EU/China investment deal splits the West?

Jan 9, 2021

At a time when the United States and China are distancing themselves from each other’s economies, especially in the area of investment and high tech, while at the same time doing their best to undermine the global system for trade and investment, it may seem curious that on 30 December the EU and China concluded an ‘in principle’ grand-daddy investment deal: that is, the China-EU Comprehensive Agreement on Investment.

Mind you, context is in order as the deal did not spring initially from within the contentious climate currently besetting the global order. The US had been expecting to harness the EU to its side in its ongoing contretemps with China, especially on investment. It is understood that President-elect Biden had been thinking similarly.

The China-EU agreement had its genesis back in 2013 when former EU Commission President, Jose Manuel Barroso, visited Beijing, meeting with Chinese Premier Li Keqiang. Speeches at the time resonated with affirmations of the importance of trade and investment to both. Familiar noises were also heard about a level playing field, transparency and confidence in the rule of law as being “essential on both sides for business to thrive”. The goals were to reduce investment barriers and legal uncertainty facing EU firms and in time achieve trade flows up to US $1 trillion by 2020.

However by December 2019 negotiations had stalled and the then Chinese Foreign Minister, Wang Yi, stated that agreement was unlikely because “China was a developing country”. But the levels of investment both ways had been increasing exponentially, focussing on infrastructure and high technology benefiting Germany and France in particular, and equally China itself. The principal parties resolved to kick things along and with Germany’s Angela Merkel and France’s Emmanuel Macron in the drivers’ seats, and China’s President Xi directly intervening, the agreement was found to be oven-ready in December 2020 – a critical month for Germany being at the time President of the EU Ministerial Council and about to end its term with both the prospective investment agreement and the post-Brexit negotiations dead-lining by the 30th.

Main features of the agreement is the removal of discriminatory regulations that favour Chinese state enterprises, the prohibition of forced technology transfers, and other distorting practices, including non-tariff barriers to investment. Caps on investment have been removed. Extensive as It is it is not a comprehensive free trade agreement of the kind that China has sought elsewhere, including previously with Australia.

Naturally it was hailed by Chinese President Xi as “great news for the depressed world economy”. Some Western countries and populations have their reservations on labour issues in China and human rights (see below). However the agreement should not to be viewed in isolation as with the fragmentation of the WTO, due as much to the consensus rule on agreements as US sabotage, the grand concept is that the various FTAs elsewhere would eventually dovetail into a global association of FTAs incorporating, as well, African, Latin American and Russian trade connections to the advantage of all.

Hence, as an early step, the EU might, together with the UK conjoin with the Trans Pacific Partnership (now CPTTP without the US): the Asia-Pacific-based Regional Comprehensive Economic Partnership (RCEP) – that includes Australia and New Zealand as well as China. Indeed, the China-EU Investment Agreement would replace some 26 bilateral investment agreements that the EU member states have with China – if and when settled by the EU Commission. The investment agreement itself is seen by some as insulating China from US efforts to exclude it from global trade and investment.

Noteworthy is that the China-EU Investment Agreement as it stands includes several additional undertakings by China on human rights, the environment, and a pledge on labour having in mind the incarceration of Uygur Muslims in forced labour conditions in Xinjiang province which the Chinese assert are vocational training centres. The EU has been criticised for accepting China’s undertaking on this at face value. The undertaking would possibly have more credibility if China were to accede to the International Labour Organisation’s Convention against Forced Labour. Several EU members have concerns about this, notably Poland, which claims the agreement should be better balanced and contain fairer and mutually beneficial terms rather than being left as it stands with perceived over and above advantages to China in this regard.

By way of commentary one must ask why trading nations or groups should bother themselves with FTAs with China given Its cavalier approach to its legal commitments.

What’s the point of FTAs (including RCEP, with China?

Or might some see Australia’s recent experience with China as sui generis: – a disciplinary lesson in diplomacy for a country that had got above itself? Even if they were to think that they would be failing themselves by not heeding China’s manifest proclivity for riding roughshod over other countries’ rights where, for legitimate reasons or otherwise, this suits them with their power game. The Europeans are taking a chance by accepting China’s undertakings at face value, and in relation to labour exploitation they risk losing face with the international community when found out.

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