The EU-China Investment Deal and the Two Sides of the Atlantic

REUTERS/PHILIPPE WOJAZER

In December 2020, leaders from Brussels and Beijing reached terms on a new EU–China Comprehensive Agreement on Investment (CAI) which has since become a focal point of discussion amongst many commentators and analysts. The European Commission boasted that this “will be the most ambitious agreement that China has ever concluded with a third country,” however, not everyone views the deal in such light. Public opinion in Europe is rapidly shifting against China. A recent poll conducted by the Pew Research Centre in Washington showed that in almost every country surveyed, people who name China as the top economic power and people who name the U.S. are equally likely to have unfavourable views of China. Countries like Italy, Poland, Belgium, and Spain criticized the way Germany pushed the deal through in the final days of the German presidency of the Council of the EU, despite their warnings that the timing was tone-deaf to slave labour concerns in China and risked alienating incoming US President, Joe Biden. Ironically, the EU-China deal also puts Europe in a compromising position as it discernibly undermines their core values and ideas by legitimizing China’s repressive regime and human rights violations.

Problems with the CAI Deal

The deal reflects President Ursula von der Leyen’s long-term strategy which was formed last year-called the ‘geopolitical commission’. A strategy based upon a pragmatic approach to protecting the union’s interests between great powers like China and America. However, these geopolitical interests are at loggerheads with both multilateralism and the principles of universality. The EU is a product of Kantian multilateralism; however, for the EU to survive, it seems that the union is keen on incorporating a geopolitical strategy revolving around spheres of influence.

For most European countries, the EU-China deal that Angela Merkel brokered before her departure from the Council of the EU is hugely problematic. Germany is the only European nation that would benefit the most under the investment deal owing to Berlin’s economic control and power within the Eurozone. Other countries, on the other hand, would not gain much from this agreement as Germany’s exports have put most European nations under a trade deficit due to Germany’s influence on the ECB through the Deutsche Bundesbank. Over the years, the common currency (Euro) has precipitated a significant amount of dissatisfaction amongst European nations. Additionally, it has strengthened the populist and nationalist movements, particularly within the countries that have benefited the least from the Euro.

Since the launch of the project in 2013, the CAI was intended to increase investment between the EU and China by establishing a legal framework and standardizing rules on matters ranging from state-owned enterprises to subsidy transparency. Even now, the deal hasn’t reached its final stages since there are several outstanding issues such as market liberalization and human rights. Beijing is unlikely to allow EU companies to challenge any of its top state-owned enterprises’ market positions. Contrary to this the Europeans desire more freedom in market access and establish a regulatory framework to prevent Chinese state-owned enterprises from defying intellectual property rights and technology transfers. Consequently, the CAI investment deal would fundamentally fail to deliver because China has skirted voluntary bilateral and multilateral commitments in these areas with relative impunity.

On a further note, China’s historical track record does little in boosting confidence amongst the Europeans. For example, in 2017, the average tariff for EU products entering the US was only 1.4 percent, and for EU products entering Japan was as low as 2.0 percent — in contrast to the substantially higher 8.75 percent levied in China! As the European Union champions robust multilateralism and the free flow of goods and services, the Chinese tariff barriers have made it needlessly challenging for the EU as Beijing is an export behemoth, which utilizes protectionist mechanisms that help the nation shield its industry, maintaining a soaring level of exports.

The question remains, why would the union push for this deal, and why now? This is because only a few nations within the EU would genuinely benefit, not only that but what guarantee is there that China would follow as on many accounts it has defied the rules of international trade. The state-based capitalism that China implements has brought the country much economic success at an overwhelming speed. So why would China conform to new regulations such as liberalization which goes against its very method of structuring its economy? Shi Yinhong, a professor of International Relations and Director of Centre on American Studies at the prestigious Renmin University of China admitted that full accession to ILO rules is “impossible.” Despite both Berlin and Paris being fully aware and cognizant of this, they support the deal anyway.

The Real Reason for the CAI Deal

The primary rationale behind the CAI deal that it is a political manoeuvre by the Europeans to isolate America.

Firstly, the Franco-German axis benefits from this move in two ways. France yearns for more autonomy where Europe can make decisions independent of the United States; therefore, this deal affords France this opportunity. As for Germany, the agreement strongly favours the German car industry. It is worth noting that it was primarily the Franco-German push that led Brussels to pursue this deal at such a time with China.

Secondly, Europe and America have never had a comfortable relationship; this is just an uncompromising reality. For years, especially at the American power’s apex, the Europeans felt undermined by the United States on numerous occasions. Institutions like NATO are what America utilizes to project power and prevent European democracies from breaking and fighting one another — one of the key drivers for NATO’s formation. Europeans particularly, France, have always despised this. On the other hand, the Americans are irked with the European nations’ freeloading on NATO’s military privileges where they refuse to boost their rations of GDP spending on the military. For a long time, the two sides of the Atlantic possessed a growing wound that Trump exacerbated and further impaired. Therefore, the Europeans seized this as an opportunity to isolate America because they possessed the perfect pretext.

Third, during Trump’s era, the United States was trying to divide the European Union, break its multilateralism, and establish bilateral trade agreements with several European nations. Simultaneously, the Trump administration supported nationalist and populist waves. Moreover, the US fully supported Britain’s divorce from the EU since it knows that throughout history Britian would never support a strong united EU. All of these were undertaken with one objective in mind — to break and weaken the European continent. Besides, simultaneously increasing cooperation with Russia in Syria was a way for the US to achieve its policies within Syria and remove sanctions upon Russia within the EU and open the doors for Russia to take its place into the G8 in return. Mike Pence suggested that the administration’s decision on sanctions would depend on whether “we see the kind of changes in posture by Russia and the opportunity perhaps to work on common interests,” including making common cause against the Islamic State.

Under the Trump administration, the US was trying to break the economic integration within European Union between the United Kingdom and Russia but preferred to keep NATO intact because it aligns with US interests. Under Biden, nothing will change significantly towards Europe; rather the style and means of engagement will differ, but the objective would remain the same, increasing pressure and accountability on the Europeans. As under Obama-Biden era, we witnessed the Asian pivot strategy, which was to catalyse the realization of European decline. However, it also further increased the European discontent with America. Reality is that Biden wants to maintain ties and pursue his administration’s European policies through a traditional framework, unlike what we saw under Donald Trump.

For this simple reason, the Europeans decided to take immediate action to avert a situation in the future which could further aggravate relationships between the two sides of the Atlantic. The Franco-German axis in the union is aware that America is divided and is also mindful that its GDP has decreased compared to America over the years. Since 2010, the US share of the global economy has not only held but increased, from 23 percent to 25 percent, according to International Monetary Fund data provided by Magnus. On the contrary, Europe (even if we include Britain) has shrunk from 21.5 percent to 17.5 percent.

The EU intends to undermine Biden by reaching a deal with the Chinese, which would give rise to strengthening the 85 million US voters that back Trump. The opposition’s doubts would become firmer as they would recognize Biden’s policy of building ties with the Europeans counterproductive as compared to Trump, who was stern and aggressive in his stance towards the EU. On the other, if America is successful in utilizing her lobbying power in the EU parliament and prevents the deal from fulfilment, then the Chinese would become further agitated with the Americans and this would not aid Biden to demonstrate that he is any different from Trump.

Nevertheless, the EU would win in the short run as Germany would continue to dominate the economic engine of Europe without or without the deal. For France, if the deal goes ahead, it will result in securing more autonomy and domestically create more problems in America. However, if the agreement does not conclude due to American efforts, France has further strained America’s chance of shaping Chinese behaviour through the traditional international framework that Biden intends to use and remedy the haemorrhage that Trump made leaving Biden in a difficult position early in office.

For Europe, it is a sharp move against the Americans. However, the political manoeuvre contradicts their fundamental values leading to the further decline of the union. When a nation or a group of nations deviate from their ideology, the more acute the decline is felt. In reality, no one is a real winner from this deal, and if there is one it would be China, but again China is an economic player and has yet to become a political one on the international stage.

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