On 30 December 2020, China and the EU completed their investment deal talks as scheduled, and the world is now watching to see when it will be signed. Given worsening China-US relations, an investment deal with the EU would be a major victory for China, and be of key strategic value to the latter’s foreign relations.
First, whether the agreement will be signed is a big test for China-Europe relations. In mid-September 2020, China and Europe held a high-level summit that yielded limited positive results. In his remarks following the summit, European Council President Charles Michel said: “Real differences exist [between Europe and China] and we won't paper over them.”
Real differences between China and the EU
On trade issues, Europe wants to be treated more fairly in a more balanced relationship, that is, to have an equal and fair competitive environment. On democracy and human rights, Europe continues to pay serious attention to the national security law for Hong Kong, and has reiterated its concern about China’s treatment of ethnic minorities in Xinjiang and Tibet. On international security, Europe has urged China to rein itself in and not take unilateral action in the South China Sea, but to respect international law and avoid conflict.
In reports on this summit, Chinese media said Chinese President Xi Jinping told European leaders that China does not appreciate being preached to, and Europe should resolve its own human rights issues. Soon after, on 16 September 2020, European Commission President Ursula von der Leyen gave her first State of the Union address, in which she took a rare tough stance on China. She said, “We must always call out human rights abuses whenever and wherever they occur — be it on Hong Kong or with the Uighurs.”
She announced that Europe would come up with a proposal for a European version of the Magnitsky Act against human rights abuses. And on 7 December 2020, the European Council passed such a law, to build a global system against human rights abuses. In its statement, the Council said that for the first time, the EU is equipping itself with a framework against human rights violations and abuses worldwide, showing that “the promotion and protection of human rights remain a cornerstone and priority of EU external action and reflects the EU’s determination to address serious human rights violations and abuses”.
Earlier on 22 June 2020, Michel had said in a statement: “We have to recognise that we do not share the same values, political systems, or approach to multilateralism. We will engage in a clear-eyed and confident way, robustly defending EU interests and standing firm on our values.”
In early December 2020, Germany — always prudent when it comes to China — released its latest 14th human rights report, in which it levelled unusually sharp criticism at China. The report said China’s already restricted public social space is shrinking, and those involved in the human rights movement in China are sometimes given long incarcerations. The core principle of rule of law is still not respected, while legislative branches are controlled by the party and seen as tools to exert its authority. The report also expressed concern about the Hong Kong security law.
In August 2020, German Minister of State for Europe Michael Roth wrote in Der Spiegel: “Beijing in particular is using economic dependencies as leverage in power politics. Greater European sovereignty is therefore the order of the day. We must strengthen our health-care systems, diversify our supply chains and minimise dependencies in particularly critical areas.” There were calls in Germany to reduce dependence on the China market.
Strengthening China-Europe trade relations would reduce room for asserting opposing values against China, and Europe would in fact be supporting China in moving onto the world stage.
Germany’s Handelsblatt carried a commentary that said Germany should learn from what happened to the Australians. It pondered the political and economic consequences of Australia’s dependence on China. It noted that the Australians were learning things the hard way as Beijing was making dependence a weapon to bring Australia to heel politically and blunt criticism there.
Political reasons may be impetus for sealing investment deal
From the above description of China-Europe relations, the investment deal carries more political than economic significance. Strategically, the deal would cement economic and trade relations between two major global economies, and break the US strategy of attempting to isolate China. Strengthening China-Europe trade relations would reduce room for asserting opposing values against China, and Europe would in fact be supporting China in moving onto the world stage.
...it is highly dependent on the China market and hopes to keep growing economic and trade relations — especially Germany, which saw two-digit growth in Mercedes Benz sales in China over 2020.
Second, the investment deal is a test of how Europe balances values and economic interests, and whether China can integrate further into the world.
Like the US, Europe has seriously misjudged China’s reform and opening up. In November 2020, the Halifax International Security Forum released a handbook titled China vs Democracy: The Greatest Game, which noted that the central error of democracies was that “Western governments, and Westerners generally, assumed that as China accrued the benefits of capitalist economics, democratic politics, albeit in fits and starts, would inevitably follow”. However, China has not brought about democracy, but is now “the most powerful authoritarian state in history”. This is also how Europe thinks of China now, and so Europe has to live with the consequences of dealing with China not just on trade and economy, but also on issues of human rights and values.
For the EU, relations with China is a scale that is hard to balance
However, unlike the US, when talking about relations with China, Europe maintains that it wants to work with China. And this is the dilemma of Europe’s strategy towards China. On the one hand, it is highly dependent on the China market and hopes to keep growing economic and trade relations — especially Germany, which saw two-digit growth in Mercedes Benz sales in China over 2020. On the other hand, it is still talking about human rights with China. The balance of values and economic interests is also reflected in the investment deal talks.
Labour laws are a standard part of trade and investment deals in the 21st century; EU and the US include labour clauses in their free trade agreements or bilateral investment agreements. But in China, labour clauses are sensitive issues that touch on the political system. China has yet to ratify international agreements that embody values, such as the Forced Labour Convention and the Abolition of Forced Labour Convention, nor does it accept core labour standards. So far, China has not accepted labour clauses in the free trade agreements and investment agreements that it has signed. However, media reports have revealed that China has been asked to implement the standards of the UN’s International Labour Organization (ILO), and to take effective steps to ratify the standards of the ILO.
... it is clear that it would be a diplomatic coup for China in terms of values if it were to get the EU to give priority to economic interests and do away with the labour clauses in the agreement...
On 23 December 2020, French Minister Delegate for Foreign Trade and Economic Attractiveness Franck Riester told Le Monde newspaper that Paris would oppose the proposed China-EU investment agreement if no progress was made on the forced labour issue in China, especially concerning the Uighurs. Recently, the Western media has been playing up a research report claiming that China is forcing hundreds of thousands of Uighurs and other ethnic minorities into arduous manual labour in the vast cotton fields of Xinjiang. At the same time, the European Parliament passed a resolution on 17 December 2020 criticising China for human rights breaches against Uighurs and other Muslim ethnic minorities. It also called for EU leaders to adopt new sanctions to punish Chinese officials involved in these human rights breaches in Xinjiang.
From the above, it is clear that it would be a diplomatic coup for China in terms of values if it were to get the EU to give priority to economic interests and do away with the labour clauses in the agreement. However, from a strategic perspective, it is virtually impossible for the EU to give up its labour clauses. If the EU fails to protect its values, it would be unable to face the world or maintain the alliance between the US and the EU. On 21 December 2020, Bernd Lange, chairman of the European Parliament’s Committee on International Trade tweeted, “Trade policy does not take place in a vacuum — how the question of forced labour is addressed in the CAI will determine the agreement's fate.”
To China, whether or not the agreement can be signed is a test of whether China should let the market allocate more resources or let the government dominate the economy.
How significant will the US factor be?
To China, whether or not the agreement can be signed is a test of whether China should let the market allocate more resources or let the government dominate the economy. The EU has been complaining that China is not opening up its markets and is thus hoping that the agreement would seal the deal on China’s market opening. According to a South China Morning Post report, China is making rare concessions on sectors such as financial services, manufacturing, and real estate. In return, the EU has agreed to open up the renewable energy sector for Chinese investment.
Thirdly, whether or not the agreement can be signed is also a test of whether the US and Europe are able to jointly deal with China. Biden has expressed his wish to join hands with the EU in dealing with China and the EU has given a positive response to this. On 2 December 2020, the European Commission (EC) and the High Representative of the Union for Foreign Affairs and Security Policy released a paper titled “Joint Communication: A New Agenda for Global Change”, citing China as a key area of Europe-US cooperation. The report opens with this sentence: “The relationship between the European Union and the United States is unique and built on shared history, shared values and shared interests.” It goes on to say: “As open democratic societies and market economies, the EU and the US agree on the strategic challenge presented by China's growing international assertiveness.”
In early December last year, the High Representative of the European Union for Foreign Affairs and Security Policy and Vice-President of the EC Josep Borrell was quoted as saying during an interview with Euronews: “I don't believe the feeling that economic and trade relations with China must be balanced is substantively exclusive to the Republicans, or to Trump, or to Americans. I think there's a feeling in the Western world that a certain level of equality must be restored in our relations with a nation that still presents itself as a developing country.”
... if the China-EU investment agreement is sealed before Biden officially becomes US president, it would deal a blow to Biden and also be a win for China in the China-US-EU strategic joust.
Since Biden wants the US to lead the world and hopes to work together with its European allies in using international rules to deal with China, and the EU is also on the same page as the US with regard to this, if the China-EU investment agreement is sealed before Biden officially becomes US president, it would deal a blow to Biden and also be a win for China in the China-US-EU strategic joust. The China-EU investment agreement is like a nail embedded in US-EU relations, restraining the EU from joining hands with the US on human rights and economic and trade issues against China.
The China-EU investment agreement does not only affect China-EU relations — the US is a critical factor in whether the agreement can be concluded. That is why Biden’s team has been pressuring the EU. On 22 December 2020, Biden’s national security adviser-designate Jake Sullivan tweeted: “The Biden-Harris administration would welcome early consultations with our European partners on our common concerns about China's economic practices.” Sullivan’s tweet is a reminder to the EU to cooperate with the US in dealing with China, and a way of forcing the EU to make a strategic choice between the US and China.
Just after China and the EU completed negotiations on the China-EU investment agreement on 30 December 2020, the US took immediate action in the 16-year US-EU dispute over aircraft subsidies and announced that it would impose additional tariffs in line with the arbitration award given by the WTO last year to impose tariffs on US$7.5 billion (approximately S$9.9 billion) worth of goods from the EU annually. These additional tariffs are expected to take effect on 12 January, eight days before the Biden administration is inaugurated.
China has already made necessary and practical provisions on the three major negotiation topics of market access, level playing field, and sustainable development.
On 18 December, an open letter by a group of European EU-China experts titled “EU Should Not Rush Investment Deal With China” was published in the EU Observer. The academics wrote, “If we make our separate deal, much as Donald Trump concluded his Phase One trade agreement a year ago, it will further undermine the transatlantic partnership.” They also said, “From Beijing's perspective, having the EU sign an investment treaty after this sequence of events and in the phrase of power transition in the US, amounts to a strong endorsement of its political trajectory, if not an encouragement to behave more assertively.” They concluded that the China-EU investment agreement was “about more than pragmatic concessions in the realm of investment. It affects other important European interests and core values. It is about credibility…”
The aforementioned three points show that the China-EU investment deal is of great strategic value to China. Based on the latest news, China has already made necessary and practical provisions on the three major negotiation topics of market access, level playing field, and sustainable development. It also agreed to continuously work towards ratifying the ILO’s Forced Labour Convention and Abolition of Forced Labour Convention. By incorporating the US factor into the strategic considerations of the China-EU investment agreement, China’s higher-ups have satisfied the EU’s demands, and made it more likely that the agreement would come to fruition.
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