EU Should not Rush Investment Deal with China

Before the end of the year, European countries have to decide on an investment agreement with China. A tentative document was rushed through a meeting of ambassadors in Brussels on Friday (18 December). A top-level leaders’ discussion is scheduled for the coming days.

Despite seven years of hard negotiations, the text is only a modest step in promoting reciprocity, competitive neutrality and a level playing field. Concluding it now, is a symbolical victory for China and makes it harder for Europe to engage it on critical matters in the future. China’s concessions are a small improvement in terms of market access. But the draft agreement fails to comprehensively advance equal economic openness and clear, binding, rules.

That Angela Merkel and Emmanuel Macron are backing this deal, is also the consequence of some last-minute Chinese concessions. France got some gestures for its retirement home industry. Germany is especially keen on securing its interests in the Chinese electric vehicles and battery sector.

If such “wins” will materialise at all, they will happen in the context of a China that is reinforcing its self-reliance industrial policies and at home and mercantilist expansion abroad. China still does not pledge to open public markets, for instance. Despite Chinese government procurement totalling hundreds of billions each year, European companies will not be treated equally in public tenders.

China refuses to sign the WTO Government Procurement Agreement. Europe also failed to make Beijing accept an investment court system for handling investor disputes and level playing field clauses are unlikely to capture issues such as pervasive indirect subsidies.

One of the main problems is that the commitments to improve labour rights remain vague. They don’t include critical commitments with regard to forced labour, the right to association and are still open to further negotiations. As soon as the deal is approved, it will be harder to press China on this matter, especially now that forced labour seems to have become part of its re-education policy in Xinjiang.

From the moment that the deal is signed, Europe will thus lose leverage not only on issues critical for its future competitiveness but also on fundamental value issues – ranging from human rights to the future of coal power plants.

This has been a year in which China has rescinded its international treaty over Hong Kong. It has been a year during which China clashed on the border with India, engaged in military coercion of Taiwan, and economic coercion against Australia. From Beijing’s perspective, having the EU sign an investment treaty after this sequence of events and in the phrase of power transition in the US, amounts to a strong endorsement of its political trajectory, if not an encouragement to behave more assertively.

Vague Promises

Given that China has not fulfilled many of its promises to Europe in the past, why should a vague text commit it more securely?

On the contrary, as has often happened, having achieved a public diplomacy success over Europe, China will turn further its attention to its one tough customer – the US, with the added benefit to have divided allies during an all-important transition in Washington. If we make our separate deal, much as Donald Trump concluded his Phase One trade agreement a year ago, it will further undermine the transatlantic partnership.

Why the fast-track, the hurry, and the sidestepping of a public debate, why play into China’s hand? What message is Europe, so proud of its deepening integration, so talkative about its open strategic autonomy, so insistent on its respect for values, sending to the rest of the world? Member states should think twice.

This deal is about more than pragmatic concessions in the realm of investment. It affects other important European interests and core values. It is about credibility and not committing the same mistake of partial and uncoordinated deal making that Europeans rightly blamed president Donald Trump for.

This treaty is a milestone. It must be negotiated properly so that it becomes a milestone towards a more balanced economic order.

This piece was originally published at EU Observer.

Authors: François Godement, Institut Montaigne, France. Sławomir Dębski, Director, The Polish Institute of International Affairs, Poland. Ingrid D’Hooghe, Clingendael Institute, The Netherlands. Mikko Huotari, Mercator Institute for China Studies, Germany. Janka Oertel, ECFR European Council on Foreign Relations. Plamen Tonchev, Institute of International Economic Relations, Greece. Jonathan Holslag, Free University Brussels, Belgium. Ivana Karaskova, Association for International Affairs, Czech Republic. Mathieu Duchatel, Institut Montaigne, France. Nicola Casarini, Institute of International Affairs, Italy. Maaike Okano-Heijmans, Clingendael Institute, Netherlands. Matej Šimalčík, Central European Institute of Asian Studies, Slovakia. Max J. Zenglein, Mercator Institute for China Studies, Germany. Lucrezia Poggetti, Mercator Institute for China Studies, Germany. Antoine Bondaz, Foundation for Strategic Research, France.