Deal with the ‘Dragon’: What Can Be the Repercussions of the China-EU Investment Agreement?

2021 / 03 / 01

Soso Dzamukashvili, Contributor policy analyst, Central and East European Studies Specialist, M.A. from the University of Glasgow (UK)

Eter Glurjidze, Contributor policy analyst, postgraduate student at the Estonian School of Diplomacy and alumnus of the North China University of Technology

On December 30, 2020, in a joint virtual press conference between Ursula von der Leyen, Charles Michel, Xi Jinping, Angela Merkel and Emmanuel Macron, the European Union announced an investment agreement with China. After the video call, the European Union concluded a deal with China for their Comprehensive Agreement on Investment (CAI), which is planned to be ratified by the European Parliament in approximately a year.

The EU-China Investment Agreement is designed to be a vehicle aimed at solving the existing economic disbalance between the two actors and encompasses issues of market access and investment protection. It will open up space for more European investment in the world’s second-largest economy, leading to more employment both in the EU and China. Discussions for the agreement started in 2013 and it took more than 30 rounds of negotiations. While the agreement seems to be highly beneficial for both economies, several challenges, which mainly pertain to human rights issues in China, can stagger the EU’s credibility and undermine its core democratic values.

 Picture 1. China-EU leaders’ virtual conference announcing the CIA Agreement (Source: China Global Television Network)


Overlooking Human Rights Issues for the Sake of Economic Benefits?

As the EU press declared after the online conference, the CAI is set to “bind the parties into a values-based investment relationship.” Considering the myriad challenges to human rights in China, not to mention the absence of democratic values and the rule of law, the agreement seems to be too optimistic towards Beijing, while it may damage the EU’s international credibility to human rights.

China is not part of the International Labour Organisations’ (ILO) Convention on forced labour and prohibits independent trade unions. Its western region of Xinjiang is known for its camps, where forced labour is actively exercised. Millions of ethnic minorities, such as Uyghurs and Tibetans, are deployed in various parts of China and are forced to labour as a cheap workforce for manufacturers, as cotton field workers or builders, and are not provided insurance or safety equipment. Some of them are sent abroad, even to the EU, to labour for car companies.

While the United States and the United Kingdom have fully banned Chinese agricultural products, cotton and other commodities produced under forced labour, the EU has not enforced any prohibition on these goods. Moreover, the EU-China deal is not designed to protect the labour rights of Chinese workers, who will be sent to the EU under the agreement. Even though the European Commission stated that under CAI, China will be “working towards the ratification of the outstanding ILO (International Labour Organisation) fundamental Convention”, there is no set deadline for Beijing to ratify the Convention. While some of the EU leaders, such as Angela Merkel, claim that the deal will lead to ‘a good balance’ with China, it can jeopardise the EU values for economic benefits, which might not be accrued. Due to the staffing practices of Chinese companies, which prefer employees from China to local workers, there is a low possibility that the deal will create new employment opportunities for EU citizens. Similar issues can be found in some Asian and African countries, where Chinese investment has not expanded employment opportunities and instead created so-called de facto outposts of Chinese workers.

Some members of the European Parliament expressed their disapproval of the ratification of the deal, although Ursula von der Leyen remains optimistic that the CAI will promote the EU’s interests and its values and will provide “a lever to eradicate forced labour” in China. Nevertheless, it is highly dubious that the Chinese Communist Party will agree to reform its labour rights or allow independent trade unions. Signing the CAI with China is a legitimacy for the Communist Regime in Beijing to keep practising mass-repressions against ethnic minorities and political opponents. And it may have a spillover effect on a global scale, sending a global message that undermining fundamental human rights can be rewarded with an advantageous trade agreement. The deal enervates the core democratic values that the EU stands for and may even impair its international credibility to defend human rights. This can mean a ‘blank cheque’ for the Communist Party to continue forcing ethnic Uyghurs and Tibetans into labour.


The Possible Impact on Transatlantic Relations

Despite the December agreement, the EU has not yet ratified the deal. While the labour issues in China have divided opinions among member states, the deal might further weaken cohesion inside the organisation, especially after Brexit. There is also a possibility that the transatlantic relationship between the EU and US, which has been predicted to deepen significantly under Biden’s administration, can actually face some difficulties as a result.

Biden’s administration has sought to work more closely with US partners in order to coordinate in dealing with China. Having been concluded right before Biden’s election, the CAI could end up as a challenge to closer EU-US cooperation with regard to China. Many believe that the agreement was led by EU decision-makers’ frustration towards the US-China ‘phase one’ trade deal. The CAI could have been an effort to bring the EU in parity with the US.

The deal was paramount for the Chinese Communist Party to inhibit greater transatlantic cooperation concerning Beijing. Thus, the CAI seems to have been chosen to be struck at the right moment, just before the end of the Council’s German presidency, which favoured the agreement, and during the transitional period in the US administration. It is worth noting that the CAI may be short-lived, should China not deliver on its promises. Additionally, after Merkel’s mandate, Germany may take harsher rhetoric towards Beijing. Other EU member states’ standpoints on China are also becoming more sceptical, especially after the breakout of COVID-19.

The EU follows a multi-directional policy towards China and simultaneously sees it as a partner, a competitor and a systemic rival. This approach raises the question of whether it is possible to separate these policy areas. Practically, it is difficult to divide trade and investment (China as a partner), from security and values (China as a systemic rival), and many question the EU’s capacity to deal with China through a single consistent approach.

From the long-term perspective, the EU requires further policy analysis towards Beijing, in coordination with the US. Unlike Trump’s ‘diplomatic vandalism’, Biden has aspired to bring allies to a roundtable to work toward a joint approach to China. Hence, the EU’s agreement should be followed by clear messaging from the US administration on the proposed cooperation regarding China. EU-US unified forces will have greater leverage over Beijing and may play a catalyst role, with a multilateral coalition of like-minded countries to defend core democratic values.

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