EU reaches agreement in principle on controversial investment treaty with China

August 24, 2021 by No Comments

The last week of December, Brussels not only brought a trade agreement with the United Kingdom. At the end of 2020, the European Union also signed an equally long-awaited but also controversial investment treaty with China on Wednesday.

European Commission President Ursula von der Leyen and Council President Charles Michel finalized the deal in a video meeting with Chinese leader Xi Jinping on Wednesday. It is striking that German Chancellor Angela Merkel and French President Emmanuel Macron also called in for a meeting with Xi. In a press release afterwards, EU leaders hailed the new treaty as a “major milestone” that would give European companies “unparalleled market access” to China, promoting the “level playing field”. But the agreement in principle came under fire from numerous sides before it was signed and is awaiting a difficult ratification process.

Pressure from Chancellor Merkel

According to critics, the hectic final negotiations and the completion in the middle of the Christmas recess strongly give the impression of a rush job. Merkel, in particular, has recently exerted pressure to sign the agreement before the end of 2020. The deal is the crowning glory of the German presidency of the EU, which has been dominated in the past six months by the flare-up of the corona crisis. China has also become increasingly important for the German economy and is now the most important German sales market after the US and France.

Team Biden made a thinly veiled call not to unilaterally sign a new treaty with Beijing

In any case, the timing is spicy, less than a month before the new US President Joe Biden takes office. Last week, Biden’s incoming security adviser Jake Sullivan tweeted that he looks forward to meeting “our European partners about our shared concerns about China’s economic practices” — a thinly veiled call not to unilaterally sign a new treaty with Beijing.

Last week, a coalition of China experts, human rights activists and MEPs strongly criticized the content of the agreement. The agreements would be too meager and buttery soft, a group of China experts wrote in a widely shared opinion piece last week. An agreement, they say, would be a major symbolic victory for China, in a year when it received so much criticism for its initial response to the corona outbreak and the protests in Hong Kong. Signing a treaty now “is tantamount to adopting that political line, if not encouraging them to act even more assertively,” the group said.

Long negotiations

China and Europe have been negotiating an investment treaty for seven years to increase access for European companies and investors to the Chinese market. In recent years, dissatisfaction with unfair Chinese competition on the European market has grown, while access to the Chinese market for Europe is extremely limited.

China is now promising to open key sectors of its economy to Europe, including electric vehicle manufacturing, telecom and healthcare. Beijing also agrees to become more transparent about state subsidies to companies. Europe in turn underlines the openness of its own market.

Additional statement on banning forced labor should remove objections

Until recently, negotiations were deadlocked, but a number of Chinese market access concessions have accelerated them in recent weeks. The Chinese refusal to commit to working conditions seemed like a final hurdle last week. Just last year, several disturbing reports came out about forced labor by the Uyghur minority in the Chinese province of Xinjiang. France openly stated that it could not agree without agreements on the elimination of forced labour, and the Netherlands also insisted on this.

An additional statement should remove those objections. In the text, Beijing now declares “continuous and sustained efforts” to ratify international conventions banning forced labour. A “very important promise,” said a senior EU official, in “the kind of strong wording normally only found in much more far-reaching trade deals.” At the same time, the Commission emphasizes that the investment treaty is only one of the instruments to put pressure on China.

Critics scoff at the fact that the agreements are of little value. German MEP Reinhard Bütikofer, chairman of the European Parliament’s China delegation, said the Commission was content with “superficial lip service” and called the treaty a “strategic mistake” on Tuesday.

‘Positive momentum’

According to the Commission, the Chinese concessions offer an unprecedented opportunity. “This will not get better if we negotiate longer,” she defended the deal in a memo to the European Parliament on Tuesday. “There is now positive momentum, which we want to use to the benefit of our businesses, our economy and our overall China strategy.” In addition to labor rights, China is also committed to environmental standards and the Paris climate agreement.

The Commission also argues that the treaty makes a joint line with the US easier, because the Americans have already concluded a similar agreement with China. “This puts us on a par with the US when it comes to market access,” said a senior EU official. From such an equal position it would be easier to work together.

This brings the discussion to a wider debate in the EU about its role on the world stage and the need to stand up for itself. Proponents of an agreement argue that the EU demonstrates that it can autonomously enforce concessions from a major power, even without the US. Opponents see a Europe that bows to China for fear of the economic consequences of friction.

Not all member states have recently been equally enthusiastic about the treaty, but there was not much enthusiasm to explicitly oppose it – also for fear of provoking the wrath of China. That does not mean that the treaty is now in pitchers. It must first be officially ratified by member states and the European Parliament. The latter seems to be especially difficult. “This discussion is far from over and only just beginning,” said the chairman of the European Parliament’s trade committee Bernd Lange on Wednesday.