesses, many of which had laboured for years to open up markets in China, was immediate and devastating.

A worker runs a log through a shaver at a sawmill outside Kaunas, Lithuania. The owner said the company lost 10 million euros in annual sales when China closed Lithuanian export markets. (Jason Ho/CBC)

While total Lithuanian exports to China accounted for a modest $387 million US in 2019 — under two per cent of its total exports — China was nonetheless the Baltic nation's fastest growing foreign market.

"Our exports to China stopped," said sawmill owner Vladas Laurinaitis, 64, who operates the modest, family run business near Lithuania's second city of Kaunas.

"We lost our [trading] partners, we lost everything."

Until November, Laurinaitis had 25 workers on the payroll cutting and shaping wood construction forms destined for Chinese builders. He had grown his China export business to roughly 10 million euros (over $14 million Cdn) a year.   

And then in an instant, it was gone.

"[First], there was the financial crisis, then came the COVID crisis and now this political crisis," he told CBC News during a visit to his property. 

Even then, the Chinese weren't quite done with their retribution.

Other European companies began complaining that their products, which used parts produced in Lithuania, were being blocked, too. 

So far, it's unclear precisely how much broader European trade has been affected, but the Lithuanian national public broadcaster, LRT, quotes the German-Baltic Chamber of Commerce as suggesting the automobile manufacturing sector in Germany alone has already lost hundreds of millions of euros.

A wintery panoramic view of Lithuania's capital, Vilnius. Though it's unclear exactly how much broader European trade has been affected, the European Union has formally complained to the World Trade Organization that China used 'coercive' action against Lithuania. (Adrian Di Virgilio/CBC)

'Economic coercion' 

Adomėnas, the Lithuanian deputy minister, acknowledges many exporters in Germany and France were initially upset at Lithuania for dragging the whole trading block into its dispute, but in the weeks since, he says the EU has gone to bat for his country. 

Last week, the EU filed a formal complaint with the World Trade Organization accusing China of "coercive" action against Lithuania.

"If Lithuanian companies are dropped and global supply chains are restructured, that means China acquires this … nuclear option in economic coercion," Adomėnas told CBC News.

"[China] could use it successfully against any country whatsoever."

A spokesperson for China's foreign minister denied any direct pressure is being put on the Baltic nation and instead blamed Lithuanian leaders for abandoning Europe's long standing "one China" policy — a diplomatic acknowledgement of China's position that there is only one Chinese government.

"The problem between China and Lithuania is a problem caused by Lithuania's betrayal and damage to China's interests," said Zhao Lijian in Beijing on Jan. 27.

"We urge Lithuania to correct its mistakes immediately."

Critical moment

The head of the Taiwanese mission in Lithuania, Eric Huang, met with a CBC News crew in the spacious 16th floor of a Vilnius high rise that offers a commanding view of the city's river and old town.

Huang, who previously served at the Taipei Economic and Cultural Office in Vancouver, told CBC News that he has personally been working for several years to set up the new trade mission and that China should not be allowed to dictate what it is called.

WATCH | Taiwanese official on managing global relationships with China

China's global trade relations at critical crossroad: Taiwanese official

5 months ago
Duration 1:10
Eric Huang, the head of the Taiwanese mission in Lithuania, discusses China's influence on world trade and what he says is a 'critical moment' for democracies in their relationship with China.

"We don't think the name is controversial — maybe it is controversial for some other people, but not for Taiwan," he said.

"I think it is also a very critical moment for the world to demonstrate — especially for democracies — to demonstrate solidarity."

Prior to the Russian military build up along its border with Ukraine, discussions about how to rein in China's growing international assertiveness — especially toward Taiwan — had been consuming Western governments, especially the United States. 

The push began in earnest under former U.S. president Donald Trump but has continued under the current Democratic administration in Washington, D.C.

Chinese military aircraft now almost routinely fly into Taiwan airspace and the U.S. has countered by stationing some of its most heavily armed vessels in the region.

Recently, China's Ambassador to the United States warned of potential conflict between the two superpowers over the future of Taiwan.

Long time political watchers in the Baltics say Lithuania was motivated to take on China in part because of its own experience gaining independence from the crumbling Soviet Union thirty years ago.

It was the first former Soviet republic to defy Moscow and break away.

Margarita Šešelgytė, the director of international relations and political science at Vilnius University, says the Baltic country may be using its actions on Taiwan to earn praise from the U.S. (Jason Ho/CBC)

American reward

But Margarita Šešelgytė, Director of International Relations and Political Science at Vilnius University, says she also believes Lithuania's government was looking for a reward from the United States for following its broader agenda to contain China's political influence.

"For us, being a small country in the vicinity of Russia is a very bad scenario. So how do we become more attractive to the United States? Broaden our foreign policy and also be part of U.S. policy in the (Asian) region." 

Senior U.S. trade officials have expressed their support for Lithuania, and Under Secretary for Economic Growth, Energy, and the Environment Jose Fernandez visited Vilnius this week. 

Lithuania's foreign ministry says they've also received political backing from Canada, but Global Affairs Canada in Ottawa did not answer CBC News' question as to what precisely that entails.

In the meantime, Lithuanian businesses have been inundated with praise — and money — from Taiwan. Taiwan's government has said it will set up a $200 million US fund to help Lithuanian businesses grow and gain access to Taiwanese markets.

And thanks to viral social media coverage of the story in Taiwan, their consumers have also been introduced to a wide range of Lithuanian products. 

Marius Horbačauskas pours a beer at the Volfas Engelman brewery in Kaunas. His brewery lost two million litres worth of annual sales when China turned off the taps, but he says sales to Taiwan are slowly starting to make up for it. (Jason Ho/CBC)

'Nothing to lose' in China

Marius Horbačauskas with Volfas Engelman brewery in Kaunas says he's been told that many people in Taiwan now have a special name for his beer.

"It's very touching," he said. "They call it 'freedom beer.' "

His brewery lost two million litres in annual sales when China turned off the taps, but he says sales to Taiwan are slowly starting to make up for it.

"We have nothing to lose any more in China — we lost everything so we can only gain in Taiwan," Horbačauskas told CBC News on a visit to the brewery.

Taiwan's state liquor corporation also bought up 20,000 bottles of Lithuanian rum when China refused to accept the shipments.

An employee at Volfas Engleman brewery inspects a bottle of beer. Company representatives say Taiwanese officials have visited the brewery and offered to get its products onto store shelves back home. (Adrian Di Virgilio/CBC)

Taiwan's representatives have visited his brewery and Horbačauskas says they've offered to help him get his products onto store shelves back home.

He wouldn't say if he thought taking on China was a good call by the government, but he said he believes it illustrates Lithuania's character.

"It might seem funny to you, but Lithuania was a very big country in the Middle Ages — and we still think like we are big. In fact, we're not, but helping each other, especially someone who is weaker, is something in our blood."

ABOUT THE AUTHOR

Chris Brown

Foreign Correspondent

Chris Brown is a foreign correspondent based in the CBC’s London bureau. Previously in Moscow, Chris has a passion for great stories and has travelled all over Canada and the world to find them.

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