07 Jan 2021   |   News

Growing calls for Brussels to ditch investment agreement with China

There is the promise of improved access to the Chinese market for EU technology and healthcare companies, but disquiet is spreading among politicians over the terms of the new trade agreement

EU China

European Union and Chinese leaders were quick to celebrate the landmark investment deal signed off at the end of December, which they say will see improved access to the Chinese market for EU companies in areas including electric cars, chemicals, telecoms hardware and health equipment.

The agreement will also address the longstanding problem for European firms, that they are forced to share intellectual property and to set up joint ventures with local companies, in order to trade in China.

The European Commission says the agreement, officially called the Comprehensive Agreement on Investment, commits China to a “greater level of market access for EU investors than ever before”, while China’s foreign minister Wang Yi called it “great news for the depressed world economy.”

But, after seven years of negotiations, politicians are now voicing concerns that the final product was rushed, and that there is little in the deal that will benefit Europe.

Although the agreement was announced on December 30, it has not been made public. The parties have not yet signed it either. The deal will be submitted for approval by the EU Council and the European Parliament, with hopes the process can be completed by early 2022.

The head of the European Parliament’s China delegation is among those against ratifying the deal.

“There’s some gaping holes,” said Green MEP Reinhard Bütikofer. “There’s nothing about procurement, competitive neutrality, investment protection. When you look at sustainability, there are some major shortcomings with labour protections.”

The accord does not do enough to address China’s harshest policies, including the crackdown on Hong Kong and the mass detentions and forced labour of Uighurs in Xinjiang, Bütikofer said.

“The signal Europe is sending is that when you can strike a deal, hoping to make a buck, you will prioritise the dough over the values,” said Bütikofer.

Parliamentarians have argued against the accord in light of China’s move this week to round up over 50 of Hong Kong's most prominent pro-democracy activists.

“Trade does not take place in a vacuum,” Bernd Lange, chairman of the Parliament’s trade committee, said on Twitter. “These actions mark a violation of the spirit of the EU-China investment deal sustainability commitments. This is clearly not a basis for constructive cooperation.”

Guy Verhofstadt, former leader of the liberal Alliance of Liberals and Democrats group, tweeted, “Is this the time to be cutting deals with China? I think it shows geopolitical naiveté instead of geostrategic autonomy.”

‘Bulldozed through’

The China-EU agreement sets out to redress a core complaint in Brussels that Chinese companies enjoy greater access to European markets than the other way round.

“The deal is for sectors where the EU would like its companies to have the kind of privileges in China that have been already accorded to American companies,” said George Magnus, an economist and research associate at Oxford University's China Centre.

Among those sectors to potentially benefit are telecommunications, automotive, financial services and medtech.

But no one believes China has ceded much ground to Brussels. The EU has won only modest openings, said Magnus. “I don’t think we should be under any illusion that [the Chinese] have given away things they didn’t want to, or given Europeans better access to areas they feel are sensitive,” said Magnus. “The content value is minimal and I’m not sure it will have been worth the brouhaha.”

The deal, on paper at least, promises to ease many of the constraints imposed on European companies working in China. Enforcement, however, is missing. “I don’t have confidence [the Chinese side] will stick to the commitments they’re making. There’s no independent arbitration mechanism in the deal, for example,” Magnus said.

German Chancellor Angela Merkel and French President Emmanuel Macron are seen as the bloc’s strongest drivers behind the accord.

Smaller states have been overlooked, said Bütikofer. “They bulldozed their way to this agreement, creating misgivings with a host of countries, including the Italians, the Spanish, the Polish, the Belgians. I would not be surprised if there is further opposition from member states,” the MEP said.

The deal has caused trouble for Merkel. One of the politicians vying to lead her Christian Democratic Union party was prominent among the European voices linking Wednesday’s mass arrests in Hong Kong with the deal. “If the EU concludes an agreement with China, then it must not ignore its methods, including breach of contract and repression,” said Norbert Röttgen, who is expected to challenge for the chancellorship after Merkel steps down this year.  

Early headwinds in Europe suggest the deal could eventually go the same way as the Trans Atlantic Trade and Investment Partnership. A backlash against globalisation on both sides of the Atlantic saw the deal falter and eventually languish in 2016, with no apparent appetite on either side to resuscitate it.

Wait for Biden

The agreement was seven years and 35 rounds of negotiations in the making – and yet some observers questioned the wisdom of rushing things through before the end of the year, and just weeks before the inauguration of US president elect Joe Biden.

Biden’s national security adviser nominee, Jake Sullivan, called pointedly on Twitter for “early consultations with our European partners on our common concerns” on China.

Polish foreign minister Zbigniew Rau suggested the EU should have waited for Biden to take office, saying, “We need more consultations and transparency bringing our transatlantic allies on board. A good, balanced deal is better than a premature one.”

According to Bütikofer, “It wouldn’t have cost the European side much to postpone this until we had the chance to consult with Biden. This was a Christmas present for [Chinese leader] Jinping after a year of repression at home.”

Others defended the approach, saying the EU was doing what the US would also do. “There is no divine American right for it to be consulted. And besides, when the Trump Administration pursued its trade and investment negotiations with China, it did not consult the EU,” said Sourabh Gupta, senior research fellow at the Institute for China-America Studies think tank in Washington DC.

EU officials said the deal was the latest expression of EU “strategic autonomy", the label for the bloc's push to increase self-sufficiency in the wake of the COVID-19 pandemic. But not everyone is convinced it’s the right strategy. “I mean: you can autonomously decide to shoot yourself in the foot,” said Bütikofer.

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