This month, The Journal’s Good Information Project is discussing China and how Ireland relates to one of the biggest economies in the world

THE EUROPEAN UNION’S trade commissioner has said that Ireland’s small, open economy would benefit from the ratification of the EU’s investment deal with China – but it could be a long time before we find that out for ourselves. 

Valdis Dombrovskis said Ireland is one of the countries that would benefit from the global rulemaking of the EU-China Comprehensive Agreement on Investment (CAI), which is meant to offer EU companies more predictable access to Chinese markets and smooth the path for more Chinese investment in Europe.

The CAI was agreed in principle last December to address “the economic imbalance” in the trading blocs relationship but has been on ice due to escalating political tensions over China’s human rights record. The deal is set to be officially packed away should the EU Parliament pass a motion to formally freeze progress on the CAI  unless reactionary sanctions imposed by China on some members of the European Parliament are lifted. 

The motion, seen by Politico, also calls of the Commission to step up its coordination with the US to deal with China, and that any trade deals with Taiwan “should not be held hostage” by the deal with Beijing.

The EU Commission has been saying for some weeks now the deal is in the freezer, rather than being completely dead. However, it’s unlikely that we will see the freezer door open anytime soon. 

The EU’s stance on the Chinese government has hardened in the last few months - most notably when it joined the US, Canada and the UK in the sanctioning of senior Chinese officials accused of being involved in the mass internment of Uighur Muslims in Xinjiang province. 

Whether the potential benefits of the investment deal are enough for both sides to put aside their political distaste for each other is now looking far harder to predict than it was just five months ago.   

Firstly, what’s the deal? 

The deal has been a long time coming: the first round of talks between the two blocs took place in January 2014 and concluded on 30 December 2020 when the EU and China reached an agreement in principle during the 35th round of negotiations.

The EU-China CAI, designed as a standalone investment agreement rather than a free trade agreement, is considered a lower form of bilateral investment treaty that provides some guarantees of protection for businesses investing in the other. 

The agreed text addresses several areas but can be broken down into three main elements: a level playing field; improved market access; and commitments in areas of sustainable development. 

China’s market is considerably less open than the European Union, with access to a number of sectors restricted or prohibited to foreign investors – specifically in industries such as telecommunications, finance, and healthcare.

The agreement sets out to create new investment opportunities for European companies by opening China’s market, excluding the prohibited sectors mentioned above, and eliminating laws and practices that had previously prevented them from competing in the Chinese market on an equal basis with Chinese companies.  

EU companies operating in China do not benefit from the same levels of transparency and fair competition as those enjoyed by Chinese companies in the EU market, so in an effort to level the playing field the deal aims to protect European companies’ intellectual property, enhance transparency on subsidies paid to Chinese public companies, ban forced technology transfer - a practice in which foreign businesses are forced to share their tech in exchange for market access. 

It also eliminates in some sectors the obligation for European firms to have a Chinese partner when entering the country’s vast market.

However, China’s long-standing rules around strategic sectors would remain in place, with the People’s Republic set to maintain a “negative” list of around 30 key sectors in which it excludes or limits foreign investment, particularly in mining, energy, media or culture. 

The other area of sustainable development – linked with the UN’s sustainable development goals – is about encouraging responsible investment and promoting core environmental and labour standards.

China has made commitments in the areas of climate change, corporate social responsibility, the environment and labour rights. For instance, China pledged to “effectively implement” the Paris Agreement and to “make continued and sustained efforts” to ratify the International Labor Organisation (ILO) conventions on forced labour.

The issue of labour rights is probably the most contentious element of the deal: China is accused of using forced labour of the Uighur Muslim minority in the northwest Xinjiang region throughout its textile supply chains — an allegation Beijing roundly refutes. The announcement of the deal last December prompted backlash from many MEPs who voiced concern over Xinjiang, as well as the erosion of Hong Kong’s autonomy.

Beijing imposed a sweeping national security law on Hong Kong last year, which has seen months of pro-democracy protests. 

If the CAI deal passes, progress is to be reviewed regularly at the level of Executive Vice President on the EU side and Vice Premier on China’s side and disagreements would be governed by a state-to-state dispute resolution mechanism.

Another working group would be set up to monitor the implementation of sustainable development commitments for which a different dispute resolution mechanism would apply which ultimately would involve an independent panel of experts, the text of the CAI notes. 

The road to ratification was estimated to take about one year for the agreed-upon text to undergo a legal review – but that timeline is now uncertain. 

An in-depth analysis of the EU-China CAI by the Centre for European Policy Studies (CEPs) concludes that the prospects of the European Parliament endorsing the Agreement look remote due to the sanctions on MEPs.

The dispute escalated suddenly in March when the EU imposed sanctions, including travel bans and asset freezes, on four party and Xinjiang regional officials because of their actions against the Uyghur Muslim minority.

Beijing swiftly hit back with punitive measures on European politicians and academics – including key MEPs who would need to back the pact to get it ratified.

“Sanctioning parliamentarians violates their parliamentary privilege and legal immunity to speak without fear or favour,” an analysis by the think-tank says. “China should therefore consider lifting these sanctions as soon as possible, as a first step towards relaunching the EU legislative process to ratify the CAI.” 

“Only by doing this will the Parliament be able to undertake genuine debate on the merits of the CAI, taking into account China’s alleged human rights abuses, as the members see fit.”

The think-tank also outlines that China will be legally bound to honour its pledges in implementing the Paris Convention and ratify the ILO forced labour conventions should the deal pass, although “it is recognised that the enforcement process will be long and complex”. 

The vote is Thursday, but it looks as if we got a majority @Europarl_EN behind our demand not to start debating the #CAI 🇨🇳 as long as we are under sanctions by #China #HumanRights and #Democracy value more than any potential economic benefit. At least in this case. https://t.co/BKBwUwSRQk

— Dr. Hannah Neumann (@HNeumannMEP) May 19, 2021

Dr Isabella Jackson, assistant professor in Chinese history at Trinity College Dublin, explains that from China’s perspective, “they are very consistent in being against foreign interference in what they see as their domestic affairs and they also apply that internationally”.

“They’ve been criticised for not getting involved in what’s been going on in Myanmar because they genuinely don’t interfere in other countries’ domestic affairs, and they don’t think anyone else should do that either.

“They’re not going to listen to foreigners telling them that they’re abusing human rights because it draws on a kind of historical sensitivity when Americans and European did interfere.”

She said politically there’s strong nationalist resistance to listening to critiques of China’s internal affairs so foreign actors doing so won’t achieve much.

“China would rather people saw it as a kind of positive force in the world, and they do care what people think about them internationally,” said Jackson. “So while they won’t listen to hectoring, they will adapt policy, or narratives at least, in response to what’s being said internationally.” 

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Another hurdle

The tensions between China and the EU are not the only roadblock in getting the deal ratified. After a period of isolation during the Trump presidency, the EU is undergoing a geopolitical realignment of sorts. 

The now-uncertain investment pact was announced weeks before US president Joe Biden took office and started unwinding many of his predecessor’s ‘America First’ policies, including the renewal of ties with the EU.

Since taking office, Biden has tried to pull allies into a tighter coalition to take sides against China by putting particular emphasis on its human rights record. 

The coordinated effort to impose sanctions on officials in Xijiang was the first time the EU has taken a strong stance on China since 1989 - when the EU imposed sanctions on China over human rights abuses after troops in Beijing opened fire on pro-democracy protesters in the Tiananmen Square crackdown. 

China responded with its own sanctions on EU officials – among them key MEPs who would need to back the pact to get it ratified. Those affected by China’s sanctions are barred from entering the country or doing business with it.

The EU says the future of the deal now depends on how the broader EU China relations evolve after the sanctions on EU officials soured relations. In the meantime, the EU has turned its attention across the Atlantic.

Hopes of ending a tit-for-tat feud over steel and aluminium tariffs are on the horizon as the EU and US have renewed discussions “to address global steel and aluminium excess capacity” with the European side temporarily suspending plans to increase tariffs on the US next month.  The statement issued this week said that “the United States and EU member states are allies and partners, sharing similar national security interests as democratic, market economies”.

It goes on to single out China as a common target, saying the two sides ”can partner to promote high standards, address shared concerns, and hold countries like China that support trade-distorting policies to account.”

Separately in March, both sides suspended punitive tariffs imposed due to the two-decade-long dispute over aircraft manufacturers Airbus and Boeing – the US has long claimed that Airbus receives unfair government subsidies, which hurts American competitor Boeing.

“China is not just painting this as the EU following Washinton’s lead, there’s a lot of truth in that, but it is a way of making the EU look weaker, ” said Dr Jackson.

Should the motion to formally freeze the CAI pass tomorrow, she says the move is a show of strength for the EU as “to have done nothing would have made them weaker”.

“But from the Chinese perspective, it helps to turn this into the EU being lackeys of the US.” 

Brussels is still trying to maintain a careful balancing act in its relations with the Chinese Communist Party, with Germany, in particular, eager to nurture ties with the top destination for its exports. This could all change in the upcoming German election in September as the candidates currently topping the polls with four months left have both backed voiced their alignment with the United States and their commitment to Europe.

As prospects of the CAI cool further, the European Commission unveiled plans for new powers to clamp down on state-backed companies from making unfair inroads into EU markets.

Tomorrow’s motion to formally freeze the CAI pass if China doesn’t lift sanctions on MEPS is a bit of a disingenuous proposal, says Dr Jackson.: “Why would China lift their sanctions if the EU doesn’t lift the sanctions that they imposed before them?”

“I don’t see either side doing that because the reason for imposing those sanctions hasn’t changed. They weren’t imposed for trade deal reasons so I don’t think they’ll be lifted for trade deal reasons.”

 This work is co-funded by Journal Media and a grant programme from the European Parliament. Any opinions or conclusions expressed in this work is the author’s own. The European Parliament has no involvement in nor responsibility for the editorial content published by the project. For more information, see here.