Commerce Minister Bo Xilai defended China's trade policies and market access Monday when he met visiting EU Trade Commissioner Peter Mandelson.

"People who call for China to open up its markets further to the outside world must recall it's basically a developing country," Bo told reporters.

European Union Trade Commissioner Peter Mandelson toasts with Chinese Commerce Minister Bo Xilai (R) after witnessing a memorandum of understanding on 'Intellectual Property Rights' signing ceremony in Beijing November 7, 2006. [Reuters]

He was responding to his EU counterpart's call for China to further open its market to foreign competition and remove "unfair barriers" to European companies.

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Mandelson said China "needs to open its markets further and commit to trading fairly both in terms of the conditions of domestic production and the access it provides to its own market."

Bo said China is still a developing country which has 100 to 200 million people living on the equivalent of US$1 per day, and is not able to undertake drastic changes.

He also criticized the EU for its decision to go along with the United States and Canada in asking the World Trade Organization (WTO) to set up a panel to examine China's tariffs on auto parts.

Bo defended the country's tariff regime on imports of auto parts, which regards imports of 60 per cent or more of a vehicle as a complete unit, saying the regulations were "fully in conformity" with WTO rules. But Mandelson indicated Brussels would press ahead with its complaint.

The two agreed to meet the year-end deadline for setting terms of reference for negotiations over a new treaty to guide bilateral trade and investment. The treaty aims to replace the current one that has remained unchanged for over 20 years.

As for Mandelson's complaint about counterfeiting, Bo said the country has made big strides in protecting intellectual property rights.

Reports said the United States is set to refer China to the WTO for weak protection of intellectual property rights. But Mandelson said he has no intention of straining relations by suing China at the global trade body for falling behind on its obligations.

The EU trade chief is scheduled to meet Chinese officials from the intellectual property rights enforcement office today.

Mandelson will then travel to Chengdu, Southwest China's Sichuan Province, for a forum which aims to boost co-operation between small- and medium-sized enterprises from both sides; and seek Chinese investment in Europe.

Europe is China's largest trading partner while China is Europe's largest source of imports.