After Chinese Sanctions, EU-China Investment Deal on the Rocks

A little over four months after the European Union hastily signed a landmark investment agreement with China in a move hailed by Beijing as a diplomatic success, efforts by the E.U. to ratify the agreement are now reportedly on hold. The E.U. trade commissioner announced the pause on Tuesday, reflecting a rapid decline in sentiment towards China and following a bitter sanctions feud in March that saw Beijing target European ambassadors, politicians, and academics in response to E.U. sanctions on security officials in .

For Politico Europe, Stuart Lau reported on the suspension of political discussions related to the deal, known as the Comprehensive Agreement on Investment (CAI):

The European Commission has temporarily put on hold efforts to ratify the investment agreement with China, EU Trade Commissioner Valdis Dombrovskis told Agence France-Presse Tuesday.

“We have … for the moment suspended some efforts to raise political awareness on the part of the Commission, because it is clear that in the current situation, with the EU sanctions against China and the Chinese counter-sanctions, including against members of the European Parliament, the environment is not conducive to the ratification of the agreement,” Dombrovskis told the French news agency.

The deal was already on ice. Because of Beijing’s sanctions on European officials and academics, members of the European Parliament were vowing never to ratify it. The European Commission has traditionally been highly defensive of the accord, agreed in principle at the end of last year, but Dombrovskis’ remarks are the clearest sign to date that the executive is now also alive to the rapidly deteriorating political climate over the past four months, and is backing off despite heavy German pressure to get the deal done. [Source]

There was some confusion in the aftermath of the trade commissioner’s announcement, however, after an E.U. spokesperson denied that efforts to ratify the CAI had been outright suspended. South China Morning Post’s Finbarr Bermingham reported on the denial:

The fate of the European Union’s investment deal with China fell further into doubt after an EU spokeswoman was forced to deny a report on Tuesday saying it had suspended the treaty’s passage to ratification.

[…] But an EU spokeswoman said Dombrovskis’s comments had been taken out of context.

In a written statement, the EU said: “The agreement needs to be now legally reviewed and translated before it can be presented for adoption and ratification. However, the ratification process of the [deal] cannot be separated from the evolving dynamics of the wider EU-China relationship.”

[…] Nonetheless, the depth of the opposition to the Comprehensive Agreement on Investment (CAI) could be seen in the reaction to the suggestion that the EU was ready to kill it before it reached the parliament.

[…] Hannah Neumann – a German MEP and a vice-chair of the Subcommittee on Human Rights, the entire membership of which was sanctioned – said that regardless of whether Dombrovskis had spoken out of context, the parliament would vote to take the decision out of the commission’s hands in a motion that would see all debate on the CAI frozen until sanctions are lifted. [Source]

In addition to growing opposition to ratifying the CAI from its members, another announcement by the E.U.’s executive arm this week signaled the bloc’s hardening stance on China. On Wednesday, Reuters reported that the European Commission unveiled a plan to cut the bloc’s dependency on China in several strategic areas:

The European Union unveiled on Wednesday a plan to cut its dependency on Chinese and other suppliers in six strategic areas like raw materials, pharmaceutical ingredients and semiconductors after the pandemic-induced economic slump.

The 27-nation bloc outlined the urgency of the task citing Europe’s reliance on China for about half of 137 products used in sensitive ecosystems, mainly raw materials and pharmaceuticals and other products key to the bloc’s green and digital goals.

The updated industrial strategy plan was devised after the COVID-19 pandemic showed bottlenecks in supply chain and the executive European Commission plans to conduct in-depth reviews of supply chains in raw materials, batteries, active pharmaceutical ingredients, hydrogen, semiconductors and cloud and edge technologies, to decide how to deal with them. [Source]

China’s sanctions against 10 individuals and four European entities have become a major point of contention for European parliamentarians. In March, after the E.U. imposed targeted sanctions on four Chinese officials involved in security in Xinjiang (while notably excluding the Party’s top official, Chen Quanguo), Beijing retaliated with sanctions against European parliamentarians critical of China, the European Council’s Political and Security Committee (PSC), as well as think tank MERICS and German Xinjiang scholar Adrian Zenz. Those sanctions have had tangible effects. European Parliament MP and Green Party member Hannah Neumann explained how the sanctions have made it harder for parliamentarians to source accurate information about events occurring in China: “As members of the Human Rights Committee we can no longer travel to China. We can also not invite Chinese experts to our committee because they would equally face sanctions. And we cannot rely on the work of think tankers because they are banned from going to China.”

 

A majority of the governing body of the European Parliament has now reportedly come out against ratification of the CAI, citing the sanctions imposed in March.

But even as sentiment about the CAI has soured in recent months, a heated debate about to what extent the E.U. should go along with the U.S. on China policy is ongoing. On Wednesday, Chinese state media outlet CGTN accused the E.U. of “killing China-EU CAI to appease Americans.” Another view is that relations between the U.S. and top leaders in France and Germany are quite a bit frostier, as Noah Barkin explained in his newsletter for the think tank German Marshall Fund of the United States:

If the United States is back, as Biden likes to proclaim, Berlin and do not seem ready to acknowledge it. And this has major implications for the new administration’s core foreign policy goal—building a united front with allies to push back against China. As my GMF colleague Thomas Kleine-Brockhoff spelled out last week in a timely article, titled “Joe Biden’s 100 Days of Solitude”, Merkel’s failure to engage with Biden has been especially jarring. […] The feeling, according to members of the Biden team, is that they have gone out of their way to reach out to Europe. […] Biden officials note that they have rejoined the Paris climate accord, the World Health Organization, the United Nations Human Rights Council, and are doing their best to save the nuclear deal. They are also engaging with the EU to resolve long-running trade disputes like the Airbus-Boeing subsidies row. “We feel like we’ve been making a good faith effort to right the ship but we’re not getting much in return,” one senior official told me. “The narrative is taking hold that Berlin simply doesn’t want to play.” [Source]

But with Merkel on her way out in Germany, there are signs that Germany’s next leader may be quite a bit tougher on China. Recent polling has shown Germany’s Green Party to be on the ascent, with one poll in April showing it ahead of Merkel’s CDU/CSU alliance. The Greens are led by chancellor candidate Annalena Baerbock, who has been outspoken about the need for Germany to get tougher on China and Russia. The Times’ Steven Erlanger reported in April on the Greens’ emergence as Germany’s clearest voice on foreign policy with China and Russia:

After nearly 16 years in office, Ms. Merkel’s conservative party, the Christian Democrats, is slipping and stagnant, critics say — short of ideas on how to keep Germany vibrant and rich in a world where its industrial and export model is outdated; where faith in the United States has been damaged; and where China is more self-sufficient and Russia more aggressive.

[…] The German Greens are filling the vacuum. Five months before elections in September, the party is running a close second in the opinion polls to the struggling Christian Democrats, and some think it might even lead the next government.

[…] They oppose Nord Stream 2, the Russian natural-gas pipeline to Germany that circumvents Ukraine and Poland. They also oppose the European Union’s investment deal with China. They are committed to European cooperation, democracy promotion, the defense of human rights, Germany’s membership in NATO and its strong alliance with the United States.

[…] Even Mr. Röttgen, the Christian Democrat who is chairman of the Bundestag foreign policy committee, said that “however embarrassing for me, the Greens have the clearest stance of all the parties on China and Russia.” [Source]

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