WILL THE EU-CHINA INVESTMENT PACT DIE FOR NOW?

“We realize we are in a delicate moment with China,” EU trade commissioner Valdis Dombrovskis remarked recently, referring to the next virtual summit between Brussels and Beijing on April 1st. For both sides, the meeting comes at an inconvenient and unpleasant time. The EU’s 27 member states are “rethinking” their ties with Beijing in light of Russia’s recent invasion of Ukraine and China’s unwillingness to criticize it in a “new global environment.” Ratification of the widely lauded EU-China Comprehensive Agreement on Investment (CAI) appears to be less assured than ever before and is unlikely to happen in recent times.

It’s a mutual aversion to one other. Amid political tensions with the West, Beijing has strengthened economic links closer to home, most notably via the Regional Comprehensive Economic Partnership (RCEP), perhaps the world’s largest free trade agreement, which is expected to boost global commerce by $500 billion by 2030. Chinese Premier Li Keqiang made no mention of trade treaties with the US or the EU in a speech to lawmakers earlier this month delivering his annual work report, a striking break from the previous three years. The study didn’t even mention commerce with the United States.

Since the end of discussions in December 2020, the EU-China investment deal has had a bumpy road. Members of both the former Trump and new Biden administrations in the US condemned the agreement at the time, claiming that it did not go far enough to address China’s use of forced labour, among other concerns. The agreement’s ratification began to unravel soon after, in March 2021, when the EU sanctioned four Chinese officials implicated in Xinjiang detention facilities. Beijing retaliated by implementing a slew of punitive penalties against various EU officials and agencies, prompting Brussels to put the ratification talks on hold in May. “We cannot overlook the larger backdrop of ties between the EU and China,” Dombrovskis remarked at the time. 

The bilateral relationship between Brussels and Beijing has deteriorated as the April 1 meeting approaches. Last week, diplomats met in Brussels to plan the agenda for the next summit: the main topic was Russia’s war on Ukraine, and how to persuade China to help Ukraine, not if, but how. Another hot topic will be China’s coercive measures against EU member Lithuania over the latter’s decision to create a Taiwanese representative office, which has led to a World Trade Organization complaint against Beijing.

To make matters worse, the investment deal’s most ardent supporter in Europe, German Chancellor Angela Merkel, has now resigned, further putting the historic EU-China investment agreement in jeopardy. Currently, the Chinese propaganda machinery is busy pumping out articles claiming “EU should not let ‘external influences’ derail the agreement, asking it to abandon its “cold war mentality”.

The present stalemate over the EU-China investment deal is a dramatic reversal of fortune. Many analysts had previously viewed the pact as a triumph for Beijing since it would ensure continuing EU investment in China while also thwarting Washington’s efforts to keep Beijing out of the global trading system. In 2020, Chinese President Xi Jinping personally intervened at the last minute to make market access concessions and rescue the contract, emphasizing how important the transaction is to the Chinese government. Xi lauded the agreement, saying it will help to foster a “brighter future for cooperation” with Europe. The EU praised the pact as “China’s most ambitious agreement with a third nation,” praising its extensive prohibitions against forced technology transfer and measures for enhanced subsidy transparency and sustainability.

The EU-China investment pact will die – at least for now – on the hill of Vladimir Putin’s invasion of Ukraine and China’s refusal to halt it. While US President Joe Biden’s latest video discussion with Xi was lengthy, it made no difference; Beijing continues to refuse to use the phrase “invasion.” Worse, EU leaders are said to have “extremely solid proof” that China is actually contemplating assisting Russia militarily.

Still, Beijing’s future moves toward Russia will determine if the EU-China investment deal has a chance of being ratified anytime soon. And the early signals aren’t encouraging.