The Start of the Road Towards an Investment Agreement
By Angel Rebollo, Senior Partner of Must & Partners, and Founder of ARPA Consulting
A Political Victory for China
With just a day to go before the self-imposed deadline expired, China and the European Union announced on December 30th a consensus on the Comprehensive Agreement on Investment after seven years of negotiations. However, this virtual handshake does not amount to the end of the process, but just the beginning of another one that might not finish before 2022. The agreement still needs to be ratified by the European Parliament, and the result is not yet certain due to the diversity of opinions among the EU members, China’s behaviour on social issues and Biden’s incoming administration.
In a movement that smacks a degree of imposture and in a setting that apparently challenges the goal of the EU to speak with one voice in foreign policy, the leaders of the European Union, headed by Germany’s Merkel and France’s Macron, met online with the Chinese leader Xi Jinping to give their final blessing to the Comprehensive Agreement on Investment (CAI).
With this deal, European Union seeks to display its strategic autonomy. In addition, it aims, as the core goal of years of negotiations, to level the playing field for its own companies in China and strives for the introduction of a degree of transparency and equality when it comes to economic competition inside China. On the other hand, however, Beijing not only seems to benefit economically from the agreement, but the CAI also provides an unexpected political victory and diplomatic coup for China. The signing of the preliminary agreement comes conveniently after a year that has pushed the Asian country farther away from both the EU and the United States after the outbreak of the SARSCOV-2 pandemic in its territory and the aggressive propagandistic and military moves that the regime has ramped up for months.
➢ At a time of political weakness in the United Sates, and European uncertainty over its China policy, Xi Jinping’s tactic goal is to set as many roadblocks as possible between the United States’ incoming Biden Administration and its allies, with the strategic objective of blocking a reinforced transatlantic and Asian front that the exit of Donald Trump from the White House might bring.
A critical view of the agreement
The rush to conclude the CAI negotiations was marred by pressure from inside and outside of the European Union about the process of the negotiations and the content of the deal. On one hand, sources from outside of the Commission allege a grave lack of transparency in the negotiations, as well as an undue presence of certain European actors like Germany and France in the last stretch of the negotiations. The problem with a deal like this is that, even though several member- states are not happy with the way the negotiations have been conducted, they do not find themselves in a position to block a deal supported by the Commission and Merkel.
On the other hand, skeptics of the CAI worry the state of forced labor and slavery in China, especially present in the Western region of Xinjiang. Even though EU officials say that the full agreement provides a mechanism to eradicate these practices, the truth is that China does not seem ready to commit because of its own political nature.
The Western criticism of the agreement has been focused on the question labor rights protection in China. It appears that the European Commission has decided to settle on a very weak language of “working towards ratification” of the relevant International Labor Organization (ILO)
fundamental conventions. The CAI does not entail any deadline for the actual ratification though; therefore many political groups have pointed out how the current deal fails to push back on the existing concentration camps and forced labor in China, allowing the country to continue its practices without enforceable sanctions or remedies.
It might be a way-too-optimistic EU perspective, but it is also a missed opportunity and a concession that moves the European bloc further away from its self-designated nature as a civilian and value-based international power. According to European sources, both the monitoring and enforcement mechanisms lack real teeth to bind China in questions of (forced) labor, to the disappointment of human rights advocates. Currently, this question has the power to sink the deal as it stands, given that the current leaking of news from China does not allow EU policymakers to expect some kind of rapprochement or softening of the authoritarian tendencies of Xi Jinping’s government anytime soon, which complicates politically the future ratification in the Parliament.
Criticism, although toned down, has also come from the other side of the Atlantic. The incoming Biden Administration is scrupulously waiting for its inauguration on the 20th of January to make public their stance not only about this agreement, but also about the whole transatlantic strategy to counter China. Even now, the current national security circle in the Trump Administration within has shared its concerns about the CAI, a position that is shared by members of Congress from both parties.
➢ In the end, it is not likely that the United States will become an explicit obstacle for the eventual ratification of the investment deal with China, but the policies that the Biden Administration will follow starting this month may turn the agreement politically unfeasible.
What to expect in the coming days?
It is possible that in the following period we see an attempted spin by both the EU and Biden’s team to control the damages that the CAI agreement, in its preliminary stage, might have created to the transatlantic agenda. The main narrative will be to point out what the CAI does *not* give to China, while Beijing does a victory lap.
Additionally, taking into account the latest events in Hong Kong, there are no hints that China will change its reckless behaviour, as there is also no indication that the European Commission will stop seeing this deal as a “now-or-never moment”. Therefore, it seems difficult to the EU to make compatible its stance towards China, considering it as a partner in trade and investment issues, and as a systemic rival in the area of security and values.
The CAI between the European Commission and the Chinese government is not the end of long awaited negotiations, but it is just the beginning of a bumpy ride. From now onwards, the legislative bodies of the European Union have begun a race on proving their stance of the agreement through the ratification, China will have to justify its behaviour mainly on human rights issues and the US will have to leverage its position to regain the EU as an ally on a Western unified front against China.