The New EU-China Trade Deal: Setting the tone for Global Politics in 2021?

Written by Luke Cavanaugh

Reading the Financial Times’ Europe section on New Year’s Day brought with it a whole host of articles on Brexit, Brexit, and more Brexit. But nestled amongst the evaluations of the recent trade deal was another headline tagged as ‘Global Trade’: ‘EU and China agree new investment treaty’ (Brunsden, 2020). ‘Deal brings 7 years of negotiations to a successful close’, the tagline read. In relation to this timeline, the four years of Brexit struggles had been relatively small fry.

The classification of such an article as ‘Global Trade’ was fitting. An agreement on behalf of the EU or China, let alone both, has global ramifications that cannot be ignored. Emerging from a year that saw China in high-profile diplomatic disputes with the UK, US, Australia and India, the deal can be seen as a recommitment to multilateralism by a country whose Foreign Direct Investment (FDI) framework is currently judged by the Organisation for Economic Cooperation and Development (OECD) as one of the most restrictive in the world (“Comprehensive Agreement”, 2020).

China’s rapidly resurgent economy, which has already recovered to better than its pre-Covid levels, is a reminder of the sheer strength of a nation whose geopolitical reach and influence seems to be catching up with its economic prowess (Elliott, 2020). But while China is widely recognised for its own large-scale foreign investment, the EU set out to negotiate the new investment treaty primarily to give European countries a foothold in China. According to the EU, the challenge of a lack of reciprocity in market access between China and the common market has created an unequal playing field in terms of opportunities for investment (“Comprehensive Agreement”, 2020). 

The Comprehensive Agreement on Investment (CAI) was designed to replace the 25 outdated bilateral investment treaties between various member states and China (“Comprehensive Agreement”, 2020). These agreements neither reflected recent developments in biliteral and international investment relations nor the geopolitical changes that have occurred since the turn of the millennium. From an EU perspective, the CAI represents an ambitious project: the first ever stand-alone investment agreement covering both market access and investment protection, complete with a uniform legal framework which provides modern protection standards and dispute settlement arrangements.

The EU have been cautiously optimistic about the opportunities that the new deal provides. Valdis Dombrovskis, the EU Trade Commissioner, expressed both praise and reservation about the deal in equal measure, arguing that it ‘is not a panacea to address all challenges linked to China, but it brings a number of welcome improvements’ (Brunsden, 2020). Certainly, China have made a number of concessions on longstanding grievances, including concerns that the country’s state enterprises are unfairly favoured and that the Chinese system of state subsidies lacks transparency. In certain markets of European (particularly French and German) interest- the automotive sector, telecoms equipment, cloud computing, private healthcare and ancillary services for air transport- China has also agreed to remove barriers to entry for foreign businesses (Brunsden, 2020). This includes removing requirements for companies to partner with local firms in joint ventures, following similar progress made by Wall Street Investment Banks late last year (McGill, 2020).

But the deal is not without its significant detractors, both within Europe and on the other side of the Atlantic. Richard Bütikofer, chair of the European Parliament delegation for relations with China branded it a ‘strategic mistake’ (Mitchell, 2020). Noise from the incoming Biden administration in the US has been just as telling. Jake Sullivan, President-elect Biden’s incoming National Security Advisor, wrote on Twitter last week that the new administration would ‘welcome early consultations with our European partners on our common concerns about China’s economic practices’: a thinly veiled barb at the CAI and a warning for the EU to slow down their move towards China (Mitchell, 2020).

The trouble for the US is that Biden looks set to emerge from a four-year spell of comparative American isolationism that has worked firmly to China’s geopolitical advantage. When the EU and China began working on an investment partnership seven years ago, Beijing hoped that it would help to counter President Obama’s Trans-Pacific Partnership (TPP). On his first day in office, President Trump abandoned the TPP and China has filled the gap. Four years later, even as the EU argues that the CAI ‘will not affect our commitment to transatlantic cooperation’, EU officials are said to have privately expressed a great deal of frustration with such a public attack by the Biden team (Mitchell, 2020). In many ways, the CAI is a wake-up call to the incoming US administration, a reminder of the barriers facing them when it comes to resuming their status as the de facto leaders of international politics.

Aside from speculation over the respective influences of the US and China on global politics, the CAI also provides questions over its effectiveness and its failure to hold China to account for actions adjudged to have undermined the international community. Given that China only made limited commitments under the General Agreement of Trade and Services and the Agreement on Trade-Related Investment Measures when it joined the WTO in 2001, they currently have few enshrined commitments in terms of opening up their markets to foreign investments (“EU Observer”, 2020). The CAI does little to address this. Once European companies are granted access to Chinese markets, they are still likely to struggle with the informal barriers of state subsidies and an entrepreneurial structure very much geared towards homegrown businesses.

The final elephant in the room is perhaps the most geopolitically significant for a bloc who counts among their principal unifying features a mutual commitment towards human rights. Speculation and disputes over the nature of Chinese ‘Vocational Education and Training Centers’ led to France’s junior trade minister, Franck Reister, declaring just a week before the deal that Paris would block the CAI deal if it did not force Beijing to abolish forced labour (Mitchell, 2020). But the Chinese government only agreed to make ‘continued and sustained efforts’ to ratify the relevant International Labour Organisation conventions. For many, this is not enough. The CAI’s most outspoken critics argue that the signing of the deal represents a loss of leverage and influence for Europe not just on issues of economic competitivity but also on fundamental value issues of human rights and climate change.

Regardless of the success of the deal, the fact of the matter is that far from setting the agenda for international standards and rules, the EU has moved closer to China with the CAI. This is not ‘wolf-warrior’ diplomacy but the old-fashioned art of striking a deal. From the relative lack of concessions on the Chinese behalf to the response of the US, it seems to be a deal that suits China on all fronts.

Bibliography

Brunsden, Jim, Mehreen Khan and Michael Peel. (2020, December 30). EU and China agree New Investment Treaty, Financial Times

EU-China Comprehensive Agreement on Investment (2020, September). European Parliament.

EU Should not rush investment deal with China (2020). EU Observer 

Elliott, Larry. (2020, December 26th). China to Overtake US as World’s biggest Economy by 2028, report predicts. The Guardian.

Hall, Ben. (2020). What an EU-China Investment Treaty Would mean for Companies. Financial Times

McGill, Peter (2020, October 14th). US-China decoupling? Wall Street missed the memo.

SCMP.Mitchell, Tom and Katrina Manson (2020, December). China sees EU investment deal as diplomatic coup after US Battles. Financial Times