Judy Asks: Is the EU-China Deal a Mistake?

Erik BrattbergDirector of the Europe Program and Fellow at the Carnegie Endowment for International Peace

The recent negotiations over the EU-China Comprehensive Agreement on Investment (CAI) have been seen by EU officials as a bellwether for future economic relations with China.

Certainly, this was a big-ticket item for Chancellor Angela Merkel during the German EU presidency. After U.S. President Donald Trump’s phase one trade deal with Beijing and the Asian mega trade pact, the Regional Comprehensive Economic Partnership, in 2020, the EU was keen not to be left behind.

The fact that EU trade negotiators pounced upon China’s eleventh-hour offering to agree a deal on December 30, 2020, after slogging for seven years, is hardly surprising.

Still, the optics and timing of the deal right before the new administration of U.S. President-elect Joe Biden assumes office on January 20, 2021, are definitely far from ideal. The EU is also kidding itself if it takes for granted that Beijing will necessarily adhere to the commitments made in the deal and assumes that more “cooperation” and “trust” with the Chinese regime is possible.

The CAI may disappoint some in Washington and complicate prospects for a quick transatlantic reset with the new Biden team, but it should not preclude forging a strong joint transatlantic agenda on China in the coming years. This should include human rights—where the EU’s new Magnitsky-style human rights instrument could be a useful tool given new crackdowns in Hong Kong—investment screening, and technology restrictions.

In fact, Biden’s national security adviser, Jake Sullivan, has already toned down differences with the EU and expressed willingness to develop a common agenda on issues of shared concern about China. Come January 20, the EU should be ready to play ball.

Theresa FallonDirector of the Centre for Russia Europe Asia Studies

For China, the agreement is not a mistake but a great strategic success.

Beijing managed to encourage continued European investment to sustain China’s economic and technological development; boost the legitimacy of the regime despite human rights abuses in Hong Kong, Xinjiang, and elsewhere; and, perhaps most importantly, drive a wedge between the EU and the United States, preventing an EU-U.S. united front against China under the Biden administration.

For the EU, however, the agreement is a mistake.

On the one hand, Beijing’s limited concessions on market access do not redress the huge trade imbalance that currently exists in China’s favor. On the other, the EU managed simultaneously to antagonize the current U.S. administration, the incoming one, and “like-minded partners” such as India.

Now, the agreement is only a political one and has not yet been signed. But even if it is never signed and never ratified—there is vocal opposition to it in the European Parliament—the damage is done.

In the future, the EU should aim for a more consistent China policy across the areas where it considers China as a partner, as a competitor, or as a systemic rival. It needs to take better into account the geopolitical implications of its actions.

Paul HaenleDirector of the Carnegie-Tsinghua Center for Global Policy

Merkel set a target to resolve issues of reciprocal market access with China by the end of 2020, and she met that goal. Moreover, Brussels was pushed to negotiate with Beijing on its own terms due to the Trump administration’s incitement of transatlantic trade tensions and decision to deal with China unilaterally.

Was the deal a mistake? Not necessarily. In a best-case scenario, the CAI and the U.S. phase one deal mark the start—not the end—of a much more difficult and coordinated process between Washington and Brussels to resolve structural issues posed by China’s economic model.

The incoming Biden administration has emphasized the importance of a coordinated approach with the EU, and Brussels has echoed that resolve. This presents an opportunity to defuse the ongoing transatlantic trade dispute and then begin earnest discussions on how to address issues of common concern with China.

Only time will tell, however, if Beijing follows through on the CAI agreement. Many European and American policymakers are pessimistic that the deal will lead to tangible policy shifts in China on sensitive issues like labor and human rights. Real progress will depend on China’s willingness to match rhetoric with action.

Jakub JandaDirector of the European Values Center for Security Policy

The EU-China deal in its current setting is bad in four aspects.

First, the timing. The EU did not consult and coordinate with the incoming Biden administration, which is what a multilateral-focused body should do with its main ally. This is not strategic autonomy. It is strategic idiocy.

Second, this investment deal is the only thing Beijing really wants from Europe, putting the EU in a very strong negotiating position. That is why the EU should include as a mandatory condition that the deal will only enter force after China ends its slave labor and concentration camps; because the EU is the only actor who can force China to behave in a civilized way.

Third, the EU should add a clause that would allow for quick collective defense via sanctions if Beijing were to strategically blackmail one of the EU member states, as it is now doing to Australia.

Fourth, Chinese espionage against European democracies is massive. Therefore, the EU should have a hard clause allowing it to punish China for a specific espionage case right away, so that it really hurts. That would decrease the Chinese government’s will to risk major espionage operations against EU member states.

Philippe Le CorreNonresident Senior Fellow in the Europe and Asia Programs at the Carnegie Endowment for International Peace

“Based on clearly defined interests and principles, the EU should deepen its engagement with China to promote common interests at global level.”

This is what the EU wrote in its March 2019 landmark strategic outlook paper on China. Looking at the just-negotiated CAI, under the German EU presidency, one can ask whether the union is still keen to stand up for its “principles.”

Values-related aspects of the EU-China relationship—including human rights, labor rights, forced technology transfers, and even intellectual property issues—have been put aside by EU negotiators, allowing Merkel to offer Chinese President Xi Jinping the deal he wanted, weeks before the inauguration of the next U.S. president.

There was no better timing for the Chinese leadership to strike an agreement with a U.S. ally. Even if the ratification process faces hurdles from the EU side—members of the European Parliament and some frustrated member states will not comply easily—Beijing is starting the year with an advantage vis-à-vis Washington.

After months of sweet talk toward the EU, there is uneasiness in Biden’s team. With the United States already engulfed in domestic problems, the incoming administration will begin to formulate its China policy from a weaker position than originally planned. The EU has somewhat contributed to this situation, much to Beijing’s satisfaction.

Janka OertelDirector of the Asia Programme at the European Council on Foreign Relations

There are good reasons for Europe to negotiate trade and investment agreements with countries around the world and particularly in the most dynamic growth regions in Asia. This is how Europe operates best: setting rules and standards, finding compromise, and securing the conditions for prosperity in the future.

There are also good reasons for defining an improved framework for trade with China—after all, this is in the interest of many of Europe’s big and smaller companies. But some underlying questions remain.

How dependent does Europe want to be—how dependent can it allow itself to be—on China and its state-capitalist economy in the future? How can core European values be ensured while doing business with a powerful authoritarian state? How can the important leverage that Europe has as one of China’s most important trading partners best be used and even enhanced through effective coalition building?

A premature agreement and the nontransparent way in which it came about in a last-minute rush is not an appropriate answer to these questions.

On the contrary, it hands Beijing diplomatic leverage at a time when its actions would call for condemnation. It complicates transatlantic conversations at a time when conditions for renewed cooperation have greatly improved. And it challenges European cohesion at a time when it is needed most urgently.