Anti-protectionism is a priority in the cooperation between China and the European Union (EU) to ward off the current financial crisis, a Chinese economist said in a recent interview with Xinhua.

"Now special attention should be paid to protectionism since the EU is the largest trading partner with China, while China is the EU's second largest, only after the United States," said Fan Gang, director of China's National Economic Research Institute.

"If these countries or regions turn to protectionism, the result will be disastrous," Fan said on the sidelines of a high-level conference on Sino-EU cooperation against the financial crisis held in the European Parliament on Monday.

As the world economy plunged into a first-ever recession in 60 years due to the financial crisis, there is an increasing risk that governments may resort to protectionist measures to defend domestic markets and jobs.

The World Trade Organization (WTO) warned last month that a gradual buildup of protectionist measures could threaten to strangle international trade and hamper economic recovery.

At the G20 summit in London early this month, leaders from the world's major economies, including several EU countries and China, reaffirmed commitment to free trade and open market.

Despite its commitment to avoiding protectionist measures, the EU decided less than a week later to impose anti-dumping duties of up to 50 percent on Chinese-made candles sold in the 27-nation bloc, a move decried by European retailers as "a vote for protectionism."

Fan warned that lessons from the Great Depression in 1930s have already shown if countries engage in trade protectionism, it will only make the crisis last longer.

"One of the most urgent tasks is to work together to ensure the world markets are kept open under the framework of the WTO rules. This is one of the most important areas for Sino-EU cooperation," Fan said.

Besides joint actions to prevent protectionism, Fan said the EU and China should also cooperate in the ongoing reform of global financial and monetary system.

"In this regard, the EU and China share common ground because both are victims of the financial crisis which originated in the United States and have suffered from the current dollar-based international monetary system," he said.

The financial crisis is partly blamed on lack of financial regulation in the United States, but many European banks paid heavily for their exposure to the US sub-prime mortgage market.

In order to prevent recurrence of the crisis, the EU has been pushing hard for tougher financial regulation on the global level. Its demand was virtually adopted by G20 leaders at the London summit after Washington softened its opposition.

China's central bank governor Zhou Xiaochuan recently suggested that a new international reserve currency should be created to replace the US dollar and the International Monetary Fund's Special Drawing Rights serve a possible option.

"The Special Drawing Rights are actually a European creation," Fan said.

Fan said it may be too early to see such a dramatic change of the international monetary system, but it is worth discussion between the EU and China.

He also called for more macro-economic dialogue between European and Chinese policy makers in the joint efforts to fight the financial crisis.

Fan said a comprehensive cooperation on the global level is essential since no single country can get rid of the crisis on its own, and it is an important part of that for the EU and China to work together.

"The EU is the biggest organization of developed countries and China is the biggest developing country, so the importance of cooperation between the EU and China is self-evident," he said.

(Xinhua News Agency April 29, 2009)