EU Must Tread Carefully on Chinese Investment Deal

EU Must Tread Carefully on Chinese Investment Deal

The EU-China Comprehensive Agreement on Investment (CAI) was seven years in the making, but it took less than seven hours for policymakers to be forced into defending it from heavy criticism. Both MEPs in the European Parliament and external speculators have condemned the agreement’s vague language surrounding forced labor and human rights abuses in China, claiming that the signing of the CAI will damage the EU’s international credibility on such issues.

The timing of the deal shortly before Joe Biden’s inauguration was particularly problematic, given that the new US president had declared his intention to collaborate with traditional allies in a bid to contain Chinese aggression. To make matters worse, the agreement’s minimal economic gains are expected to be more than offset by the reputational fallout it looks certain to engender. Nations like South Korea have already demonstrated the dangers of falling too far into China’s sphere of influence, so Brussels should be wary of pandering to Beijing at the expense of its relationship with Washington – and to the detriment of its own integrity.


Gains don’t justify losses

The CAI’s proponents claim that the deal has secured access for major European manufacturers into Chinese markets as diverse as cars, chemicals and telecommunications and levelled the playing field for foreign investors by enhancing transparency in the government’s state subsidy program, while holding China to “make continued and sustained efforts” towards complying with key International Labor Organization (ILO) obligations. One prominent policymaker asserted it had achieved more than the US had managed even after four years of an entrenched trade war.

The deal’s numerous critics, however, are not convinced. While the claims of market access and equalization have been hotly disputed in their own right, most of the censure has centered on its feeble attempts to persuade China to change its spots regarding labor standards. Former European Commission president Jean-Claude Juncker called it “cheap”, while his disdain for the deal was echoed by a chorus of MEPs and over 100 independent experts on the subject, who verbalized their misgivings in an open letter to the EU calling for the CAI to be scrapped. The general consensus among these critics is that the deal legitimizes a regime that continues to commit human rights abuses on a daily basis in exchange for threadbare economic and political gains.

As well as tearing gaping holes in the EU’s reputation on the global stage, the CAI could also undermine its relationship with the new Biden administration. Even before taking office, Biden and his team voiced concerns over the ongoing CAI negotiations. In response, Germany and France went out of their way to emphasize that they do not intend to pick sides between the US and China, and the EU hastily concluded the CAI.


South Korea provides concerning case study

The White House has already made clear its bewilderment and disappointment in the timing of the accord, underlining how the EU’s intransigent impatience on the matter may unsettle relations between Brussels and Washington. That’s an outcome that China will no doubt be celebrating, given past history: one need only glance at the country’s record with regard to nearby South Korea to understand how Beijing capitalizes on countries attempting to straddle the geopolitical divide between the US and China.

Indeed, South Korea has often been regarded as the “lynchpin” of America’s authority in the Asia-Pacific, but has drifted steadily closer to Beijing in recent years—in part due to the Trump administration’s disruptive behavior, in part due to Moon Jae-in’s desire to find common ground with China, particularly concerning North Korea. Beijing once used a stick to pull South Korea away from the United States, such as with its decision to castigate the installation of a US-made THAAD anti-missile system by banning Chinese tourists from visiting South Korea. That unorthodox move cost the Korean economy around $15.6 billion in lost tourism revenue.

Now, Beijing has substituted the stick for the carrot. The two countries have tightened their relations in recent years, with the mutual signing of the Regional Comprehensive Economic Partnership (RCEP) forming the largest free trade bloc in the world. That followed a visit to Beijing by South Korea Premier Moon Jae-in in December 2019, while his Chinese counterpart Xi Jinping is expected to return the favor later this year. This cozying up to China has sparked mistrust in Korea’s vital partnership with the US, with one analyst dubbing it “the weak link” in the US’s northeast Asian alliance.


EU should not expect to change China alone

The fact that China is using its sway in Pyongyang to influence South Korean policy – while punishing Seoul for implementing measures to defend itself – is indicative of how untrustworthy the country can be as an ally. Indeed, Beijing’s imposition of politically-motivated trade sanctions worth $3 billion on Australia – a country with which it supposedly has a free trade agreement in place – demonstrates just how quickly Beijing will abandon the terms of deals it has struck when its priorities change. In the face of that evidence, the EU should realize that it has no hope of effecting meaningful change within China through the ratification of a single trade deal – especially one with as vague commitments as the CAI.

By rushing through the CAI after 35 rounds of negotiation to achieve a deal which offers only very slight benefits to a select handful of European interests, the EU has shot itself in the foot on three separate issues. Firstly, it has missed a chance to cement ties with the incoming US President and present a united front against Chinese expansionism; secondly, it has failed to address the stark imbalance between EU and Chinese openness to FDI; and thirdly, it has forsaken the fight to curb damaging labor standards in China, throwing its own reputation on the matter under the bus in the process. It’s not too late to limit the damage and renege on the deal – but the EU must act fast to tread a more circumspect path with regard to China and trade going forwards.


Photo from Flickr by Friends of Europe, Creative Commons License 2.0.

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