PRAGUE – Has the death knell already sounded on the EU-China Comprehensive Agreement on Investment (CAI), a deal which was controversially signed in December ahead of Joe Biden’s formal inauguration in the White House but still requires EU ratification?
A recent and precipitous downturn in EU-China relations over human rights-related issues and the EU’s recent move to protect large European firms from foreign buyouts clearly aimed at Chinese companies have put the agreed but not ratified pact in new doubt.
“It’s clear in the current situation with the EU sanctions in place against China and Chinese counter-sanctions in place … [that] the environment is not conducive for ratification of the agreement,” EU Commission Vice President Valdis Dombrovskis said in a press interview last Thursday.
Dombrovskis referred to the EU’s imposition of targeted sanctions in March on four Chinese officials for their role in the alleged “genocide” of the Uighur population in China’s Xinjiang region. Hours later, Beijing imposed retaliatory sanctions on several EU officials, members of the European Parliament (MEP) and European academic institutes.
Beijing’s decision to retaliate with its own sanctions clearly shook some European politicians, which came around the same time as a combustible first US-China meeting in Alaska.
“We may not always agree on everything in the EU, but there has been a firm, principled and unanimous rejection of these Chinese sanctions, which indeed are both disproportionate and unjustified,” the EU’s foreign policy chief Josep Borrell wrote in his blog in late March. “Clearly, this move makes our relations and cooperation more difficult,” he added.
Yet while many media reports interpreted Dombrovskis’ comments as an epitaph for the EU-China investment pact, they could be read in several ways.
Appeal for change
European Commission spokespeople and its president, Ursula von der Leyen, tried to walk back Dombrovskis’ comments last week, claiming his words were misconstrued by the press.
And Dombrovskis himself offered an important caveat. Progress on the investment pact will “depend really on how broader EU-China relations will evolve,” he said last week, which appeared to be the Commission vice president using the CAI as leverage to appeal for change from China.
In February, Dombrovskis approved a new EU trade strategy that sought to make European trade and investment more contingent on fostering the EU’s wider global aims.
Current conditions might not be conducive to ratification of the EU-China investment pact, Dombrovskis said, but he did not say conditions won’t improve.
Moreover, Dombrovskis was only stating what others had already said. As he noted, for the CAI to be ratified it must be accepted by individual EU member states as well as the European Parliament, where there is far more rancor over China than in the Commission.
Even in December, when terms on the CAI were agreed, analysts predicted it would struggle to pass the European Parliament, where many China “hawks” sit on important bodies.
Moreover, the potential for EU-China relations to worsen was foreseeable in December when Brussels introduced its own Magnitsky-like sanctions regime after years of planning.
For many, the Commission’s decision to agree to terms on the CAI in December was more symbolic than constructive, with question marks over how much Beijing had agreed to create a level playing field for European investors.
The incoming Biden administration publicly appealed to the EU in December to delay agreeing to terms on the CAI, asserting that Brussels would be better served if it waited and tried to negotiate better concessions from Beijing in tandem with Washington.
Highly ambiguous policy
For Washington, the Commission’s decision to go ahead with the deal signaled Brussels’ unease over transatlantic relations, which had been badly damaged during Donald Trump’s cantankerous presidency.
However, Brussels felt the Biden camp was being slightly disingenuous since the incoming government said it would continue with the Trump administration’s own talks with Beijing, which gave the US the same investment advantages in China that the EU hoped to achieve via the CAI.
All in all, this is the latest indication of a highly ambiguous EU foreign policy towards China, which Brussels officially declared in 2019 to be “an economic competitor” and “a systemic rival.”
At the same time as an EU-China pact is on the table, which will open up investment opportunities for firms in both markets, Brussels is moving ahead with new protectionist measures.
Earlier this month, the EU’s antitrust chief Margrethe Vestager announced legislation that will curtail how foreign companies can purchase European assets, a move seen primarily as stopping Chinese state-owned companies from purchasing European firms whose values have been hit because of the pandemic.
In recent years, individual EU member states have imposed similar restrictions and checks on foreign firms buying their strategic assets, moves likewise aimed at stymieing China from snapping up their distressed domestic companies.
Further ambiguity in EU-China relations is seen in European attempts to play a more assertive role in Indo-Pacific affairs, which will naturally force them to take a stand on China’s controversial actions in the region.
In August, Germany will for the first time deploy naval vessels to the South China Sea, where it will engage in freedom of navigation exercises. Several countries in the region oppose China’s claims of sovereignty over features in the maritime area.
A transitional phase
Yet Germany’s outgoing chancellor, Angela Merkel, has for years been the loudest proponent of a soft and close engagement with China. She has met with Chinese President Xi Jinping twice in recent months.
At the heart of the matter is that the EU appears to be in a transitional phase.
The older view, still clung onto by Merkel and certain other senior European politicians, holds that the EU can influence Beijing’s behavior but engagement should be quiet and done behind closed doors. Moreover, trade and investment should be used to build leverage in Beijing for the future, rather than to change China now.
A newer interpretation of EU foreign policy, however, argues that Brussels needs to be far more vocal if it is to influence Beijing’s global actions and create a more equitable relationship between the EU and China. For supporters of this position, targeted sanctions, strong public statements and less ambiguity over global issues are the way forward.
This transition depends on the will of the EU’s two main states, France and Germany.
Both Merkel and French President Emmanuel Macron have held joint talks with Xi in recent months, a Franco-German hegemony over China policy that has not gone down too well with the EU’s other 25 states.
However, this month Germany and France signed a communique at the G7 Summit held in London that for the first time endorsed Taiwan’s membership in international bodies such as the World Health Organization.
For Macron, his vision of European “strategic autonomy” – of being independent from both the US and China – has been greatly weakened in recent months, not least after the departure of Trump from the White House, with the former US president being the reason for Macron’s vision.
A united stance
There is now a greater desire among Europeans to form a more united stance with Washington under the Biden administration, including over issues relating to China.
Whoever replaces Merkel in September – after her 16 years in charge – knows that relations with Beijing are vital for Germany’s export-driven economy. Year-on-year German exports to China rose by 37.9% to 10.3 billion euros in March, while its exports to the US increased by only 8.8% to 11.1 billion euros.
However, there is growing skepticism about China among the German electorate, with calls for Berlin to put geopolitical concerns and human rights above its domestic economic imperatives.
Surveys suggest the Greens, who have petitioned for a more aggressive German policy towards China and closer links to the US, could become part of a coalition government after September.
For years, the EU position on China has been constructive ambiguity, where seemingly mutually exclusive policies could be pursued and realms like trade and human rights not allowed to overlap.
The EU could still have an investment pact with China while at the same time sanctioning Chinese officials over their perceived abuses.
Now, however, there appear to be signs of simplification. If Beijing sanctions European officials over one issue, it will now have a knock-on impact in a different area of relations.