The European Union’s decision this week to hurriedly conclude terms of an investment pact with China has certainly complicated what was set to be a new, more acrimonious age of US-EU relations next year.
Almost immediately after Joe Biden’s victory in the presidential elections in early November, talk turned to how the US and EU could repair their transatlantic relationship that had severely frayed under the outgoing Trump administration, which was extremely hostile to America’s traditional partners in Europe.
“We can … foresee an interest by the incoming Biden administration for close cooperation on China and the challenges it poses in terms of unfair trade practices, security and other issues where we both have concerns,” Josep Borrell, the EU’s foreign policy chief, wrote on his blog on November 9, only days after Biden’s victory.
He went on to praise the new EU-US dialogue on China, launched in October by the outgoing Trump administration, and noted that the EU will continue it “with renewed energy … under the next administration.”
The narrative now, however, is that the EU has gazumped the Biden camp by rushing to secure terms of the Comprehensive Agreement on Investment (CAI) with Beijing this week.
Many analysts in Europe think the EU should have delayed talks until next year, when Washington and Brussels could have worked more closely together to extract far greater economic concessions from China, which is charged with closing its markets to foreign firms.
Biden’s pick as national security adviser, Jake Sullivan, wrote on Twitter last week before the CAI’s terms were concluded that the Biden camp “would welcome early consultations with our European partners on our common concerns about China’s economic practices.”
America’s advantages
More recently, outgoing deputy national security adviser Matthew Pottinger commented: “Leaders in both US political parties and across the US government are perplexed and stunned that the EU is moving towards a new investment treaty right on the eve of a new US administration.”
Brussels, for its part, retorts that Biden had vowed not to end the “phase one” talks between the US and China started earlier this year by the Trump administration, which gives America advantages over the EU in terms of trade and investment with China.
Valdis Dombrovskis, the EU’s trade commissioner, has described the CAI deal as a “leveling up” with the US on trade terms relating to China.
Moreover, Brussels has justification for arguing that it had not been consulted by the Trump administration over US policy in Asia since 2017. Nor, indeed, by the previous Barack Obama administration when it sought to create the Trans-Pacific Partnership with several key Asian states, a trade deal Trump axed on his first day in office.
Neither is the EU unique in wanting to secure its own favorable trade terms with China, which overtook the US to be the bloc’s largest trading partner in 2020.
America’s closest partners in Asia – Japan, South Korea, Australia and Singapore, as well as its treaty allies Thailand and the Philippines – all signed up to the Regional Comprehensive Economic Partnership that was formalized in November, in which Beijing will play a leading role in setting policy.
As officials in Beijing were keen to stress this week, China also has plans for new trade agreements with Japan and South Korea, two key US allies in the region.
Whether the recently-agreed CAI actually becomes a fact remains in doubt, however. The final text has still yet to be concluded and it will go through a lengthy and arduous ratification process in the European Council and Parliament, where passage is not guaranteed.
Second-fiddle to Washington?
If it is accepted, ratification is unlikely until early 2022.
Whichever way one reads this event, it clearly prefigures complications about how the US-EU transatlantic relationship can be patched up next year, whether it’s simply back to the status quo ante of Brussels expected to play second-fiddle to Washington or something new.
“America is back – we’re at the head of the table again,” Biden reportedly said in his first interview after his victory last month, a comment that was certain to raise eyebrows amongst those in Europe who feel the time has come for the continent to flex its autonomous muscles on the world stage.
But in a co-written essay published last year, Antony Blinken, Biden’s pick as the next US secretary of state, noted: “Our alliances are out of date in one key respect: The United States has European allies and Asian allies, but no institution links the Asian and European democracies.”
He added: “As China’s Belt and Road Initiative draws Asia, Europe and the Middle East closer together in ways that serve Beijing’s interests, the democracies also need a global perspective.”
In an attempt to deny charges that EU policy has to take a binary choice between transatlantic or independent, Borrell wrote in November: “For me, investing in a strong and capable Europe also means investing in a revitalized transatlantic partnership. With a Biden administration, the two are flip-sides of the same coin.”
To parse some similarities between Blinken and Borrell’s positions, mending the transatlantic relationship doesn’t just mean fixing bilateral terms, but also how the EU and US are to face the rest of the world together.
Positive news
To take a glass-half-full approach, the new Biden camp could reason that it is actually positive news that Beijing has presumably shown some weakness by conceding, on paper at least, to a rather grand concession on investment to the EU, a democratic bloc naturally aligned to the US, even if these terms aren’t offered to the United States itself.
Dombrovskis, the EU’s trade commissioner, told the Financial Times that the CAI contains the “most ambitious outcomes that China has ever agreed with a third country” in terms of market access and fair competition.
A section of the US foreign policy establishment might regard it more favorable if both the US and EU had their backs to the wall against China, united in mutual opposition and mistreatment by Beijing.
But Washington has tended to lose trust amongst allies since 2017 by thinking they would eagerly follow the US in conducting economically detrimental acts against China. No other state has followed the US down the path of a “trade war” with Beijing, after all.
As Biden said this week, as part of the US-China relationship, Washington is “stronger and more effective when we are flanked by nations that share our vision for the future of the world.”
The optimistic reading of events would find that the EU does share America’s vision of gaining greater reciprocity from China, but extracted this through negotiation rather than by a trade war, the Trump administration’s preferred tactic which Biden himself has critiqued.
Moreover, the EU claims it has extracted from Beijing honest promises that it will ratify international rules on forced labor, although this should be taken with a good pinch of salt since Beijing has typically failed in the past to take any action on such pledges.
Closer connections in Asia
At least on paper, the EU appears to have tied this issue to an institutional review process under the investment pact, which could see China punished if it fails to keep its promises.
And flanked, Biden’s choice of word, doesn’t mean subservient.
On another note, if the United States is serious about confronting the problems thrown up by an assertive and overzealous Beijing, Washington should favor a confident EU that has even closer connections in Asia and which doesn’t wait around for American instruction.
Many EU diplomats have correctly noted that the CAI is another cog in the European bloc’s drive to build influence and connections in Asia, coming after a major free-trade agreement with Japan was ratified in February 2019, as well as trade pacts with South Korea, Singapore and Vietnam.
In early December the EU finally became a “strategic partner” of the Association of Southeast Asian Nations (ASEAN) bloc, whose relationship with the US has deteriorated since 2019, when the Trump administration stopped sending senior officials to the region’s summits and conferences.
The narrative now forming around the EU’s willingness to fast-track the CAI negotiations – because of Beijing and reportedly Germany’s focus on their own economic necessities, as well as Brussels’ apparent willingness to overlook important issues of human rights for the sake of trade – could lead other Asian states into thinking that Brussels has now significantly weakened its conditionality over trade talks.
It is known that the EU’s trade talks with the Philippines have stalled over Manila’s human rights record, namely President Rodrigo Duterte’s brutal “war on drugs,” whilst Thailand’s political situation may still be a factor over their free-trade negotiations that both sides appear willing to recommence.
Trade talks with Indonesia and Malaysia, the latter of which formally stalled in 2012, are also disrupted by the issue of palm-oil, with Brussels vowing to end imports from this environmentally-damaging industry, over which Jakarta has responded by filing a case against the EU with the World Trade Organization.
EU officials have publicly said in recent months that they hope that free-trade talks can advance in 2021, with Thailand likely to be the next Asian state Brussels secures a deal with. EU-ASEAN trade rose from €125.3 billion in 2010 to €210.6 billion in 2019, according to EU data.
Throughout the Trump administration, many in the Democratic camp praised the fact that Japan has become something of a “middle power” in regions like Southeast Asia, providing alternative sources of investment and trade other than China, whilst the US since 2017 has jettisoned its economic links with the region.
With the EU now angling to be an even more assertive and trusted middle power in Asia, and one that naturally aligns to America’s democratic worldview, this will also give the incoming Biden administration more, not less, options for weakening China’s economic hegemony in the region.