EU-China Comprehensive Investment Agreement. U.S. criticism.

Leaders from China and EU concluded the long negotiation on the EU-China Comprehensive Agreement on Investments (CAI). Now they have two years to sign, ratify and conclude the agreement. If all goes well, it will have taken almost 10 years of discussions. But the new U.S. administration urges EU leaders to wait.

Last December 30, 2020,  Chinese President Xi Jinping, the President of the Council Charles Michel and the President of the European Commission Ursula von der Leyen, reached an agreement on the conclusion of 7 years negotiations that should rebalance the trade and investment relations between the EU and China.

The signed agreement should allow European investors to access the Chinese market with greater certainty and predictability in their operations.

European leaders have called for equal conditions of access to the Chinese market, with clear obligations for Chinese state-owned enterprises, banning forced technology transfers and other distorting practices, and strengthening the transparency of subsidies.

The agreement reached also includes commitments on the environment and climate and on labour standards.

The EU will now proceed in accordance with its legal rules and procedure to sign, ratify and conclude the agreement. The two sides declared the will to conclude negotiations on investment protection within two years of the signature of the CAI.

The content of the Agreement

The Agreement, according to the negotiations, should provide:

• better conditions for access to EU and Chinese markets for Chinese and EU investors: expanding EU investors’ access to the Chinese market by removing quantitative restrictions, share limits or joint venture requirements;
• a more transparent regulatory environment, predictability and legal certainty, allowing EU investors to have access to information that affects their business, giving them the opportunity to comment on relevant laws and regulations, as well as ensuring clear, fair and transparent procedures ;
• guarantees regarding the treatment of EU investors in China and Chinese investors in the EU, including protection against unfair and unfair treatment, unlawful discrimination and the unhindered transfer of capital and payments related to an investment;
• ensure a level playing field by limiting restrictions and discrimination to a limited number of clearly defined situations;
• support for sustainable development initiatives by encouraging responsible investment and promoting fundamental environmental and labor standards;
• investment dispute resolution mechanisms available to contracting parties and investors.

Criticism from U.S. new administration

The new U.S administration fears that the western front will be weakened by trade and industrial agreements between the first world trading power, the EU, and China.

And it mostly stick to forced labor arguments in the western Xinjiang region, where rights groups say up to 2 million people are predominantly Muslim minority groups are being held in forced labor camps.

China has always rejected the accusations, but it is to be expected that the European front will not be compact and that the EU-China Agreement reached at the end of December 2020 will have a very difficult life. In short, it will be two years of ratification very full of surprises.

The European Parliament could freeze the EU-China Agreement?

The answer is yes. Because the European Parliament must give its mandatory assent to any signature.

But let’s see what’s going on.

The European Parliament, during the plenary session in December 2020, voted its resolution which strongly condemns the alleged forced labor camps in China which, as reported, are in the western region of Xinjiang.

This Resolution, presented by five of the seven political groups in the European Parliament (read here) and signed mainly by Members from countries of the former Soviet bloc, does not ask for the agreements to be suspended. However, it asks for a series of political initiatives from EU institutions and EU governments which, in the absence of responses from the Chinese authorities, could make ratification of the agreements of 30 December 2020 very difficult.

And it could not be otherwise, given that the European Parliament awarded the 2019 Sakharov Prize to the Uyghur scholar Ilham Toti, detained by the Chinese authorities.

The EP Resolution asks that the Comprehensive Agreement on Investment with China must include adequate commitments to respect international conventions against forced labour and considers, in particular, that China should ratify and implement ILO Convention n°29 on Forced Labour, ILO Convention n°105 on the Abolition of Forced Labour, ILO Convention n°87 on Freedom of Association and Protection of the Right to Organise and ILO Convention n°98 on the Right to Organise and to Collective Bargaining.

And it urges China to ratify the International Covenant on Civil and Political Rights.

Friction in sight between EU and new U.S. administration on China?

Many of the Resolution signatory members come from Eastern European countries and belong to conservative parties allied to the US Republican Party. One can legitimately think that the parliamentary initiative is a kind of pressure on the new American administration not to deny the Trump’s battles against China.

As reported by CNN, “a senior aide to US President-elect Joe Biden had urged EU leaders to wait and address shared concerns about Beijing with the incoming administration”. A message that can be interpreted as a move not to be left behind and not to leave the EU with an initiative that could benefit European companies.

The Biden-Harris administration would welcome early consultations with our European partners on our common concerns about China’s economic practices. https://t.co/J4LVEZhEld

— Jake Sullivan (@jakejsullivan) December 22, 2020

But american concerns may also arise from european attempts to downplay the Agreement reached with China, which may instead mean a new European strategic move towards China.

As reported by CNN, “EU leaders have defined the deal as a simple reciprocal market access, similar to the” Phase 1 “agreement between the US and China agreed under US President Donald Trump. Ursula von der Leyen, president of the European Commission, tweeted Wednesday December, 30 that the deal will “support our interests” and “promote our core values.” Likewise, the EU has argued that the deal provides “leverage” to push China on forced labor. ”

The EU has the largest single market in the world. We are open for business but we are attached to reciprocity, level playing field & values.

Today, the EU & China concluded in principle negotiations on an investment agreement.

For more balanced trade & business opportunities. pic.twitter.com/zURkyE2yX4

— Ursula von der Leyen (@vonderleyen) December 30, 2020

Now we will have to wait for the moves of the European Parliament’s Committee on International Trade, which will have to appoint its rapporteur and vote a resolution on the EU-China agreement and those of the European governments which, according to eEuropa.blog, are very divided.

On one side, there are countries willing to relaunch their economies with cross-investments with China (countries with large import-export with China and which have great potential) and on the other side countries that prefer battles alongside the United States.

Indeed, according to Politico, Warsaw has already warned Brussels that “Europe’s attempts to secure an agreement with Beijing before January risk undermining both its credibility on human rights and cooperation with the future Biden administration.
“We need more consultation and transparency to engage our transatlantic allies. A good and balanced deal is better than a premature one,” Zbigniew Rau, Polish Foreign Minister, wrote in a tweet Tuesday evening.

Europe 🇪🇺 should seek a fair, mutually beneficial Comprehensive Agreement on Investment with China 🇨🇳. We need more consultations and transparency bringing our transatlantic allies on board. A good, balanced deal is better than a premature one.

— Zbigniew Rau (@RauZbigniew) December 22, 2020

Ultimately, the new U.S. administration and the new European leadership have to decide whether to separate their paths leading to China to better defend their respective economic interests or to travel with the same convoy and share strategies and benefits.